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 THE PECULIARITIES OF MARKETING STRATEGY DEVELOPMENT IN CHINA Исполнил Торп Андрей Группа ЕТ 402 ПроверилШпилв Андрей Т А Л Л И Н Н 2003 СONTENTS 1.Introducing2.Lobbyng3.Budget offer 4.Technical discussions 5.Final offer6.Formal negotiations.7.Managerial implications 8.Conclusions.15 INTRODUCING Since the 1970s,when China s foreign trade policy was liberalized ,many Western firms have been very enthusiastic about capturing this market of over one billion consumers.

On average, throughout the 1980 s ,China was visited by one Western government ad- visor every week. This interest of Western authorities and businesses can be compared with Western interests in Japan, a far more important trading partner. Western busines- ses interest in China decreased somewhat after the Tiananmen Square incident in 1989. However, interest from trade and industry continued, and increased even more in the 1990s. Lately,West European governments and businesses have also shown the interests in China. The picture is not much different where American interests in this market are concerned.

In 1980s the trade between USA and China rose to more than US 5 billion In these years, there was great demand in American goods. The trade relations between the USA and China received a serious set-back after the 1989 incident. But the interest in China, both from the authorities and the business sector in the USA 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 was introduced by the Chinese government, there has been a tremendous increase in joint-venture agreements with agreements with foreign investors. In 1984,China signed 741 equity joint-venture agreements with foreign investors. By the end of 1987,the number of enterprises with foreign investment in China exceeded 10,000 with a total coctract value of almost US 22billion and paid-in value in excess of US 8.5 billion. In October 1984,the government declared that central planning would no longer be used and that a system of interfirm contracts would be utilized to facilitate the distribution of raw materials and goods. During the same period four special zones Economic Zones SEZs were established to encourage foreign investment. As a result, foreign direct investment increased and attained real momentum in 199-1991.By 1995,it had reached more than 30 billion.

In spite of this revived interest and fact that the Western companies have been dealing with Chinese for almost two decades, these firms are now facing difficulties in negotiating business deals with China. We believe that, basically, the problem is one of understanding Chinese culture and perculiarities in behaviour. Such an understanding Chinese culture is essential to do business in China and to maintain business relationships in the long run. We all know that negotiation process is considered as an interaction process of reaching agreements to provide terms and conditions for the future actions of the parties involved.

Being a process, it can be divided into distinct stages.

For the purpose of this study and consistent with earlier studies the process of negotiations between Western firms and their Chinese counterparts is divided into six stages lobbying, budget offer, technical discussions, final offer, face-to-face negotiations and implementation.

Lobbyng The negotiation process starts with early contacts with the Chinese authorities, in which customer is trying to establish whether or not the selling firm has the technology or capabilities to deliver the particular project. The Western firms are normally expected to China and present their technology and products. The firm has to conduct presentation session for the number of people and groups. In these sessions the firm has to convince the Chinese that it has a technology they want and that it is competitive as regards technology recources and realibility.

At this stage, the firms should realize following Contents of dealThe first point to consider consists of identifying the implications of projecti.e, that the contents and objectives of the deal match of the firm. Questions such as what can the firm gain or lose in both tangible and intangible terms or what is at stake should be answered.

The preparation and planning of negotiations takes a lot of time and the more information a firm can gather at this stage, the better the of success it will the later stages. The firm should gather information on both customer and the competitors, and on which other alternatives are available to the customer. And the firm has to compare its strengths and weaknesses, for the particular project, with that of its competitiors If the competitors are stronger, in one way or the other, the firm has to develop arguments to expose their weakness. If the firm knows that a Japanese firm is also competing for the same project and that the Japanese offer is cheaper than the firm is own, it has to develop arguments explaining why the offer more expensive. For example, in one of the projects this was actually the case and the Swedish firm was also able to convince the Chinese negotiators that althogh its price was higher, the capacity of its machines and that the technology was better in terms of quality as well as its technolgy which would facilitate future expansion. This argument was accepted by the Chinese as they do always rely upon the best technology. If the company is able to convince that its technology is the best one and up-to-date as regards precision and future development, negotiations become easier.

