Îñîáåííîñòè âåäåíèÿ áèçíåñà â Êèòàå (The peculiarities of marketing strategy development in China)
Îñîáåííîñòè âåäåíèÿ áèçíåñà â Êèòàå (The peculiarities of marketing strategy development in China)
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«THE PECULIARITIES OF MARKETING
STRATEGY DEVELOPMENT IN CHINA»
Èñïîëíèë: Òîðï Àíäðåé
Ãðóïïà ÅÒ 402
Ò À Ë Ë È Í Í 2003
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
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
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.
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
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 deal:The first point to consider consists of
identifying the implications of project;i.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
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 costumer:In 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 capabiliteies:In 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 trust:It 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.
After all the presentations,questions,answers,and
discussions a budget offer is prepared.
The purpose is to provide the customer with an idea of
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.
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.
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.
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 intermediary(liasion 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
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
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-
Priority In the late 70s and 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 or years,they realised
that foreign was not available for firms.Even for the Chinese authorities it
was a great problem as they were losing face
and credibility among the investors.As a result ,as
long ago as in August 1985
the Chinese authorities announced four categories of
priority projects to attract foreign
investors:Energy and mineral recources ,high technology,medical
equipment and food-
processing,and construction projects.
During this spell of „China fever“-1993-1994 things
improved in China.The decentralisation of decision making and the independence
were given to provinces facili-
tated business activities and the process of
Basically the Chinese government selects the projects
carefully and the priorities change
from time to time.But the culture of standing by
agreement leaves much to be desired.
Even the authorities are enable create obstacles such
as unnecessary delays.
On the other hand,if the project goes with the
categories mentioned above the firms are
in the better position in negotiation and
implementation.As a rule the foreign exchanges
are approved by financial authorities.It is also important to gather
Chinese negotiators .
Time and patience is the most important assets of foreign firms
process in China.Many potential investors get
frustated since the Chinese ,sometime,are slow in signing of a contract even if
the everything has been settled.The Westerners
get impatient waiting for final agreement .Probably it
is rather incommodious participating in many stages of negotiating processes
for several months.
For swedish Ericsson it took more than two years to
conclude an agreement a telecom-
munication contract while for Otis it took 5 years to
establish a joint-venture.And the story of the French businessman who went
insane is quite well known:
After about 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.
He telegraphed his office that the contract of $500 million has been concluded.
The chief executive wired back immediately that he was on his
way to sign the
formal contract .And the next morning a high ranking official
from the Ministry
of Foreign Trade and Economic Relations approached to him and
we are willing to buy your technology we can start
The negotiators,therefore should have a plenty of
time,patience and strong nerves.Many
of the negotiators have tried to set deadline and give
other ultimatums to Chinese negotiators,but it normally does not help.
Price The Western firms should be very careful in calculating the price for
their technology.It is the most difficult and cruicial factor.If a foreign firm
reduces its price
radically,say by 15-20 percent ,the Chinese negotiators get
suspicious and there is a
risk that the firm will lose its credibility.The Chinese get
more convinced of “evils of
capitalism”and would try to press the firm even more.
The concessions given on price should be remained behind the
all stages of negotiations
except for the last one.The timing of such concessions is
important as,if given too early,
they can have too early.The Chinese do not like to pay for
the personnel of selling firm.
When they hear the costs of the foreigners,they get very
sucpicious,and allegations about
the “evils of capitalism”rise again.Therefore it is advisable
for the Western firms should
hide these costs in their offers and include them at the cost
development or project administration cost.
Having tried to describe the process of project sales negotiation
between Western firms
and their Chinese counterparts we reveal that the common course
of negotiation implies
its specifications that have not been known before for
The issues that are most sensitive in the negotiation process
are the equity shares management control.These two issues have also been a
great concern while investing to China since the Westerners do usually rely on
Chinese counterparts when dealing with
the local governments and environment .But it is not so.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 China, buy-back and export is the matter
of lengthy period with many stages.While foreign firms are entering China due to the size of its market,
the Chinese,in its turn see the foreign firms as the source of
technology and foreign exchange earnings.
The pace of negotiation in China is very slow .The
presentations are formal and orderly.
The third part such as government still plays a major role in
the negotiation process,
since the people there are still collective minded and it
plays a large role.
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