Реферат: Особенности ведения бизнеса в Китае (The peculiarities of marketing strategy development in China)
Эстоно-американский бизнес колледжкафедра менеджмента и маркетинга
Р Е Ф Е Р А Т
«THE PECULIARITIES OF MARKETING
STRATEGY DEVELOPMENT IN <st1:country-region w:st=«on»><st1:place w:st=«on»>CHINA</st1:place></st1:country-region>»
Исполнил: ТорпАндрей
Группа ЕТ 402
Проверил: ШпилёвАндрей
Т А Л Л И Н Н 2003
СONTENTS
1.Introducing…………………………………………………………………………3
2.Lobbyng……………………………………………………………………………5
3.Budget offer………………………………………………………………………..8
4.Technical discussions……………………………………………………………...9
5.Final offer…………………………………………………………………………10
6.Formal negotiations……………………………………………………………….11
7.Managerial implications…………………………………………………………..13
8.Conclusions……………………………………………………………………….15
INTRODUCING
Since the 1970s,when <st1:country-region w:st=«on»><st1:place w:st=«on»>China</st1:place></st1:country-region>’s foreigntrade policy was liberalized ,many Western firms have been very enthusiasticabout capturing this market of over onebillion consumers.
On average ,throughout the1980’s ,<st1:country-region w:st=«on»><st1:place w:st=«on»>China</st1:place></st1:country-region>was visited by one Western government ad-
visor every week.Thisinterest of Western authorities and businesses can be compared
with Western interests in <st1:country-region w:st=«on»><st1:place w:st=«on»>Japan</st1:place></st1:country-region>,a farmore important trading partner.Western busines-
ses’ interest in <st1:country-region w:st=«on»><st1:place w:st=«on»>China</st1:place></st1:country-region> decreased somewhat after the <st1:place w:st=«on»>Tiananmen Square</st1:place> incident in 1989.
However,interest from trade and industry continued ,andincreased even more in the
1990s.Lately,West European governments and businesseshave also shown the interests
in China.The picture is not much different whereAmerican interests in this market are
concerned.In 1980s the trade between <st1:country-region w:st=«on»><st1:place w:st=«on»>USA</st1:place></st1:country-region> and <st1:country-region w:st=«on»><st1:place w:st=«on»>China</st1:place></st1:country-region> rose tomore than US $ 5 billion
In these years,there was great demand in Americangoods.The trade relations between
the <st1:country-region w:st=«on»><st1:place w:st=«on»>USA</st1:place></st1:country-region>and <st1:country-region w:st=«on»><st1:place w:st=«on»>China</st1:place></st1:country-region>received a serious set-back after the 1989 incident.But the interest in <st1:country-region w:st=«on»><st1:place w:st=«on»>China</st1:place></st1:country-region>,both fromthe authorities and the business sector in the <st1:country-region w:st=«on»><st1:place w:st=«on»>USA</st1:place></st1:country-region> revived again when
it was given the ranking of most-favoured nation (MFN)in the mid-1990s.
Since 1979,when the new regulating joint ventures wasintroduced by the Chinese government ,there has been a tremendous increase injoint-venture agreements with
agreements with foreign investors.In 1984,<st1:country-region w:st=«on»><st1:place w:st=«on»>China</st1:place></st1:country-region> signed741 equity joint-venture agreements with foreign investors.By the end of1987,the number of enterprises with
foreign investment in <st1:country-region w:st=«on»><st1:place w:st=«on»>China</st1:place></st1:country-region> exceeded 10,000 with a totalcoctract value of almost
US $ 22billion and paid-in value in excess of US $8.5billion.In October 1984,the government declared that central planning would nolonger be used and that a system ofinterfirm contracts would be utilized to facilitate the distribution of rawmaterials and goods.During the same period four special zones Economic Zones(SEZs) were established to encourage foreign investment.As a result,foreigndirect investment increased and attainedreal momentum in 199-1991.By 1995,it had reached more than
$ 30 billion.
In spite of this revived interest and fact that theWestern companies have been dealing
with Chinese for almost two decades,these firms arenow facing difficulties in negotiating
business deals with China.We believe that,basically,the problem is one of understanding
Chinese culture and perculiarities in behaviour .Suchan understanding Chinese culture
is essential to do business in <st1:country-region w:st=«on»><st1:place w:st=«on»>China</st1:place></st1:country-region> and tomaintain business relationships in the long
run.
