Chinese Negotiation Vs American Negotiation

This is an intercultural assignment for the subject ‘Intercultural Sales Negotiation’.. I am a student of the minor Latin American Business Studies. In the minor Latin American Business Studies that I am following, we got the assignment to study the Guanxi case and to do some research into the Chinese and US culture related to negotiation meetings. The last part of this assignment will be that I have to prepare a role of an American party in a negotiation standing between Electrowide and Motosuzhou.

In this assignment you can expect the following subjects: there will be a short description of different cultures in the world. Next subject will be an intercultural research about the Chinese and US cultures and in which these various cultures will influence negotiation attitudes and positions. After this there will be a preparation about the Guanxi case. This preparation includes: BATNA, ideals, fallbacks, needs/priorities, assumptions and strategies/tactics. In this preparation there will be also quoted explicitly when and in what way the research has affected the preparation.

Intercultural research between American and Chinese people doing negotiation

The world has a lot of people. The people who are living in different parts of the world are not all the same. They belong to a certain culture. A culture includes the customs and traditions of a certain nation from a certain country. This includes the set of values, nutrition, diet, clothing, religion, music and dance. We can divide the world in several main cultures like: North American, Western Europe, Eastern Europe, Latin American, Middle East/ African and Asian culture.

During negotiation around the world you have to know the differences between all these different cultures. Doing some research before going into a negotiation is very important. This is important because there could appear some misunderstandings because of the differences in culture. If you work in a global commercial environment it is useful to have some knowledge of the impact of these cultural differences. This is one of the keys to international business success during negotiation.

Regarding to these differences of culture, we now going to zoom in into the Chinese culture and the American culture doing negotiation with each other. We are going to look in what way the various cultures of American and Chinese people will influence negotiation attitudes and positions. 

Chinese way of negotiation:

If we look at the way Chinese business people negotiate, they are very different in comparison with other countries. They are very different in terms on how they approach a business negotiation. For Chinese business people a negotiation is more like an exchange of information. A getting to know you process. They consider it as a formal discussion. They are willing to negotiate for a long time to get to know each other and to create a long time partnership. The reason willing to negotiate for a long time is to get as much as information out of you. If they manage to get enough information out of you, they can adjust their arguments on what you are saying. They can also use all those information that you are telling them against you eventually.

China is a society of high-context. This means that in this kind of society you do not have to say or write to much to make clear what you are meaning. For the Chinese business people it is not only verbal communication, but also a lot of non-verbal communication to express yourself. You only have to make a little part of your message explicit, because most of the information is already implicit in the environment or in the assumed prior knowledge of the person.

The Chinese business people do not like the direct word ‘no’. They will find it very rude and disrespectful. It is better to avoid to say the word ‘no’ to the Chinese party. It is difficult to avoid to say ‘no’, but there are several ways to say ‘no’ indirectly. Little example: In the Western culture they would say: ‘No, we cannot do that’ and in the Chinese culture would say: ‘That may be difficult for us to do so’.

So it is really important that you think very clearly how you going to disagree to a Chinese party. An option is to shift you responsibility for your decisions to something else in the negotiation.

If you do say ‘no’ to a Chinese person you will lose ‘face’ (mianzi in Chinese). This means that you are losing your good reputation and social standing compared to you Chinese business associate. This could be not good for the business negotiation.

Chinese people are very good in saying ‘no’ indirectly. The style of the Chinese business people of saying ‘no’ is to apply objections to disagree with a proposal.

Chinese are very collectively set. Functioning/thinking as a group and having a good relationship between parties has a big importance in the Chinese society.

Relationship is called in Chinese: Guanxi. During negotiation this is very important for the Chinese business people to create with the other party. If you manage to have a good Guanxi with the other it is much easier to negotiate and to reach your goals.

During the negotiation with your Chinese associate you have find out if you are talking with the right person who makes the final decisions. The fact is that it is very common in the Chinese way of negotiating that the person who makes the final decisions is not the person who is sitting in front of you but someone else. These people are intermediaries. This is because there is a hierargy in the Chinese society. This means they have limited authority in making final decisions. If you know it is not the right person in front of you who makes the final decisions, you can expect that they first have to discuss it with their companions before making the final deal.

Chinese people appreciate if their foreign party speaks their language. As a foreign party this will improve your status compared to the Chinese party.

Chinese people love to negotiate for a long time to make you impatient and exhausted to get the best deal possible out of it. They want you to feel like you need them more then they need you.

At last Chinese culture is based on a ‘survival of the fittest’ culture. They will say to the other party that they want the best deal for both, but the truth is that they doesn’t mean that seriously. They want to have a win-lose deal. Win-win is mostly not an option.

