budget capacity and the general opinion as regards dealing as a whole .
It could be desireable for investors to invite the Chinese to visit their country just to let them observe the techical system ,which are being offered in operation.This kind of opportunity is also used for friendship developing and trust.
This stage is considered as the only chance to take the advantage of being host.
Generally,the Chinese are used to be an initative part of negotiations when the ones take place at home.
Pye explained that in the following way:
„As hosts,the Chinese take advantage of their control over the pace of negotiations.
First they set agend,then they suggest that the Americans start the discussions.This
makes the guest show their hands-their proposals become the starting point from
which compromises follow.In order to keep the process going ,the Chinese expect
the visitor to make the next concessions,for what the Chinese easily press for.
After the technical discussions mentioned above,the firm knows what exactly a potential
customer needs.Based on this,they arrive at the final offer with all detailed specifications.
Chinese customers are very particular about details,therefore it is advisable to have all
instructions and references to be translated into Chinese.The firms also have to detail
all the cost and benefits to prevent misunderstanding in future.The minimum and maximum limits for the different issues should be also calculated and conveyed to all
members of the team. The unexpected costs and expenses should be taken into consideration.Ideally,the negotiators should have several alternatives to facilitate the
process of negotiating.
Due to the recent decentralization process,foreign firm can directly negotiate with
Chinese firms.Although most of these are still state-owned.Their desicion making
policy is various.For example ,some of these companies have their own foreign exchange
while others depend upon the government allocations.
Some firms may have some projects approved while others have to apply for it.
We know that various executives take part in negotiations even politicians.On the Western side ,the negotiators are: technology managers,area managers,technical support,
and an intermediary(liasion officer).The Chinese use different tactics to get the informa-
tion they are really need ,using many tricks which are quite invisible for beginners.
Tactics such as flattery,embarrasment,and usage of historical facts to their advantage are the good examples. It also quite normal that the Chinese set up the competitors againist
each other so that that enables to hook out information .
Technology Foreign firms are quite concerned about measures to protect technology
and parents.For Chinese,the acqusition of technology by a state-owned enterprise,through
licensing and joint –ventures means as the profileration throughout the country.
According to one Western executive,it is very difficult to make the Chinese understand
the total cost of research and development incurred by the selling firm with respect
to a particular technology .
The Chinese are also quite concerned about the Western firms willingness to transfer
the techology and the following process of training .
Terms of payment and financing In the formal session,the financial issues such as terms
of payments,counter-trade,and how it would influence the terms of payment.If a part of the production is to be imported into the seller's country,the percentage or amount has to
be agreed upon.
Implementation Our observations reveal that the real problems begin after the formal
negotiations and during the contract fulfilment.As a rule the Chinese want to adhere to broad principles and general policies and keep the details rather ambiguous.
During the negotiations they tend to be flexible and leave the matter half-settled whereas
the Western companys want the issues sharply defined make the mutual responsibles
During implementation of the contract there are the problems that may crop up .
For example,in one case where a Swedish firm entered a joint-venture agreement with Chinese there had been the case of misunderstanding for the Chinese refused to provide
a Swedish managing director with the Western-standart office.The Chinese in its turn just offered a common Chinese-standart residence equal to other Chinese executives .Western standart for the office was stipulated in the contract so the Chinese got out of the contract.
The conflict was so serious that the firm started to calculate the consequences of nonful-
Priority In the late 70s and early 80s,when a number of Western firms were negotiating
with China due to newly spread „China fever",many of them were greatly disappointed.
After negotiating for months or years,they realised that foreign was not available for firms.Even for the Chinese authorities it was a great problem as they were losing face
and credibility among the investors.As a result ,as long ago as in August 1985
the Chinese authorities announced four categories of priority projects to attract foreign
investors:Energy and mineral recources ,high technology,medical equipment and food-
processing,and construction projects.
During this spell of „China fever"-1993-1994 things improved in China.The decentralisation of decision making and the independence were given to provinces facili-
tated business activities and the process of negotiating.
Basically the Chinese government selects the projects carefully and the priorities change
from time to time.But the culture of standing by agreement leaves much to be desired.
Even the authorities are enable create obstacles such as unnecessary delays.
On the other hand,if the project goes with the categories mentioned above the firms are
in the better position in negotiation and implementation.As a rule the foreign exchanges
are approved by financial authorities.It is also important to gather information of
Chinese negotiators .
Time and patience is the most important assets of foreign firms exercising negotiating
process in China.Many potential investors get frustated since the Chinese ,sometime,are slow in signing of a contract even if the everything has been settled.The Westerners
get impatient waiting for final agreement .Probably it is rather incommodious participating in many stages of negotiating processes for several months.
For swedish Ericsson it took more than two years to conclude an agreement a telecom-
munication contract while for Otis it took 5 years to establish a joint-venture.And the story of the French businessman who went insane is quite well known:
After about one year of discussions and travelling back and forth between different
departments ,he was told by the Chinese that they were willing to buy his technology.
He telegraphed his office that the contract of $500 million has been concluded.
The chief executive wired back immediately that he was on his way to sign the
formal contract .And the next morning a high ranking official from the Ministry
of Foreign Trade and Economic Relations approached to him and said,"Now that
we are willing to buy your technology we can start negotiations".
The negotiators,therefore should have a plenty of time,patience and strong nerves.Many
of the negotiators have tried to set deadline and give other ultimatums to Chinese negotiators,but it normally does not help.
Price The Western firms should be very careful in calculating the price for their technology.It is the most difficult and cruicial factor.If a foreign firm reduces its price
radically,say by 15-20 percent ,the Chinese negotiators get suspicious and there is a
risk that the firm will lose its credibility.The Chinese get more convinced of "evils of
capitalism"and would try to press the firm even more.
The concessions given on price should be remained behind the all stages of negotiations
except for the last one.The timing of such concessions is important as,if given too early,
they can have too early.The Chinese do not like to pay for the personnel of selling firm.
When they hear the costs of the foreigners,they get very sucpicious,and allegations about
the "evils of capitalism"rise again.Therefore it is advisable for the Western firms should
hide these costs in their offers and include them at the cost of production,technology
development or project administration cost.
Having tried to describe the process of project sales negotiation between Western firms
and their Chinese counterparts we reveal that the common course of negotiation implies
its specifications that have not been known before for investors.
The issues that are most sensitive in the negotiation process are the equity shares management control.These two issues have also been a great concern while investing to China since the Westerners do usually rely on Chinese counterparts when dealing with
the local governments and environment .But it is not so.The control over the process of management should be in their hands.Chiefly ,the Chinese want a local chief executive
while foreign firms want to send their own staff.
In most the deals in China, buy-back and export is the matter of lengthy period with many stages.While foreign firms are entering China due to the size of its market,
the Chinese,in its turn see the foreign firms as the source of technology and foreign exchange earnings.
The pace of negotiation in China is very slow .The presentations are formal and orderly.
The third part such as government still plays a major role in the negotiation process,
since the people there are still collective minded and it plays a large role.
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