Managing Relationships and Multicultural Negotiations.

Chinese Banking System

A major area of concern with foreign executives looking to invest in China is that their banking system is not compatible with those found in Western countries.  The Chinese banks lack modern management expertise and experience and this tends to impact the services that are currently offered. Unlike their Western counterparts China’s banking system is heavily regulated and controlled by the central government (Managerial Finance, 2002). They tend to play a minor role in financing private sector businesses. Several state owned banks control about 80% of the county’s total banking business, a sharp contrast to the large number of banks that exist in the West. Unlike Western banks, China has yet to fully accept the idea of credit and this can impact capital projects lasting longer than one year. Foreign investors should be aware that corruption does exist within the Chinese banking system and loans are often made on the basis of political connections. In order to be more effective when conducting business in China it is advisable for foreign investors to establish banking connections in advance of any meetings taking place. The banks can provide invaluable information relating to currency restrictions, credit terms and even the current political and economic situation.

Intellectual Property Theft

Copyright infringement is a major concern for any corporation that is considering entering into a Chinese joint venture. The European Union claimed that over 400 Chinese companies were involved in the practice of intellectual theft in the year 2000 (Bizasia, 2000). These infringements are costing European companies millions of euros every year in lost revenues. The Chinese government has signed all of the recognised world treaties relating to intellectual property including The World Trade Organisation Agreement on Trade-Related Aspects of Intellectual Property Rights (Harvard China Review, 1998). Upholding the regulations relating to intellectual property rights in China is the responsibility of the law enforcement agencies and government administrations. The Chinese legal system is available to pursue issues of copyright although it can be a slow and often tedious process due to local patriotism, corruption and the lack of experienced legal officials.

The Importance of Research

Any foreign corporation that wishes to successfully conduct business in China must research their particular market sector and preferred Chinese partner thoroughly in advance of any meetings taking place. There are various means in which the research can be conducted, the most obvious being to contact the Chinese company directly and request background information. There are also Government publications, university research papers and the press, all of which can be explored to provide relevant research information. It is worth pointing out that the Chinese will pose similar questions to those asked by any potential foreign partner.

The Business Negotiation Process – Cross-cultural negotiation

The challenges of cross-cultural negotiation are significantly harder than that of a mono-cultural environment. The mono-cultural process tends to be predictable and accurate, as those involved are not concerned with language barriers or cultural differences. The cross-cultural negotiation process is far more complex, as both parties are dealing with both language and cultural issues, which will impact the speed at which progress is made.

It is important when entering into a cross-cultural negotiation process that in addition to possessing excellent negotiating skills, a full appreciation of the cultural differences is understood.

Guanxi (Relationship)

Chinese people believe that cultivating a good relationship or “Guanxi” with their potential business partner will minimise any risk. Regardless of previous business experience it is vital to gain a sound understanding of “Guanxi” (Marketing Intelligence & Planning, 1999), which literally means “relationship”. “Guanxi” originates from the Confucian values of trustworthiness, responsibility and group loyalty. Individuals who work by these values and acquire a “Guanxi” network are committed to each other. Relationships are sustained by means of exchanging favours and gifts in order that both parties achieve their primary objectives. Individuals and companies who successfully adopt “Guanxi” can expect positive assistance in return for any support that they may offer. It is often understood that gaining the right “Guanxi” with the appropriate authorities will increase the chances of success for the foreign company within the Chinese business environment (European Business Review, 1999). The Chinese have a preference to deal with people that they know. This may not be that different from the Western world, however, any foreign corporation wishing to invest in China must make themselves known before the Chinese will consider conducting business.

There are some guidelines that should be adhered to by foreign companies while they are developing their “Guanxi”.

1. Be patient. Local companies will need time before mutual trust can be established.

The new relationship can be strengthened through social events and the giving of

small gifts. Potential Chinese partners will appreciate any obvious effort and no

favour will go unnoticed. It is worth noting that any favour given by the Chinese

comes with an expectation of reciprocation.

2. It is vital to choose the right company or people to do business with in the

chosen market sector. Poor “Guanxi” will lead to little or no return and in some

cases may alienate the foreign company to the Chinese. It is recommended that

foreign companies develop relationships at all levels of the socio-economic and

political ladder.

3. Intermediaries can assist in the “Guanxi” process. If they have established links in

China through previous business experiences they will be able to assist in making

introductions to important Chinese contacts.

Mianzi (Face and Respect)

The Chinese as a nation are very sensitive regarding the esteem in which they are held by others and will go to great lengths to save “face” or “Mianzi” (European Business Review, 1999). “Mianzi” is very important as it can and will often influence how business is conducted. The Chinese will often be guided in their behaviour and decision making and will always ensure that they preserve their dignity whilst showing respect to their counterparts, particularly in an open forum. Western negotiators often view the Chinese as being evasive and misleading in their communication. Chinese business people are rarely confrontational preferring to communicate in an indirect manner and will often prefer to take the option of “think about it” as opposed to saying “no”. The more direct approach adopted by Western negotiators is often found to be offensive by the Chinese who view this as intentionally insulting their negotiators by pursuing issues in a culturally inappropriate manner.