American way of negotiation:

If we look at the way American business people negotiate, they are totally the opposite in doing negotiation then the Chinese business people. Americans want to negotiate to reach their goal, to make the best deal out of it and at the end to make a contract right away. American’s are very individual minded. For them counts the fewer the people the less confusion the quicker of making a deal. Time is money for them so they want to get the negotiation done in a hurry. This behavior is a big disadvantage for the Chinese people who want to make to negotiation as long as possible. The use the situation of the American’s willing to do everything as quick as possible.

American’s are very straight to the point. They just want to reach their goals and do not look at the whole of the topic. If they would do that more they maybe could get more out of the deal. American’s do not like to negotiate. They are very informal when doing negotiations.

Because American’s are very individualistic they have full authority during negotiations. They want to lead the negotiation and they want to make the final decisions. They are not an intermediary. They make a lot of proposals and they like to talk a lot.

Unlike China, America is a low context society. They are a society which uses a lot of verbal communication. This makes it very hard for Americans to understand the Chinese, because it isn’t always the words, it is the meaning behind the words which are important.

Conclusion

It is good for an American to understand how the culture of the Chinese business people works. Because if you don’t, it would be difficult to get the best deal out of the negotiation. As an American it is important that you can adapt the behaviors of the Chinese. Be flexible. If you can try to speak their language this will improve your position compared to the Chinese. Do not be impatient, because the Chinese will use this against you. Find the right person to talk to, because if you are talking to an intermediary you know that he/she isn’t the person who makes the final decisions. Try to minimize your ‘no’s’ to be not disrespectful and rude. Try to put your no in a indirect way. Be careful with giving too much information. Chinese are active listeners. They want to make you talk. Try to get an exchange of information. When you negotiate with your Chinese partner the most important thing you need to do is to established the relationship/partnership (Guanxi).

The Guanxi in Jeopardy case

Now that I have done the research about the Chinese and the American culture, I am now going to look how these differences in culture apply to the ´Guanxi in Jeopardy´ case.

Description of the situation

Our company Electrowide

We are a multibillion dollar ($5B) manufacturer company called Electro wide located in the United States. We are a company which manufactures a broad range of automotive electronics products. Looking at the today’s ever increasing competitive automotive electronics and becoming more proactive in this kind of market, we are undergoing a massive structural reformation. The purpose of this reformation is that the company’s various product line departments have more autonomy. So that eventually each department will be responsible for its own profit and loss statements. One of our key strategic objectives is to become a big rival in the market of Asia.

We are looking for an Asian associate to help manufacture and sell engine management systems that run emission-control, fuel nozzle, and ignition systems for Chinese-made vehicles.

In the first place the output would be sold to the Chinese market with future plans to export later.

We believe, as the company Electrowide, that the partnership with the Chinese associate will play a important role not only in the promotion of Electrowide business growth, but also in providing product development expertise in the region.

The Chinese company ‘Motosuzhou’

Motosuzhou is an enterprise of the Beijing municipal government. This small company has a top-heavy hierarchy with a representative director overseeing daily operations and various supervisors in charge of functional units. This means decision making is top-down. The company runs its own operations free from government intervention. Its labor force is consists mainly of rural employees.

The company’s strength is in achieving economies of scale in assembly-line manufacturing of engine control subassemblies. The competition in the local market is beginning to grow.

Motosuzhou’s reason to do business with a foreign company is to develop a long-lasting relationship that will work in harmony with local government policies. Also acquire technology through transfer by importing equipment and designs and adapt them to the automotive industry in China. They do not want to fail in the eyes of the government or the community.

The role

We as the company Electrowide are interested in Motosuzhou because of the Chinese company’s technical proficiency in its design of automotive subsystems. Obtaining this kind of knowledge would give Motosuzhou a competitive advantage in the industry. Motosuzhou would also rely on Electrowide because of financing most of the cost incurred in establishing the joint venture.

The objective of Electrowide is to establish a joint venture with Motosuzhou of China to conduct manufacturing operations in China.

Batna (best alternative to negotiating on agreement)

Before we start to negotiate with Motosuzhou we need a steady BATNA (Best alternative to a negotiation agreement). Our BATNA is very important, because we cannot make a wise decision about whether to accept the negotiated agreement unless we know what our alternative is. Having a good BATNA increases our negotiating power to make a good deal out of it. So if the negotiation is not working we always can fall back on our BATNA. But the main point of our BATNA is to make us in a steady and strong position related to the other party Motosuzhou.

Regarding to our study of the situation we have determined that we have a moderate BATNA compared to the Motosuzhou. We assume that we have a moderate BATNA considering the fact that China is becoming world’s number one economy. It is predicted that by the year of 2025, China’s economy will be by far the largest economy in the world. Throughout all the years, China always has been a independent country. They would prefer not to get any help from abroad. They want to solve their own problems and deal with their own situations. This could also be the reason for Motosuzhou to choose to do business by themselves and try to improve their own situation without any help of Electrowide.

