Реферат: Особенности ведения бизнеса в Китае (The peculiarities of marketing strategy development in China)

Эстоно-американский  бизнес колледж


                                                           кафедра менеджмента и маркетинга


Р  Е  Ф  Е  Р  А  Т


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





3.Budget offer………………………………………………………………………..8

4.Technical discussions……………………………………………………………...9

5.Final offer…………………………………………………………………………10

6.Formal negotiations……………………………………………………………….11

7.Managerial implications…………………………………………………………..13



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


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.


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


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.


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.


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.


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.


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


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-



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.


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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