Negotiating with the Chinese: a Socio-Cultural Analysis

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Negotiating with the Chinese: A Socio-Cultural Analysis
Pervez Ghauri Tony Fang
China has been one of the most favorite markets for Western firms for the last decade. However, doing business with China is considered difficult, mainly because negotiating with Chinese counterparts is quite complex. This paper analyses the negotiation process with China from a socio-cultural perspective. A Swedish multinational, Ericsson, is followed for several years and its negotiation process for different Chinese projects in the telecommunication industry is studied in depth. Based on these cases and literature a model is developed and some conclusions are drawn. Finally, managerial implications presented as four Ps: Priority, Patience, Price and People sum up the essence of Chinese business negotiation process.

he People’s Republic of China (PRC) started to open up its economy to the rest of the world in December 1978. Since then, Western business communities have been enthusiastic about China—the world’s largest emerging market with more than one billion consumers. The Western enthusiasm for China decreased somewhat during a period following the Tiananmen Square incident in June 1989. But it rebounded and increased even more vigorously in the 1990s. China’s rank in world trade rose from 32nd in 1978 to Pervez Ghauri is Professor in International Business, Manchester School of Management, UMIST, P.O. Box 88, Manchester M60 1QD, United Kingdom. Tel: 44-161-200-3528; Fax: 44-161200-3505 p.ghauri@umist.ac.uk . Tony Fang, Institute of International Business, Stockholm School of Economics, P. O. Box 6501, SE- 113 83 Stockholm, Sweden. Tel: 46-8-7369528; Fax: 46-8-319927 tony.fang@hhs.se .

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9th today. By the end of 1995, China already approved a total of 258,000 foreign-invested enterprises with contractual foreign investment of US$395.7 billion and actual invested capital of US$135.4 billion. By the year 2000, China was recipient of more than 20% of the total FDI in developing countries and more than 5% of total FDI in the world. This makes China the largest recipient of foreign direct investment among developing countries and the second largest in the world next only to the U.S.A. However, China is also a difficult and risky market for Western business communities to operate in. The surprises, disappointment, and frustration on the part of Western business people are not strange. China is a special challenge: it is the world’s largest emerging market, largest Communist bureaucracy, and oldest culture. These unique features make Negotiating with the Chinese

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China a unique case in international business that calls for special academic and managerial attention. Now that China has reached an agreement with the European Union and the United States of America about its membership in the World Trade Organization (WTO), the importance of China as a trade partner is going to increase further. Sino-Western business negotiation is a key dynamic of the Sino-Western business relationship. Knowledge about the Chinese negotiating practices in the SinoWestern business negotiation process will generate insight into the Chinese business mindset, increase the success rate of Western businesses with China, and ultimately, strengthen the Sino-Western business relationship. Based on our in-depth personal interviews, this paper aims to study Chinese negotiating style in the Sino-Western business negotiation process. We are particularly interested in a process view of how the Chinese negotiate and how the Chinese negotiating style can be explained from the Chinese culture. The study intends to answer these questions: What are the meaningful stages of the Sino-Western business negotiation process? What are the main contentious issues in the formal negotiation sessions? How can we understand Chinese negotiating style observed in various stages from the Chinese culture point of view? We also attempt to generate managerial implications for...
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