We all know that negotiation process is considered as aninteraction process of reaching agreements to provide terms and conditions forthe future actions of the parties involved.
Being a process,it can be divided into distinctstages.For the purpose of this study
and consistent with earlier studies the process ofnegotiations between Western firms
and their Chinese counterparts is divided into sixstages: lobbying ,budget offer, technical discussions,final offer,face-to-facenegotiations and implementation.
LOBBYNG
The negotiation process starts with early contactswith the Chinese authorities,in which
customer is trying to establish whether or not theselling firm has the technology or
capabilities to deliver the particular project.TheWestern firms are normally expected to
<st1:country-region w:st=«on»><st1:place w:st=«on»>China</st1:place></st1:country-region>and present theirtechnology and products.The firm has to conduct presentation
session for the number of people and groups.In thesesessions the firm has to convince
the Chinese that it has a technology they want andthat it is competitive as regards technology recources and realibility.At thisstage,the firms should realize following:
Contents of deal:The first point toconsider consists of identifying the implications of project;i.e,thatthe contents and objectives of the deal match of the firm.Questions such as
„what can the firm gain or losein both tangible and intangible terms?“ or „what is at stake?“ should beanswered.
The preparation and planning ofnegotiations takes a lot of time and the more information
a firm can gather at thisstage,the better the of success it will the later stages.
The firm should gatherinformation on both customer and the competitors,and on which
other alternatives are availableto the customer.And the firm has to compare its strengths
and weaknesses,for the particularproject,with that of its competitiors..If the competitors
are stronger,in one way or theother,the firm has to develop arguments to expose their
weakness.If the firm knows that aJapanese firm is also competing for the same project
and that the Japanese offer ischeaper than the firm is own,it has to develop arguments
explaining why the offer moreexpensive.For example,in one of the projects this was actually the case and theSwedish firm was also able to convince the Chinese negotiators
that althogh its price washigher,the capacity of its machines and that the technology
was better in terms of quality aswell as its technolgy which would facilitate future
expansion.This argument wasaccepted by the Chinese as they do always rely upon
the best technology.If thecompany is able to convince that its technology is the best
one and up-to-date as regards precisionand future development,negotiations become
easier.
In larger scope, the countertrades are quite common in China.The reason for this demand
is that the Chinese tend to saveon the foreign exchange.Thus it is quite common for Chinese to demand that apercentage of the products to be produced by the project in question by theselling firm into its home market or into the third market.This is one of theobjectives behind free zone policy.Despite the difficulty it also is consideredas important .This step also helps to evaluate the effect of buy-back inmonetary terms
and its effects on the firm’s ownproduction and marketing activites.It is quite possible
that the buy-back or countertrade demand is just a bluff ,so that the seller,seeking to avoid the expensesof buy-back,may offer a major cut-back in the price.
Find the costumer:InChina ,foreign firms have to present themselves and their technology to severalauthorities.One has to endlessly repeat the same things to
different negotiators whosuddenly,without any explanation,are replaced by another team.
Quite often,however,the firstteam reappears after after some weeks having „forgotten“
everything ,and one has to startexplaining to them again ,from the beginning.It is,thus
very important for the Westernersto find out which team and who in a particular team
has the authority to decide.
The engineers and officialsasking the most vigilant questions often turn out to be subor-
dinates with no decision-makingauthority.Finding the customer is therefore is quite
difficult.In lobbying stage ,afirm should try to find out who is responsible for what or
does one has the authority totake the decisions.
Presentation of capabiliteies:In thisstage,the firm has to present itself,its technology
and its products.The presentationmaterial and the presentation itself,very important.
The material should beprofessionally prepared and presented.The Chinese are very
particular about the details andthe idea behind presentations is to convince them
of the quality andtrustworthiness of the technology and the firm.It is advisable to present
all the technical specificationsin English as well as local one.Most Chinese authorities
do not speak English andsometimes only one interpreter is not enough to get the real contact.SwedishEricsson provided all the material in English and Chinese,and spent a lot
of time on correcttranslation.Having difficulties with duplications there was noticed that
it is quite difficult to get holdof good ,up to date office equipment and stationary and
that concerns to many cities,atthat.
