Style of Chinese Negotiation: Challenges in International Business - Case Study Example

Style of Chinese Negotiation: Challenges in International Business 0 Introduction: The adoption of Open Door Policy by People's Republic of China has resulted in a significant economic growth. This rapid growth in the economy has opened up the chances for the foreign investors to invest in Chinese companies. Sino-foreign joint-ventures are the privileged forms of business organization that attract most western investments. Many western companies are considering the formation of joint ventures in China, in view of the great potential they offer for a vast market for their products and the availability of cheaper labour force. Nonetheless the existence of differing management styles between Chinese partners and foreign investors create problems in the negotiation of business deals and formation of the joint venture arrangements. In forming such joint venture arrangements, the challenges the Chinese business negotiations pose is so great that there had been instances that many a number of business deals between China and other western countries including USA had failed because of poor negotiations. As John Graham and Mark Lam (2003) see this is because often "Americans see Chinese negotiators as inefficient, indirect and even dishonest, while the Chinese see American negotiators as aggressive, impersonal and excitable". Differences in the management style and problems in negotiations have deep cultural origins. Despite these hindrances, it is possible to win the negotiations with Chinese businessmen, provided a clear understanding of the social, cultural and economic aspects of the negotiation with Chinese entrepreneurs is evolved. This paper presents an in-depth analysis of the intricacies of Chinese negotiations including the cultural background of such negotiations. The paper also deals with the influence of Confucian traits like hierarchy, harmony and faces on communication, characteristics of communication and the Chinese perception of negotiation. Further the paper will also discuss the challenges the Chinese negotiation process poses for managing the international business in China. 2.0 Literature Review: A number of studies had been conducted in the area of business negotiations of the Sino - Western and Sino - American joint venture arrangements. These studies which started around the 1980s have made an in-depth study into the peculiarities of the negotiations of business deals with Chinese government and businessmen. Most important studies have been conducted by Blackman 1997; Chen 1993; Davidson 1987; Deverge 1986; Fang 1999; Frankenstein 1986; Lee and Lo 1988; Pye 1982; Stewart & Keown 1989; Tung 1982. The primary objective of these studies is to bring out an exhaustive narration of the socio-cultural implications of the negotiations with the Chinese and the intricacies thereof. It cannot be said that these studies have completely made the recommendations for the successful negotiation of business deals with the Chinese business empires. An abstract of these studies is detailed in the following sections. 3.0 Role of Culture in Chinese Negotiation: The Chinese culture which is 5000 years old has large influence on their business negotiations. The rural origin of a majority of the people has made them to retain their agrarian values. Social and economic theories attached more importance to the agricultural base rather than commerce and business. Because of the rural base, the human values assumed more prominence in the negotiations than the business profits and gains. John Graham and Mark Lam (2003) say that "Chinese negotiators are more concerned with the means than the end; with the process more than the goal." 'Morality' is the next aspect of culture that greatly affects the Chinese negotiations. Confucianism, which is a 2500 years ancient Chinese philosophical tradition, makes morality the all pervasive factor throughout the negotiation process. For coherence sake, the detailed discussion on 'Confucianism' is included in the section on Chinese Business Culture. The Chinese believe in the holistic presentation of information relating to their business negotiations. This is due to the fact that from their young ages the Chinese get used to study the Pictographic Language. Because of the pictorial character of the Chinese language, all the Chinese learn to memorise a lot of pictures rather than sequence of letters. This is getting reflected in the Chinese tendency to depend more on holistic presentation of information. Suspicion on the foreigners in one thing, that the Chinese cannot do away with. Chine was prone to violent attacks from the foreigners over the historical periods. Such attacks had resulted in internal conflicts and civil wars within the country. The effect of this history had been the reason for such wariness. As a result of these bad memories Chinese have a tendency to believe only in their families and bank accounts. All these aspects of their cultural background reflect in their business negotiations as well. 3.1 Chinese Business Culture: According to Tony Fang (2006) "Chinese business culture as consisting of three fundamental components: the PRC condition, Confucianism, and Chinese stratagems" In business negotiations, the Chinese negotiator conducts the process of negotiation with his or her cultural background and changes the strategies during the process of negotiation depending on the trustworthiness of the other negotiating party. The adoption of such strategies is guided by the basic business culture embedded with the three essential components. 