The Chinese will always avoid showing their emotions or highlighting the discrepancies of others as they strive to save “face”. Chinese negotiators will often attempt to impress their superiors although they will ensure that they do not undermine the “Mianzi” of the other side. It is common practice for the Chinese negotiators to ask for much more than they really expect to get when the negotiation process commences, as any concessions they receive will raise their prestige within their hierarchy.

Foreign companies can respect “Mianzi” by following these guidelines.

1. During the negotiation process it is advantageous to maximise any opportunity

to make the Chinese negotiators look good in front of their superiors.

This will earn respect and loyalty although care must be taken not to appear insincere.

2. Ensure that you avoid any potential embarrassing situations during the negotiation

process by being too direct when questioning or responding to points raised.

3. Be positive even if the ideas that you may be presented with appear to be negative.

4. Humouring the Chinese is not advisable. It is often misinterpreted as ridicule or

undignified behaviour.

Status

The Chinese place a high degree of importance on status and respect of the hierarchy in both their social and business life. It is not uncommon for the Chinese to insist that only people with a similar or higher hierarchical level participate in the negotiation process (European Business Review, 1999). This status is given by the role that he or she has within their corporation. Before the meeting commences the Chinese will expect to receive a full list of the delegation in order of their position within the company. It is normal protocol when negotiating in China for the leader of the visiting company to sit directly in front of the Chinese negotiating team. Both leaders will have their respective teams around them to allow for consultation during the negotiation process.

Trust & Friendship

Mutual trust and respect on both a professional and personal level along with business credibility is valued very highly by the Chinese and is critical to the success of the negotiation process. Trust will form the basis of a successful negotiation and it is important not to ask too many questions on any issues that have been responded to. The Chinese may interpret as mistrust or questioning the trustworthiness of their negotiators. In order to ensure a smooth negotiation process it is important to share a common interest with the Chinese. They will view this as trust being shown to them. When negotiating with the Chinese it is important to project an appearance of trust. This can be achieved through honest discussion ensuring that there are no hidden agendas. A skilled Chinese negotiator is capable of sensing these positive characteristics. It is worth noting that although trust as expressed by the Chinese is important, no Western company should assume that the Chinese are above suspicion and caution should be exercised at all times.

The concept of friendship is related very closely to that of trust. It is important to gain the friendship of the Chinese, as this will be a key factor during the negotiation process. Achieving a level of friendship will in turn ensure a smooth business relationship. The Chinese do not like being taken by surprise and it is important to try and establish some common ground as a foundation for developing trust and friendship.

European Corporations operating in China.

There are many European companies who have successfully established manufacturing plants and joint ventures in China. These include The Volkswagen

Group, Maersk Industry, SNF Floerger, Vivendi Water, Nokia and Ericsson. Many of the problems experienced by these companies in the initial stages of establishing their Chinese facilities were due to the fact that they did not appreciate Chinese culture and what to expect during the negotiation processes. For example SNF Floerger highlighted the following difficulties as they established their business in China: They found it difficult adapting to the different locations and business environments; inconsistency with the interpretation of local business policies and guidelines; the market place was reluctant to adopt proven new technologies and business negotiations were subject to wide regional differences. This contrasts with the experiences of the shipping company Maersk who found the Chinese government both central and local to be very committed and business like and very serious about attracting foreign investment.

Conducting business in China varies from region to region and the negotiators had to adapt to the habits of the different locations. Chinese administration and local politics often impact the initial stages of any proposal and delays are inevitable. It is important to establish business relationships with local political administrators who are capable of removing bureaucratic barriers. Companies that have successfully developed sites and joint ventures in China maintain that it is vital to be physically present during the negotiation stages. It is not possible to conduct business by telephone, e-mail or fax in China as this often leads to misinterpretation and confusion. Western corporations must be prepared to adapt to the different situations that they will encounter before, during and after the negotiating process has been completed. It is also advisable to enter into long-term agreements where possible that are clearly defined and understood by the Chinese.

Summary

The ultimate objective of any negotiation process is to reach agreement. Negotiating under any circumstances is difficult but in a cross-cultural situation the negotiation is more complex and further complicated when you consider the differences in communication, negotiation style and culture. To be successful when negotiating in China foreign executives must prepare thoroughly in advance of the meetings taken place. They must ensure that they have a detailed knowledge of their own products and services and have obtained as much information about their Chinese counterparts as is possible. It is also important that they understand how the cultural differences may impact the negotiation process and be prepared to adapt their negotiating style to suit the varying situations that will arise. The Chinese will appreciate any effort that is made by the Western negotiation team to learn and understand their culture and methods of conducting business.

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