"Negotiating with Chinese"
Final Essay
Chinese Culture
"Negotiating with Chinese"
Prepared by: Florian Zumsande
Lecturer: Professor Dai Hua
Introduction
When a company want to establish in China they have to follow some unwritten rules based on the cultural development China´s. You cannot come to China and doing business as you know it from Germany. That will not work. The chinese people will misunderstand you. In this assay I will give some informations about chinese negotiating methods and how western people can manage it, where they have to be careful. I chose this topic because in my opinion this is very important for doing business in China where you can see heavily the cultural differences between China and western countries. My assay will give information about this topic from the the first contact over the negotiation process to what may happen after the contract is signed.
Getting in contact with Chinese companies
Before you can negotiate with anyone you need to know with whom you can do business in China. There are different ways to get in contact with Chinese companies.
- getting in contact with the "Außenhandelsgesellschaft" in Shanghai
- contact the responsible ministry
- trade fairs/exhibitions
- specific lectures, lecture travel to institutes/universities/ministries
- private advice companies with seat in Hongkong
- finding a chinese single person who have good contacts (guanxi)
- advertise in magazines and newspapers
- contact Chinese great companies of the same branch and try to get in direct contact with them or to get informations about other possible partners
- contact an other german company who already established their business in china and asking them to work as a contact person to china
- asking the german embassy in china
- speak to homebank, consolidated companies, chamber of industry and commerce
These different ways to get into china are in a way ranked as how important or effectful they are in my opinion.
Pre-Negotiation
Negotiation with Chinese or getting in the first contact with Chinese can be made in several ways like mentioned above. The Chinese negotiation process starts with contacts with the Chinese partners. The Chinese are first of all interested in getting to know the other party during first initial contacts. They try to determine whether or not the foreign firm has:
- the most advanced technology required for their project, art of business
- the willingness to sell or transfer it to the Chinese side by way of, for example, joint venture (knowledgetransfer)
- the capacity of delivering the products on time.
Lobbying
For doing business in China Lobbying is very needful. Lobbying is one of the most important marketing activities facing foreign firms that want to sell large industrial projects in Chinese key industries like automotive, communication and so on. Foreign firms must convince the Chinese that they have cutting-edge technologies that suit Chinese government's priorities, that they have long-term commitment to the Chinese market, and that they are financially strong. They must present a highly reliable image before the Chinese, making them feel safe to do business with them. Getting a good lobby is good for the business in China. To built up a good lobby as a foreign firm you can visit government authorities, make presentations, technical seminars and advertise in great Chinese profesional journals and informal channels such as dinner parties.
Presentation
Giving attractive and reliable presentations to let potential Chinese partners know the company, products and negotiating team members, is an important step toward formal negotiation sessions.
Presentations aim to convince the Chinese of the sincerity of the company in doing business with China and show the Chinese that the company's products are an advanced technology with high quality and reasonable price. Foreign firms need to present themselves and their technologies to a number of authorities. Very often one has to endlessly repeat the same things to different negotiators who may suddenly, without explanation, be replaced by another team. From the Chinese point of view, it is done to check the reliability and firmness of the supplier. Learn how to make good presentations to present you and your firm. One time a good presentation made you can use it again and again to make your business and targets clear to each partner. In China it is often also important to have the presentation in English as well as in Chinese. One reason is that sometimes the decision maker cannot speak a word English especially in state-owned enterprises and older persons in charge.
Informal Discussion
Initial and informal discussions with Chinese organizations often occur directly after making presentations. At this early stage, the Chinese are already interested in special things like technology and price.
Trust Building or "guanxi"
The Chinese attach great importance to trust building in business negotiations. One Chinese negotiator explained:
"They [Western firms] want to come
and sign the contract quickly and do not
know that [if] we do not understand each
other . . . there is no business relationship.
First, we have to know and trust each
...
This is a preview of the whole essay
Informal Discussion
Initial and informal discussions with Chinese organizations often occur directly after making presentations. At this early stage, the Chinese are already interested in special things like technology and price.
Trust Building or "guanxi"
The Chinese attach great importance to trust building in business negotiations. One Chinese negotiator explained:
"They [Western firms] want to come
and sign the contract quickly and do not
know that [if] we do not understand each
other . . . there is no business relationship.
First, we have to know and trust each
other, then we sign the contract."
Formal Negotiation
Task-Related Exchange of Information
Formal negotiation starts when the Chinese show a strong interest in "further discussions" and both parties sign a "letter of intent." The Chinese tend to send a formal document, informing the
foreign party of the composition of the Chinese team and ideas for future. Normally the decision-maker does not participate at every meeting but at every important, also he do not say much, he let the others negotiate. He take part and listen carefully on what is said and afterwards he make the decision.
