negotiating with the chinese

Negotiating with the Chinese:A Socio-Cultural Analysis

Pervez Ghauri Tony Fang

China has been one of the most favorite markets for Western firms for the last decade. However, doingbusiness with China is considered difficult, mainly because negotiating with Chinese counterparts is quitecomplex. This paper analyses the negotiation process with China from a socio-cultural perspective. ASwedish multinational, Ericsson, is followed for several years and its negotiation process for differentChinese projects in the telecommunication industry is studied in depth. Based on these cases and literaturea model is developed and some conclusions are drawn. Finally, managerial implications presented as fourPs: Priority, Patience, Price and People sum up the essence of Chinese business negotiation process.

T he People’s Republic of China(PRC) started to open up its econ-

omy to the rest of the world in Decem-ber 1978. Since then, Western businesscommunities have been enthusiasticabout China—the world’s largestemerging market with more than onebillion consumers. The Western enthu-siasm for China decreased somewhatduring a period following the Tianan-men Square incident in June 1989. Butit rebounded and increased even morevigorously in the 1990s. China’s rank inworld trade rose from 32nd in 1978 to

9th today. By the end of 1995, Chinaalready approved a total of 258,000foreign-invested enterprises with con-tractual foreign investment of US$395.7billion and actual invested capital ofUS$135.4 billion. By the year 2000,China was recipient of more than 20% ofthe total FDI in developing countries andmore than 5% of total FDI in the world.This makes China the largest recipient offoreign direct investment among develop-ing countries and the second largest in theworld next only to the U.S.A.

However, China is also a difficult andrisky market for Western business com-munities to operate in. The surprises, dis-appointment, and frustration on the partof Western business people are notstrange. China is a special challenge: it isthe world’s largest emerging market, larg-est Communist bureaucracy, and oldestculture. These unique features make

Pervez Ghauri is Professor in International Busi-ness, Manchester School of Management, UMIST,P.O. Box 88, Manchester M60 1QD, United King-dom. Tel: 144-161-200-3528; Fax: 144-161-200-3505 ,[email protected] Fang, Institute of International Business,Stockholm School of Economics, P. O. Box 6501,SE- 113 83 Stockholm, Sweden. Tel: 146-8-736-9528; Fax: 146-8-319927 ,[email protected]..

Negotiating with the Chinese 303

China a unique case in international busi-ness that calls for special academic andmanagerial attention. Now that China hasreached an agreement with the EuropeanUnion and the United States of Americaabout its membership in the World TradeOrganization (WTO), the importance ofChina as a trade partner is going to in-crease further.

Sino-Western business negotiation is akey dynamic of the Sino-Western busi-ness relationship. Knowledge about theChinese negotiating practices in the Sino-Western business negotiation process willgenerate insight into the Chinese businessmindset, increase the success rate ofWestern businesses with China, and ulti-mately, strengthen the Sino-Western busi-ness relationship. Based on our in-depthpersonal interviews, this paper aims tostudy Chinese negotiating style in theSino-Western business negotiation pro-cess. We are particularly interested in aprocess view of how the Chinese negoti-ate and how the Chinese negotiating stylecan be explained from the Chinese cul-ture. The study intends to answer thesequestions: What are the meaningfulstages of the Sino-Western business ne-gotiation process? What are the main con-tentious issues in the formal negotiationsessions? How can we understand Chi-nese negotiating style observed in variousstages from the Chinese culture point ofview? We also attempt to generate man-agerial implications for negotiating effec-tively with the Chinese.

EMPIRICAL BASE

The empirical base of this paper is ourinvestigation of the negotiations of the

Swedish multinational corporation Erics-son with Chinese customers in the earlyand mid 1990s. These negotiations con-cerned Ericsson’s mobile systems sell-ing and joint venture establishment andoperations in China. Ericsson is a worldleader in telecommunications. In 1999,it had net sales of US$26 billion and aglobal market share for mobile infra-structure of 30%, while in China it had40% market share. Ericsson’s history inChina dates back to 1894 when the com-pany made its first shipment of 2000 desktelephone handsets to Shanghai. Ericssonre-entered into the Chinese market in1984 by delivering its AXE-10 exchangeto the Beijing post and telecommunica-tions authorities. In 1985, Ericssonopened its first representative office inChina. Since then, Ericsson’s China ac-tivities have experienced an explosivegrowth and the company is now a majorforeign player in the Chinese telecom-munications infrastructure. Ericsson isparticularly advanced in mobile systemtechnology and has had a major marketshare in China. At the time of the study,it had 53% market share in China’smobile telecommunications market,while its main competitor Nokia had15%.