In larger scope, the counter trades are quite common in China. The reason for this demand is that the Chinese tend to save on the foreign exchange.

Thus it is quite common for Chinese to demand that a percentage of the products to be produced by the project in question by the selling firm into its home market or into the third market. This is one of the objectives behind free zone policy. Despite the difficulty it also is considered as important. This step also helps to evaluate the effect of buy-back in monetary terms and its effects on the firm s own production and marketing activites. It is quite possible that the buy-back or counter trade demand is just a bluff, so that the seller, seeking to avoid the expenses of buy-back, may offer a major cut-back in the price.

Find the costumerIn China, foreign firms have to present themselves and their technology to several authorities. One has to endlessly repeat the same things to different negotiators who suddenly, without any explanation, are replaced by another team. Quite often, however, the first team reappears after after some weeks having forgotten everything, and one has to start explaining to them again, from the beginning. It is, thus very important for the Westerners to find out which team and who in a particular team has the authority to decide.

The engineers and officials asking the most vigilant questions often turn out to be subor- dinates with no decision-making authority.

Finding the customer is therefore is quite difficult. In lobbying stage, a firm should try to find out who is responsible for what or does one has the authority to take the decisions.

Presentation of capabiliteiesIn this stage, the firm has to present itself, its technology and its products. The presentation material and the presentation itself, very important.

The material should be professionally prepared and presented. The Chinese are very particular about the details and the idea behind presentations is to convince them of the quality and trustworthiness of the technology and the firm. It is advisable to present all the technical specifications in English as well as local one. Most Chinese authorities do not speak English and sometimes only one interpreter is not enough to get the real contact.

Swedish Ericsson provided all the material in English and Chinese, and spent a lot of time on correct translation. Having difficulties with duplications there was noticed that it is quite difficult to get hold of good, up to date office equipment and stationary and that concerns to many cities, at that. Build up trustIt is commonly known that the Chinese give sufficient importance to this trust and to individual relationships. Although the Chinese always stress on the importance of friendship, it is quite diffilcut to develop a social relationship with Chi- nese. They seldom invite anyone to their houses. In spite of this, friendship and trust are common aspects of Chinese culture, rather not only in China, but throughout Hong Kong,Singapore,Taiwan and other countries. The impressions and trust that developed through the mutual relations and social activities will be return a hundredfold later.

BUDGET OFFER After all the presentations, questions, answers, and discussions a budget offer is prepared.

The purpose is to provide the customer with an idea of general principles, technology, equipment, price and the terms and conditions as a whole. Usually a client gets a lot of offers, many of them are similar to each other. Then the offers and the budget undergo comparison. As this offer has to include a rough price, the firms should be very careful in calculating all the possible expenses as it is very difficult to change the the total sum later. And the price for training, taxes, and other expenses should be included. Otherwise, the company would lose its credibility.

TECHNICAL DISCUSSIONS All the firms are invited for the technical discussions after the customer has studied all budget offers and technical characteristics from different competitors. Here the firms represent their technolgy and technical specifications, but strictly with in the framework of budget offer. At this stage the firms which are dealing in Chinese market should try to get more information on the particular project, the priorities of the government, the buyer s 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. FINAL OFFER 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.

FORMAL NEGOTIATIONS 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 intermediaryliasion 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 clear. 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- fillment.

Managerial implications

Priority In the late 70s and early 80s, when a number of Western firms... Many potential investors get frustated since the Chinese, sometime, ar... Price The Western firms should be very careful in calculating the pric... The Chinese get more convinced of evils of capitalismand would try to ... The timing of such concessions is important as, if given too early, th...

Conclusions

Conclusions. These two issues have also been a great concern while investing to Chi... The control over the process of management should be in their hands. Paper presented at The International Conference on Management in China... A.Rodger Peterson.