3.2 The PRC Condition: "Chinese politics, China's socialist planned economic system, legal framework, technology development, great size, backwardness and uneven development, and rapid change all these make the PRC condition" (Campbell and Adlington, 1988; Child, 1990, 1994; Lockett, 1988; Porter, 1996) These attributes represent the distinctive characteristic features of the Chinese business environment. The PRC condition is represented by the Chinese Bureaucracy with its special character of centralized decision making and internal bargaining that result in red-tapism. The rapid progress in the economic reforms made the Chinese overcome this shortcoming as they had to use their quality of their quick grasping power for keeping themselves in pace with the economic reforms. Such quick learning has made radical changes in the PRC condition. The emergence of the efficient business managers and the rapid change of the country to the market economy are examples of the changed PRC condition. Under the PRC condition the personnel and administration departments assume greater importance and power than the other departments. This is because these departments acted as the nerve centre of the state-owned Chinese enterprises controlling the business negotiations with the foreign investors. Features of the PRC Condition: The following features of the PRC condition make it as the important factor that forms the basic foundation on which the Chinese business ventures with overseas investments and contracts are built: Politics: Politics centers round every aspect and spectrum of life and business in China. Hence it becomes difficult to separate the Chinese business and politics under the existing Chinese social system. Politics forms part of a normal business life. Economic Planning: The retaining of control by the Chinese government over major industrial sectors with a view to carefully plan the economy is another important element of the PRC condition. This makes every foreign business negotiator go through the economic policies of the government thoroughly before they make any attempt to begin their negotiation. In fact this can be considered as the very important aspect in the Chinese negotiation. Legal Framework: Mention should be made about the legal framework that exists in China which is another important PRC condition. However it must be understood, the laws and legal systems prevalent in China are relatively young and still are influenced by human values. Technology: The PRC condition implies the adoption of modern technology. It may be appreciated that only to overcome the shortage of modern technology that hampered economic progress China opened up its economy for foreign direct investments. This is another important feature of the PRC condition that had made China get an edge over the other developing countries in the matter of technological advancement. Magnitude of the Market: Another appreciable feature of the PRC condition is the extension of the world's biggest market in exchange for the ultra modern technology which has been made the state policy of the government. In fact this policy helped China attract a record amount of foreign direct investments. Backwardness: Economic backwardness still exists in a majority of the population. This is a distinguishing feature of the PRC condition. Thought the communist face of the country is changed log before, the government still bases its decisions to eradicate the poverty in the country through the various economic reforms. Rapid Change: China has got the distinction of adapting itself to the economic changes at a very fast speed which no other country could match so far. Both the government and the people understood the necessity of the economic changes the country need and did everything to take advantage of the changing world economic conditions. Chinese Bureaucracy: Bureaucracy coupled with the resultant red tapism characterizes the PRC condition. At the same time the government will not hesitate to take quick decisions on buying when the product meets the requirements of the nation. This is a peculiar condition that baffles many foreign negotiators. 3.3 Confucianism: The effect of Confucianism on the Chinese business negotiations can be looked at from the following angles: Moral Cultivation: "Confucianism emphasizes people's self-moral cultivation and lifelong journey" (Pervez Ghauri and Tony Fang 2001) According to this ancient principle the rulers were advised to use moral persuasion and rules of propriety than legal process in administering the people. This aspect of the Confucianism is still being followed in the Chinese negotiations. The moral aspects take prime importance in the business negotiations and this is the reason the Chinese look in to the moral values of the opponent also before arriving at any business decisions. Interpersonal Relationships: The relationships of ruler and subject, father and son, spouse and spouse, elder and younger