The first author followed one Chinaarea manager at Ericsson Radio Sys-tems AB in Stockholm for three years inthe early 1990s; a series of in-depthinterviews were conducted with himand with one of his colleagues who wasfunctioning as a liaison officer betweenEricsson and its Chinese customers.The liaison officer, a native Chinese,was employed by Ericsson and, at thetime of the study, was residing in Swe-den. The second author conducted,

304 Journal of World Business / 36(3) / 303–325

both in Sweden and China, interviewswith more than forty Ericsson managers(Swedes and Westerners) and their Chi-nese negotiating counterparts during 1995through 1996. The interviews were un-structured or semistructured and were de-signed to maximize the understanding ofhow the Chinese negotiate in the Sino-Western business negotiation process.The rich empirical materials collectedfrom these negotiation processes, events,and situations make it possible for us touse cross-sectional data to synthesize,structure, and describe the Sino-Westernbusiness negotiation process to bestachieve the aim of this research. Whilereporting contrasting statements, we willdiscuss negotiation within the sameproject and issues.

One specific project that was studiedthoroughly was Beijing Ericsson Mo-bile Communication Co. Ltd. (BMC), ajoint venture (JV) agreement betweenEricsson and China National Post andTelecommunications Industry Corpora-tion (PTIC), signed in 1995. For theBMC project, Ericsson was competingwith Motorola and Nokia. For this case,both Chinese officials and Ericssonmanagers involved in the negotiationwere interviewed. This was the firstjoint venture in which Ericsson man-aged to team up with the then mostpowerful government telecommunica-tions authority, the Ministry of Postsand Telecommunications (MPT). How-ever, the relationship between the par-ties developed fast, as stated by Dr. LarsRamqvist, Ericsson President and CEO:

“We have also established a JV for digitalmobile telephone systems and in total wehave six JV companies in China.”

BMC manufactures and sells prod-ucts in mobile telecommunications,including GSM (Global System forMobile Communications) and TACS(Total Access Communication Sys-tems). It is a 50/50 JV and took twoyears to negotiate. From March 1993[the signing of Memorandum of Un-derstanding (MOU)] to July 1995 [theBMC contract was approved by theMinistry of Foreign Trade and Eco-nomics Cooperation (MOFTEC)].

LITERATURE REVIEW

Since the early 1980s, a special area ofinquiry has been gradually developed inthe literature that deals with interna-tional business negotiations betweenWestern firms and the PRC organiza-tions (Blackman, 1997; Chen, 1993;Davidson, 1987; Deverge, 1986; Fang,1999; Frankenstein, 1986; Hendryx,1986; Kirkbride, Tang, & Westwood,1991; Lee & Lo, 1988; Pye, 1982,1986; Seligman, 1990; Shenkar &Ronen, 1987; Stewart & Keown, 1989;Stone, 1992; Tung 1982, 1989; War-rington & McCall, 1983). The centralconcern of these works is to arrive at anin-depth socio-cultural understanding ofChinese business negotiating style.

Pye (1982) lays the foundation of thearea by publishing his seminal workChinese Commercial Negotiating Style.Three major sources of difficulty inSino-Western business negotiations areidentified: problems that arise from thenewness of the relations and the lack ofexperience on both sides, problems in-herent in capitalist enterprises seekingto do business with the socialist econ-


omy in uncertain transition and reform,and problems that arise from the differ-ences between the Chinese and Westerncultures. Pye characterizes the Chinesenegotiation process into the openingmoves and the substantive negotiatingsession. During opening moves, theChinese insist on opening negotiationwith some general principles which willlater be utilized by the Chinese to theirown advantage. They manipulate vari-ous kinds of negotiating tactics to in-duce the other party into showing theirhand first and then cause “the longwait.” The substantive negotiating ses-sion is a stage where the Chinese oftendisplay a fascination for tactics and is-sues are bargained over, discussionsheld, and agreement reached. In thepostagreement stage, Pye cautions thatnothing is ever final in negotiating withthe Chinese who believe in “continuousnegotiations”.

Tung (1982) finds that the differencesbetween the Chinese and American ne-gotiating styles are among the most im-portant factors responsible for the fail-ure of business with China. Herfollow-up study (Tung, 1989) suggeststhat despite the considerably increasedcontacts between American and Chi-nese negotiators during 1979 through1987, marked differences in the Chi-nese and American negotiating stylesstill persist and are believed to be“culture-based.” Blackman (1997) alsoprovides insightful cases of Westernbusiness negotiations with the PRC.Hoon–Halbauer (1999) studied Shang-hai Volkswagen Automobile Co. andthe Beijing Jeep Corporation and pro-vided with an excellent account of dailymanagement process of Sino-foreign

joint ventures. Although more genericmodels of international business nego-tiations (see e.g., Weiss 1994a,b;Ghauri & Usunier, 1996) and negotiat-ing with East Asians and Chinese (seee.g., Tung 1982, 1996) are available,there is hardly any study on specificnegotiation process between Chineseand Western firms. We identify fiveweaknesses in the existing literature: (1)lack of a systematic model; (2) lack of acultural study of Chinese negotiatingtactics; (3) lack of a presence of theChinese voices in the debates; (4) weakempirical description; and (5) predomi-nance of U.S.-China negotiation litera-ture. To overcome these weaknesses,we propose a model of Chinese busi-ness negotiation process to analyze Chi-nese negotiating style.