Concessions and Agreement
The formal negotiation ends with an agreement by the negotiating parties through their concessions or compromise. In this stage, the Chinese show a strong inclination to settle all suspending issues in a "package deal." They make concessions too; however, their concessions very often turned out to be a disguised gesture devised to attract the counterpart into making real concessions. For every concession, they want a counter concession. When drafting the contract, the Chinese weighed words meticulously when it came to the clauses that would affect the Chinese, while treating issues of concern to the foreign party as generally as possible. In analyzing the formal negotiation stage, Chinese negotiating teams tend to be large; people from many organizations and departments take part in negotiations and ask many questions. From the PRC condition point of view, Chinese companies are not companies in Western terms; rather, many are still "factories" of the Chinese government. A large number of people are involved in negotiations and keep asking questions. The Chinese propensity to ask many questions seems necessary given China's "relatively new" involvement in international business and their want for foreign technologies/knowledge. The absence of Chinese lawyers at the face-to-face negotiation table is maybe based on Confuciunism where legal power does not feature at all. But this is changing because in the early times of business making in China there were not many Chinese lawyers who had the same status and respect as the lawyers from the western. Nowdays more and more Chinese lawyers participate at negotiation meeting and when they do not participate at the meeting they are working in the background
Post-Negotiation
Implementation and New Rounds of Negotiations
A great problem everybody know is that Chinese do not see a contract as a contract like in Germany or somewhere else in western countries. They see it just as an agreement to do something. This is a very common problem at doing business between Chinese and Western people. Generally speaking, the Chinese honor their contract; however, cases of Chinese nonfulfilment of their obligations do occur. About this problem the general manager of Degussa told us about this problem in a presentation at an excursion to Degussa company. He told that there are sometimes companies with whom he´s making contracts or "paper of agreement" and after Degussa fullfilled their part of the contract they are waiting up to one year for the money they need from the Chinese side.
Managerial Implications
As a foreign company or as an foreign expert it is very important in negotiations to know things like Chinas priorities, who these people are (cultural aspect). As an expatriate you should also be very patient. And it is important to know about Chinese thinking about the price.
Priority
Driven by "China fever" and the belief that China needs foreign technologies, Western business people rushed into the Chinese market with various advanced technological solutions. Many succeeded but many others failed. An important reason for the failure is that the PRC condition has not been paid sufficient attention: Chinese government is the "biggest boss" and all State-owned-enterprises do business according to the government's priorities, policies and plans. Foreign firms should above all, be sensitive to the guiding principles of China's social and economic development set forth by the Chinese Communist Party and the Chinese government, and also, should make a careful study of the Chinese government's priorities and implementation policies. These policies are often stated in five-year plans and official plans for different provinces and sectors and the WTO commitment. Priorities of China are available in some Western statistics. The priorities are also important indicators of what the Chinese want to spend their foreign exchange on. Therefore, it is vitally important for a Western firm to determine whether its project comes into the priority project category or not. If the project is included in the Chinese priority categories, it will interest the Chinese side and negotiations will proceed relatively quickly; if not, there may be problems in everything. Energy, transportation and telecommunications are among the traditional Chinese priorities. Recently, revitalizing China's deficit-ridden state-owned enterprises is also added to the list of Chinese priorities. Before priorities become public knowledge, foreign firms may still be able to glimpse much of the picture. For example, this can be done by establishing good relationships with the counterpart (Chinese negotiators) and by asking questions about the status of the particular project. The middleman can also be helpful in this case.