brothers and senior and junior friend form the very basis of the lives of the Chinese people. These relationships collectively known as Gunaxi are closely related etiquette, propriety and rules of conduct that had formed the way of life for the Chinese. Hence it is difficult for the Chinese to attribute only monetary gains in their business dealings without giving importance to these human relationships. Family and Group Orientation: From time immemorial even when there were no well defined legal systems, 'family orientation' and reliance on groups as social units conducted the lives of the Chinese. In this way most of the social responsibilities are taken care of by the family structure without too much dependence on laws and regulations. This trait continues to grip the Chinese business negotiations even today. Respect for Age and Hierarchy: Chinese are taught from generation to generation to give importance to social harmony and stability. Hence the respect for age and the regards for hierarchical levels are embedded in the blood of the Chinese. This culture is being represented in their business negotiations also which needs to understood and appreciated by the foreign negotiators. Avoidance of Conflict and need for Harmony: Basically the Chinese by nature to do not want to create conflicts and want to have peaceful resolutions for all issues. This is due to the docile nature of the Chinese. According to Confucius the gentlemen when made to compete they will act like gentlemen exhibiting high moral values. Thus for Chinese the harmony in society is considered an essential part of social life and this needs to find a place in their business negotiations also. Concept of Chinese Face: Chinese value social respect more than their lives. Any act to humiliate them in public will be viewed seriously by the Chinese people. Since, both criticizing too openly and or praising too openly in public can make someone lose face; Chinese do not want to have any situation that affects their 'face'. The concept of Chinese face implies avoidance of humiliation of them in public. Chinese believe that it makes a person stand out from the group and consider that as a great insult. 3.4 Chinese Stratagems: A Chinese proverb "The marketplace is a battlefield" reflects a deep-seated Chinese belief that the wisdom that guides the general commander in the battlefield is the same one that applies to business (Chu, 1991). This implies the application of strategy in the wars which in the Chinese opinion equally applies to business situations also. "The Chinese stratagem is a strategic component in Chinese culture" (Chu, 1991; Faure, 1998; Mun,1990; Tung, 1994). The Art of War written by Chinese Military Strategist Sun Tzu forms the basis for the Chinese Stratagems. The basic principle underlying the Chinese stratagems is the admonition that "To win one hundred victories in one hundred battles is not the acme of skill. To subdue the enemy without fighting is the acme of skill." (Sun Tzu 1982). The normal strategy that the Chinese negotiator adopts is not to force the opponent in to accepting his terms but providing signals that one of the competitors is waiting to offer a better deal. There are 36 stratagems that the Chinese use in dealing with the enemies and gain advantage over them by overcoming the dangerous situations. The basis of all these 36 stratagems can be traced to their philosophical origins of 'Yin Yang' and 'Wu Wei' principles. 3.5 Yin Yang Principle: Chinese culture has developed itself on the basis of three philosophical traditions namely; Confucianism, Taoism and Buddhism. Each of these is having a different objective and approach in that Confucianism describes the human relationship. While Buddhism deals with immortal world, Taoism advocates life in harmony with nature. Yin Yang is a Taoist principle that is again based on 'Dualism' that represents unity and harmony. Cooper (1990) says "the Yin Yang image, probably the best-known symbol in the East Asia and is illustrated in a circle being equally divided by a curved line forming the black and white areas." Yin is the form of female elements like moon, darkness, mystery, softness etc, whereas Yang represents male element s like sun, day, fire, strength etc. The white dot in the black area and the black dot in the white area signify that there is no absolute white or black that can exist. Chen (2001) suggests that the balk and white spaces contain the power for the other to act and both of them combined from dynamic unity. The Yin Yang principle laid the foundation for the cultural inhibitions of the Chinese people. It made them to follow different philosophical teachings and such teachings controlled their behaviours in the varied circumstances the Chinese faced. This is originally the reason for the Chinese people to mix their cultural affiliations to the business negotiations. Categories of Chinese Stratagems: While the stratagems provide the guidance to the Chinese to win over the enemy without fighting Chiao (1981) shows that the Chinese stratagems are the driving force for the Chinese in all Chinese societies to condition their minds in dealing with all situations. The stratagems backed by the Chinese culture acts as weapon that the Chinese use intentionally or unintentionally in complex business deals. On a theoretical basis these 36 stratagems are grouped in to the following six categories: Stratagem 1 to 6 to be used when being superior Stratagem 7 to 12 to be used for confrontation Stratagem 13 to 18 to be used for attacking Stratagem 19 to 24 to be used for confused situations Stratagem 25 to 30 for gaining ground Stratagem 31 to 36 when being used in an inferior situation In fact the Chinese negotiators often combine the elements of culture, PRC condition representing the Bureaucracy and the influence of the 36 stratagem in their business negotiations. Unless the foreign negotiator has a clear understanding of the mixture of these factors in the Chinese business negotiations, it would be difficult for him to win over the Chinese people. 