If this would occur our BATNA would be as follow: we will have a look on certain other strong economic developed countries to do business with. If we look at Japan we also could do business with them or else we could do business with Brasil which is becoming quickly a strong economic country.

Ideals

Regarding to the ideals, we would like Motosuzhou to sign a contract for the joint venture.

One of the ideals is that Motosuzhou will help us to manufacture and sell engine management systems that run emission-control, fuel nozzle, and ignition systems for Chinese-made vehicles.

The output of this production would be sold to the Chinese market. After that we would like to export this output as soon as possible abroad.

Another ideal would be that both parties Electrowide and Motosuzhou finance each 50% of the investments incurred in establishing the joint venture. This would be a good offer, because the joint venture will eventually have advantages for both parties.

Fallbacks

Regarding to the fallbacks, our fallback will be that Motosuzhou is not willing to sign the contract to start the joint venture. That they do not agree with the terms and conditions that we have set. This will mean that we have to find other business people to negotiate about starting a joint venture. Another fallback will be that Electrowide would finance most of the cost incurred in establishing the joint venture instead of the 50%-50% division what we had set as an ideal.

Needs/Priorities

Deciding our priorities will allow us to be more efficient, since not all issues tend to be equally important. In the first place we need to keep in mind that we are doing business with a different culture. We know that they could look at certain issues differently than us. This is why a good culture research is extremely important. This is our main priority to look at before doing business.

Because we are in their country and we have to respect their rules and values. To have a good position compared to the Chinese associate our priority is to study their priorities they want to see from a foreign company. This means that we have to be respectful, honest and trustful towards our Chinese associates. We have to be patient and not willing to do a quick deal, because it is also good for us to search out all the issues that will emerge starting a joint venture. We have to look for a long-lasting relationship to have a good position and to have a good chance of reaching our contract with them. It is also pre if I could speak their language or anyone else of my team. So that they can see that I am really trying to get to know their culture and that I am interested in them.

The second priority is to reach an agreement for having a joint venture in the future with Motosuzhou. By understanding their culture and willing to have a long-lasting partnership it would be easier for us to come to a agreement. We have to take the time to get to know each other.

The final priority would be that both parties Electrowide and Motosuzhou finance each 50% of the investments incurred in establishing the joint venture. This would be a good offer, because the joint venture will eventually have advantages for both parties.

Assumptions

During my research I have investigate how the Chinese culture will influence the negotiation attitudes and positions. I assume that during this negotiation about the joint venture, they will set up a cool attitude and that will be very introvert and formal. They want to see what we have to say and what we have to offer. They want to see if we are a company who will offer them opportunities for expanding their business on the Chinese market and not only trying to make the best deal for ourselves. We assume that they first want to get to know us better. They will look if we are potential for them to create a long term relationship with. They would also trying to get as much as possible out of the deal. They will put us on a test, by coming with exaggerated offers to look how far they are able to go with us. We assume that the negotiation could last a long time. This will be one of their tactics knowing that Americans do not like to have a long negotiation. They will use a lot of silent moments because they know Americans will be uncomfortable with that. They know that if they negotiate as long as possible the American will give up and easily agree with a certain proposal. They will try to use our impatient against ourselves. We also assume that they are going to look for a good relationship (Guanxi). We assume that building a good relationship will take a lot of time. This means that we have to accept that for making a good deal.

Strategies and tactics

Given our moderate BATNA, a bargaining approach will be used during the negotiation. This will be the only approach we can use, because of our moderate position to negotiate against the other party and because of the differences in culture. During the research we have found out that they are growing in their bargaining stance. In order to negotiate we will trade options with each other. We will use the tactic of giving and taking. It will be a back and forth during the negotiation. With the right approach of bargaining we could make some arranges which will give eventually a win-win situation for both parties. We want to have a contract to build the joint venture and if we have an agreement they want us to finance most of the cost incurred in establishing the joint venture. This means that we have to look for the possibilities and this will explain our bargaining approach. We have to keep in mind that we do not have yet a good relationship with the Chinese. We should not demand to much of the other party. In the future we can look for other opportunities, but first it is important to build a good relationship. It is good for an American to understand how the culture of the Chinese business people works. Because if you don’t, it would be difficult to get the best deal out of the negotiation. As an American it is important that you can adapt the behaviors of the Chinese. Be flexible. If you can try to speak their language this will improve your position compared to the Chinese. Do not be impatient, because the Chinese will use this against you. Find the right person to talk to, because if you are talking to an intermediary you know that he/she isn’t the person who makes the final decisions. Try to minimize your ‘no’s’ to be not disrespectful and rude. Try to put your no in a indirect way. Be careful with giving too much information. Chinese are active listeners. They want to make you talk. Try to get an exchange of information (bargaining). When you negotiate with your Chinese partner the most important thing you need to do is to established the relationship/partnership (Guanxi). Furthermore, a lot of body language as eye contact will be used. Finally, active listening will be very important also used to confirm understanding.