Patience
In the opinion of Germans as well of international management visions is that what persists very long without any visible reason not productive. It is just cost intensive and needs explanations. In China you have to bring time with you if you want to negotiate. In general you can say that negotiations in China take three times more time than compareable negotiations in Germany. Some reasons of the long time negotiating are that the Chinese decision making as well as the communication between the Chinese economic organisations is very livelong (bureaucracy is working slow and partly because of tactical reasons). In a completely other way round could it go if Chinese companies want to make business with you. The everthing is going mostly qicker. Then they also want to handle fast to get a contract. Patience is the most important qualification for successful negotiations with the Chinese. From the PRC condition point of view, China is large with many yet underdeveloped areas ranging from infrastructure to living facilities and problems of various types are bound to happen. Negotiations in China often take time because different Chinese organizations and different departments within one organization tend to be involved in negotiation processes and decision-making within the Chinese bureaucracy often takes time. From the vantage point of Confucianism, the Chinese will not rush into any serious meetings with someone whom they do not know; trust and a certain feeling of closeness must be in place for any negotiation to start. The Confucian notions of relationship, face, etiquette, harmony, and so forth, are all timeconsuming qualifications. Therefore, it takes time to negotiate with the Chinese because it takes time to communicate with the "Confucian gentlemen." When mutual trust is not very high and the Chinese are exposed to bureaucratic pressures, tricky situations are but common scenes in negotiating with the Chinese
Price
Price is a difficult and crucial factor in international business negotiations everywhere. But it proves to be even more difficult and crucial in negotiating with the Chinese. On the one hand, the Chinese emphasize trust and sincerity; if a foreign firm reduces its price radically, the Chinese negotiators will get suspicious and the risk is high that the firm will lose its credibility in the eyes of the Chinese. On the other hand, the Chinese are face-conscious creatures; if a foreign firm rejects any Chinese request for a price discount, the Chinese will most probably feel insulted. Once the Chinese feel they have lost face before the foreign, they will certainly try to repay you by using whatever Chinese are necessary to deal with you in the next round. When the Chinese find that the foreign side is "giving face" to them, they will adjust themselves accordingly and be more helpful and friendly in the later rounds of negotiations. Therefore, we recommend that foreign parties calculate prices and bargaining limits carefully, and always reserve certain margins to the Chinese to allow them to gain face. Experiences of other shows, that the Chinese negotiators often demand a rebate of 5% - 7% in price at the final stage of negotiations. Then the foreign party should remain firm in the offers, emphasizing features (e.g., technological superiority, high system capacity, room for product upgrading, and convenient postsale service) other than price that may bring special added value to the Chinese. Foreign firms can also adopt other strategies to try to influence the Chinese to negotiate the foreign way. Maybe you can bring Chinese negotiation partner through the foreign way of doing business by hold them for a longer time in your country to let them understand more about your cultural background.
Another issue concerns the cost of foreign personnel. The Chinese do not seem to be willing to pay for the huge cost of foreign expatriates. The daily cost of a foreign expatriate could be as much as the yearly cost of a dozen of Chinese employees. We suggest that the parties exchange views on both the PRC and the Western conditions in a frank and supportive manner to find good solutions for both to the problems. However, they do compare your price to that of the competitors
People
Because of the deep Confucian aversion to law and orientation toward interpersonal relationships, the Chinese believe in people more than contracts. Foreign firms need to take a people oriented
approach and try to establish a high level of trust with their Chinese partners. A trusting relationship is also the best way to neutralize the Chinese stratagems. Chinese teams' foreign visits are probably the best time for the foreign party to develop rapport and "guanxi" with the Chinese decision maker. Travelling in Western countries is still considered by many Chinese a
privilege and, if offered with special hospitality, will be greatly appreciated by the Chinese. According to the Confucian rules of relationships, the Chinese will reciprocate your hospitality
when you visit China next time. In China, everyone will answer the question of what marketing is all about without hesitation: Guanxi.
Guanxi
As I already mentioned before, Guanxi in China is one very important thing based on the cultural/traditional development China´s. To get information or to built up trust and so on "Guanxi" is very important but how to get guanxi if you are a german company the first time in China. A good Guanxi did not let set up just in between few weeks or visits. You can get good guanxi when you are a long time in Chinese business and if there is a trustfull relationship to the Chinese contact persons developed. When you are the first time in China searching after a man who already have the good guanxi is maybe the best solution to built up a own guanxi network. A good way for german companies to get guanxi is to built up a representative agency from where relations grow.
"The Face"
For most Western business man is this something very difficult to understand and to handle but it is one of the most important thing in making business negotiations with Chinese people. Of course most german business man know about the importance to match with the Chinese tradition but the face mostly stay as an inscrutable expression. With loosing the face equal at which side of business partners you must have in your mind that this could be the end of all negotiations. I heard about some expatriates who didn´t made much about holding the face they worked as they do in their country. In some cases this works. The Chinese partner learned to handle the western behaviour. So as you see it can also work in the other way round that the Chinese partner handle with the behaviour of the western partner.
Conclusion
My conclusion is that negotiating with Chinese is not as worse as it in my assay sometimes seems to be. If you know and understand the cultural differences as a western person it is not easy but you will make good negotiations because in my opinion it is naive to think that chinese people do not know what your values are. They know as much as you know about them so they know that you manage the things in your country in another way round. So if you make a mistake I am sure chinese people will "forgive" (if it is not a part of the negotiating tactic to bring you in embarrassments with your mistakes). Very important maybe most important in my opinion is the face because this is also very important for the chinese. Do not lose ones face. That is for a chinese people often not really forgiveable. The worst case what may happen if you let a chinese negotiating partner lose his face is that the negotiating process finish immediately. So this in my opinion one of the most important thing western people have to take care of in the negotiating process.
Last I want to say that it was very interesting to work on this assay because I got a further inside view through chinese negotiating and with this the chinese culture.
Chinese Culture - Final Essay - Negotiating with Chinese; Florian Zumsande 1/10