Build up trust:It iscommonly known that the Chinese give sufficient importance to this trust and toindividual relationships.Although the Chinese always stress on the importanceof friendship ,it is quite diffilcut to develop a social relationship with Chi-
nese.They seldom invite anyone totheir houses.In spite of this,“friendship“ and „trust“
are common aspects of Chineseculture, rather not only in China ,but throughout Hong
Kong,Singapore,Taiwan and othercountries.The impressions and trust thatdeveloped
through the mutual relations andsocial activities will be return a hundredfold later.
BUDGET OFFER
After all thepresentations,questions,answers,and discussions a budget offer is prepared.
The purpose is to provide thecustomer with an idea of general principles,technology,
equipment,price and the terms andconditions as a whole.Usually a clientgets a lot of
offers,many of them are similarto each other.Then the offers and the budget undergo
comparison .As this offer has toinclude a rough price,the firms should be very careful
in calculating all the possibleexpenses as it is very difficult to change the the total sum later.And theprice for training,taxes,and other expenses should be included .Otherwise,
the company would lose itscredibility.
TECHNICAL DISCUSSIONS
All the firms are invited for thetechnical discussions after the customer has studied all
budget offers and technicalcharacteristics from different competitors.Here the firms
represent their technolgy andtechnical specifications,but strictly with in the framework
of budget offer.At this stage thefirms which are dealing in Chinese market should try to get more information on the particularproject,the priorities of the government,the buyer’s
budget capacity and the generalopinionas regards dealing as awhole .
It could be desireable forinvestors to invite the Chinese to visit their country just to let them observethe techical system ,which are being offered in operation.This kind ofopportunity is also used for friendshipdeveloping and trust.
This stage is considered as theonly chance to take the advantage of being host.
Generally,the Chinese are used tobe an initative part of negotiations when the ones take place at home.
Pye explained that in thefollowing way:
„Ashosts,the Chinese take advantage of their control over the pace ofnegotiations.
Firstthey set agend,then they suggest that the Americans start the discussions.This
makesthe guest show their hands-their proposals become the starting point from
whichcompromises follow.In order to keep the process going ,the Chinese expect
thevisitor to make the next concessions,for what the Chinese easily press for.
FINAL OFFER
After the technical discussionsmentioned above,the firm knows what exactly a potential
customer needs.Based on this,theyarrive at the final offer with all detailed specifications.
Chinese customers are veryparticular about details,therefore it is advisable to have all
instructions and references to betranslated into Chinese.The firms also have to detail
all the cost and benefits toprevent misunderstanding in future.The minimum and maximum limits for the different issues should be also calculated and conveyed to all
members of the team. Theunexpected costs and expenses should be taken into consideration.Ideally,thenegotiators should have several alternatives to facilitate the
process of negotiating.
FORMAL NEGOTIATIONS
Due to the recentdecentralization process,foreign firm can directly negotiate with
Chinese firms.Although most ofthese 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 projectsapproved while others have to apply for it.
We know that various executives takepart in negotiations even politicians.On the Western side ,the negotiators are:technology managers,area managers,technical support,
and an intermediary(liasionofficer).The Chinese use different tactics to get the informa-
tion they are really need ,usingmany tricks which are quite invisible for beginners.
Tactics such asflattery,embarrasment,and usage of historical facts to their advantage are thegood examples. It also quite normal that the Chinese set up the competitors againist
each other so that that enables tohook out information .
TechnologyForeign firmsare quite concerned about measures to protect technology
and parents.For Chinese,theacqusition of technology by a state-owned enterprise,through
licensing and joint –venturesmeans as the profileration throughout the country.
According to one Westernexecutive,it is very difficult to make the Chinese understand
the total cost of research anddevelopment incurred by the selling firm with respect
to a particular technology .
The Chinese are also quiteconcerned about the Western firms willingness to transfer
the techology and the followingprocess of training .
Terms of payment and financing In theformal session,the financial issues such as terms
of payments,counter-trade,andhow it would influence the terms of payment.If a part of the production is tobe imported into the seller’s country,the percentage or amount has to
be agreed upon.
Implementation Ourobservations reveal that the real problems begin after the formal
negotiations and during thecontract fulfilment.As a rule the Chinese want to adhere to broad principlesand general policies and keep the details rather ambiguous.
During the negotiations they tendto be flexible and leave the matter half-settledwhereas
the Western companys want theissues sharply defined make the mutual responsibles
clear.
During implementation of thecontract there are the problems that may crop up .
