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 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 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 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 negotiating.
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
information of
Chinese negotiators .
Time and patience is the most important assets of foreign firms exercising
negotiating
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 said,“Now
that
we are willing to buy your technology we can start negotiations“.
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 of
production,technology
development or project administration cost.
CONCLUSIONS
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 investors.
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.
RECOURCES
1.Easson,A The incentive for Foreign Direct Investment in the People’s
Republic in China.Paper presented at The International Conference on
Management in China Today,
June 20-21 ,1988 Leuven,Belgium.
2.Ingmar Bjorkman The management of human resources in Western Companies in
China To match or not to match with the environment .1992.Stockholm.
3.Henrikki Tikkanen.Marketing and International business.1998.Turku.
4.Kerin.A.Rodger &Peterson.Robert. Perspectives on Strategic Marketing
Management. 1983.Boston .
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