4.0 Negotiation Process: In generic terms the negotiation process is a process by which the parties to the process try to reach mutual agreements with respect to the terms, conditions and guidelines for future guidance. The Sino-western business negotiations can be divided into three stages: Pre - negotiation: This is the initial stages of the business deal where the actions like lobbying, presentation of business proposal, informal discussion on the terms and conditions and trust building exercises are taking place. Formal - negotiation: Under this process the parties tend to exchange task - related information and also undertake persuasion processes, concessions and agreements for furthering the deal. Post - negotiation: This stage covers the actual implementation of the deal once a formal agreement is reached between parties on the various terms and conditions of the deal. In case if the parties are unable to reach some consensus they would go in for further rounds of negotiation to resolve the unfinished issues. Under normal circumstances the Chinese consider the negotiation process as a prolonged one that includes more rounds of dialogues than arriving at the final resolution immediately after a few rounds of talks. As discussed earlier, the Chinese would always prefer the negotiations to be done with the application of the importance of hierarchy. They also would like to ensure that social harmony is given due importance throughout the process of negotiation. At any point of negotiation the Chinese would not like to have a situation of conflicts. Even when they have to say 'no' to some of the issues they will try to use some circuitous ways to make the opponent know their negative reply. Hence the period of length that the process of negotiation takes not at all matter for the Chinese. Under both pre - negotiation and Formal - negotiation processes the Chinese are very particular that the trustworthiness of the people with whom they are dealing is sufficiently tested before they form their opinion. 'Trust building' thus is an essential part of the whole negotiation process. These processes also involve the services of intermediaries which is very vital in any trust building exercise. The Chinese are also particular that they maintain their 'face' throughout the process of negotiation. The processes are further influenced by other factors like group benefits and holistic thinking. Usually the Chinese would like to take a longer time to review the negotiating process during pre - and post - negotiation processes. This is because the Chinese think that the pre and post - negotiation periods are important in the whole process for building the mutual relationships and to secure the commitment of both the sides. While the Westerners and the Americans consider that the negotiation process is over, while for the Chinese the negotiation process continues even after the deal is concluded. 4.1 Negotiation Structure: The structure of business negotiation from the side of the Chinese will take the following format: While the negotiations take place in a formal environment the discussions will start from general things down to specific details relating to the deal. The Chinese team would normally consist of more people and appear larger than the opponents. However even if others change the core negotiators will remain the same. The seating arrangements for the Chinese team will be done according to the hierarchical level and will be facing the opposite team. Usually there will be a note taker on the Chinese team. The Chinese team will speak unanimously on issues indicating that they have reached on a consensus on the issues internally before the negotiation process started. It is not advisable to assume the function and authority of the Chinese team as sometimes the whole purpose of the meeting may be only to gather information rather than arriving at some business decisions. 5.0 Role of Intermediaries in the Business Negotiations: The peculiar characters of Chinese negotiations require the services of an intermediary or 'Zhongjian Ren' as he is otherwise called. All the meetings with the strangers are looked at with suspicion and distrust by the Chinese. It requires a trusted business associate of the foreigner to pass him along the former's trusted business associate in China. It is very important for Chinese that a foreign business man is introduced by a known source rather than dealing with unknown people directly. This involves finding a person to act as an intermediary who must be known to both the parties of the business deal. It so happens in any business deal that the intermediary has a major role to play at times when some issues need to be settled between the parties. This is because it becomes a lot easier for a native business intermediary to read and understand the expressions and feelings of the Chinese side in any business negotiation. He would also be able to contribute much for an easy resolution by understanding the facial expressions and the actual body languages of the Chinese side that have a lot to say more than the words spoken... 