For example,in one case where aSwedish firm entered a joint-venture agreement with Chinese there had been thecase of misunderstanding for the Chinese refused to provide
a Swedish managing director withthe Western-standart office.The Chinese in its turn just offered a commonChinese-standart residence equal to other Chinese executives .Western standartfor the office was stipulated in the contract so the Chinese got out of thecontract.
The conflict was so serious thatthe firm started to calculate the consequences of nonful-
fillment.
MANAGERIAL IMPLICATIONS
PriorityIn the late 70sand 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 oryears,they realised that foreign was not available for firms.Even for theChinese authorities it was a great problem as they were losing face
and credibility among theinvestors.As a result ,as long ago as in August 1985
the Chinese authorities announcedfour categories of priority projects to attract foreign
investors:Energy and mineralrecources ,high technology,medical equipment and food-
processing,and constructionprojects.
During this spell of „Chinafever“-1993-1994 things improved in China.The decentralisation of decisionmaking and the independence were given to provinces facili-
tated business activities and theprocess of negotiating.
Basically the Chinese governmentselects the projects carefully and the priorities change
from time to time.But the cultureof standing by agreement leaves much to be desired.
Even the authorities are enablecreate obstacles such as unnecessary delays.
On the other hand,if the projectgoes with the categories mentioned above the firms are
in the better position innegotiation and implementation.As a rule the foreign exchanges
are approved by financialauthorities.Itis also important to gather information of
Chinese negotiators .
Time and patience is the most important assets of foreignfirms exercising negotiating
process in China.Many potentialinvestors get frustated since the Chinese ,sometime,are slow in signing of acontract even if the everything has been settled.The Westerners
get impatient waiting for finalagreement .Probably it is rather incommodious participating in many stages of negotiating processes forseveral months.
For swedish Ericsson it took morethan two years to conclude an agreement a telecom-
munication contract while forOtis it took 5 years to establish a joint-venture.And the story of the Frenchbusinessman who went insane is quite well known:
Afterabout 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.
Hetelegraphed his office that the contract of $500 millionhas been concluded.
The chief executive wiredback immediately that he was on his way to sign the
formal contract .And thenext morning a high ranking official from the Ministry
of Foreign Trade andEconomic Relations approached to him and said,“Now that
we arewilling to buy your technology we can start negotiations“.
The negotiators,therefore shouldhave a plenty of time,patience and strong nerves.Many
of the negotiators have tried toset deadline and give other ultimatums to Chinese negotiators,but it normallydoes not help.
Price The Western firms shouldbe very careful in calculating the price for their technology.It is the mostdifficult and cruicial factor.If a foreign firm reduces its price
radically,say by 15-20 percent ,the Chinesenegotiators get suspicious and there is a
risk that the firm will lose its credibility.TheChinese get more convinced of “evils of
capitalism”and would try to press the firm even more.
The concessions given on price should be remainedbehind the all stages of negotiations
except for thelast one.The timing of such concessions is important as,if given too early,
they can have too early.The Chinese do not like to payfor the personnel of selling firm.
When they hear the costs of the foreigners,they getvery sucpicious,and allegations about
the “evils of capitalism”rise again.Therefore it isadvisable for the Western firms should
hide these costs in their offers and include them atthe cost of production,technology
development or project administration cost.
CONCLUSIONS
Having tried to describe the process of project salesnegotiation between Western firms
and their Chinese counterparts we reveal that thecommon course of negotiation implies
its specifications that have not been known before forinvestors.
The issues that are most sensitive in the negotiationprocess are the equity shares management control.These two issues have alsobeen a great concern while investing to <st1:country-region w:st=«on»><st1:place w:st=«on»>China</st1:place></st1:country-region> since the Westerners dousually rely on Chinese counterparts when dealing with
the local governments and environment .But it is notso.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 <st1:country-region w:st=«on»><st1:place w:st=«on»>China</st1:place></st1:country-region>, buy-back and export is thematter of lengthy period with many stages.While foreign firms are entering <st1:country-region w:st=«on»><st1:place w:st=«on»>China</st1:place></st1:country-region> due tothe size of its market,
the Chinese,in its turn see the foreign firms as thesource of technology and foreign exchange earnings.
The pace of negotiation in <st1:country-region w:st=«on»><st1:place w:st=«on»>China</st1:place></st1:country-region> is very slow .Thepresentations are formal and orderly.
The third part such as government still plays a majorrole in the negotiation process,
since the people there are still collective minded andit plays a large role.
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