6.0 Managerial Implications in Chinese negotiations: There are quite a lot of managerial implications for effectively negotiating with Chinese businessmen. The qualities that the westerners may need are Priority, Patience, Price and People. Priority: In order to be successful in the business deals with China especially in large industrial projects, the foreign firm should understand the priorities, policies and plans of the Chinese government as the government is the 'biggest boss' in the Chinese industrial environment. Quite often the government announces the changes in its policies that determine the priority of the industries in the government's view. The foreign firm should carefully follow the latest guidelines to get to a win - win situation in the business deals. Patience: Since business negotiations in China often takes longer time and dealing with different hierarchies of the government departments patience is the most important qualification that a foreign negotiator possess to deal with the Chinese successfully. It must be noted that the Confucian principles of relationship, face, etiquette and harmony that form the basis of the Chinese negotiations make the negotiation process time consuming. The foreign firm should have the required patience to go through these processes which are not only lengthier but also non-cohesive with the western culture. Price: It may so happen that if there are drastic price reductions by a foreign firm during negotiations, then that will arouse the suspicions of the Chinese negotiator. This would result in the loss of credibility for the foreign negotiator in the eyes of the Chinese. Similarly if the Chinese request for a discount and price reduction and if the foreign firm rejects such a request then the Chinese will consider it as an insult, and will try to retaliate for it in their own ways. Hence it is important for the foreign firms to consider the pricing of their products very carefully to get a business deal through with the Chinese. People: Since the approach of the Chinese people towards contracts are rather secondary in importance than the interpersonal relationship of the people involved it is necessary for the foreign firms to take a people oriented approach and establish a trusted relationship with the Chinese partners. The appropriate time for the foreigners to build up rapport with the Chinese people is the time during which the Chinese decision makers undertake business tours abroad, when the foreign team can develop the guanxi with the Chinese counterparts. Apart from the above implications there are certain other additional factors that the foreign firm should consider while dealing with the Chinese companies for the conclusion of major deals: Sending the right team with proper temperament to China Getting and showing the support from the respective governments Identifying the real Chinese negotiators as there will be different fact finding and information gathering teams without real decision ,making authority Engaging the services of an able Native Chinese intermediary As far as possible maintaining a consistent team will help in developing rapport Helping the Chinese counterparts to come out of the bureaucratic web Inviting Chinese to come for negotiations abroad would also prove helpful in successfully concluding the deal Use appropriate techniques for face saving of the Chinese negotiators. 7.0 Conclusion: From the foregoing discussion which gives a broad picture of the negotiating style of the Chinese, it may be observed that a lot of importance is being placed on the cultural values than the real business acumen by the Chinese people while negotiating business deals. This makes the job of the negotiators of Western countries including the USA difficult, unless the intricacies of the Chinese negotiation styles are studied and understood carefully by the foreign firms that want to deal with China. It is also important for the foreign team to understand the negotiating behavior of the Chinese as explained from the perspectives of the PRC condition, Confucianism and Chinese stratagems. The foreign team should also adopt themselves to the negotiating strategy and the structure of negotiations of China to make their mission successful. Dealing with Chinese would be lot easier when the foreign team has nothing to hide and no dishonest intention of cheating the Chinese partners. All straight deals could easily pass though the barriers of Chinese negotiations. References: Blackman C (1997) Negotiating China: Case Studies and Strategies St. Leonards, Australia: Allen & Unwin Campbell, N. and Adlington, P. (1988), China Business Strategies, Pergamon, Oxford. 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