The literature review suggests thatalthough reports on Sino-Western busi-ness interactions appear rather regu-larly, empirically based analyses of theChinese negotiating style in the Sino-Western business negotiation processare still few. This study therefore setsout to look at the Chinese negotiatingstyle from a process view.

A “P ING-PONG” M ODEL

Given the aim of this paper, we devel-oped a model to structure our analysisof the Sino-Western business negotia-tion process. Figure 1 presents our“Ping-Pong” model. The model is basedon a number of previous studies of in-ternational business negotiation andChinese business negotiating style (Fang,1999; Frankenstein, 1986; Ghauri &Usunier, 1996; Graham & Lin, 1987; Pye,


1982) as well as our own observationsfrom the empirical studies. The modelcomprises two major constructs: (1)stages of the Sino-Western business ne-gotiation process and (2) dimensions ofChinese business culture. Using the“Ping-Pong” (table-tennis game) meta-phor, we intend to emphasize the contin-uous back and forth bargaining feature(the Chinese ping-pong style) in the Chi-nese negotiating style and the Sino-Western business negotiation process (asa result, the negotiation process is bounc-ing back and forth).

Sino-Western business negotiationprocess

Negotiation process is a process bywhich the negotiating parties interactwith one another to reach mutual agree-ments to provide terms, conditions, andguidelines for future behavior. For thesake of analysis, a negotiation processis usually divided into several stages.Ghauri (1996) structures the interna-

tional business negotiation process interms of the pre-negotiation, negotia-tion, and post-negotiation stages. Thesethree stages are influenced by factorssuch as culture, strategy, background,and atmosphere. Graham and Lin’s(1987) model opens a space for discus-sion of cultural factors and is consid-ered useful for our study. However,their model does not cover the post-negotiation phase that is particularlyrelevant for the analysis of the Sino-Western business negotiation process assuggested by the Chinese business ne-gotiating style literature. Combiningthese two international business negoti-ation process models with our own in-vestigations, we divide the Sino-Westernbusiness negotiation process into threestages from the Western marketers’ per-spective: (1)pre-negotiation(lobbying,presentation, informal discussion, andtrust building); (2) formal negotiation(task-related exchange of information,persuasion, concessions and agreement);

Figure 1A “Ping-Pong” Model


and (3)post-negotiation(implementationand new rounds of negotiations).

Chinese business culture

Furthermore, we adopt Fang’s (1999)Chinese business culture framework toanalyze Chinese negotiating style in theSino-Western business negotiation pro-cess. This framework consists of threedistinctive and interrelated components:the PRC condition, Confucianism, andChinese stratagems.

The PRC Condition

The PRC condition (guoqing) is acontemporary social and institutionalfactor influencing the PRC. This is par-allel to environmental conditions re-ported by other authors (Fayerweather& Kapoor, 1976; Ghauri, 1996). It iscomprised of eight variables. (1)Poli-tics. China is a socialist state with theChinese Communist Party as the rulingparty. Chinese politics has an all-pervasive influence on every aspect ofChinese life; Chinese business and pol-itics can hardly be separated under thecurrent Chinese social system. (2)Eco-nomic planning. Chinese economicstructure is rather centralized, which ischaracterized by strong state planningand government control. Chinese enter-prises are essentially not independenteconomic entities, but rather “factories”of the Chinese government who is the“biggest boss.” For sure, reforms havebrought decentralization in many indus-tries. But in all the key industries, liketelecommunications and now IT, for-eign direct operations are rather re-stricted. A more open and transparentChinese economic system is emerging

in pace with China’s forthcoming entryinto the WTO. (3) Legal framework.China’s legal system is still young, un-stable; law is invariably subjected toideology and influenced by a great dealof human factors. (4)Technology. Chinais short of modern technology. To importand attract foreign technologies to mod-ernize China and enhance the people’sliving standard is the reason why Chinaopened its economy in 1978. (5)Greatsize. China’s population boasts theworld’s largest one. To exchange thelarge Chinese market for advanced for-eign technologies is China’s state policy.(6) Backwardness. China is still a rela-tively poor country with some 300 mil-lion people living under the U.N.-povertylevel (one U.S. dollar per day). (7)Rapidchange. Reform and importation of for-eign technology since the late 1970s havebrought about great changes in Chinesesociety. Maoist ideology, traditional Chi-nese cultural values, and Western lifestyleexist side by side in today’s Middle King-dom. (8) Chinese bureaucracy. At thecenter of the PRC condition lies the themeof Chinese bureaucracy which featuresred tape (more often, decision makingrequires consensus at various levels cross-ing various departments) as well as quickbuying (e.g., when politics requires aquick deal and when your products fit inwith the government’s priority catego-ries). Chinese negotiators follow the Chi-nese government’s policies and plans todo business.

Confucianism

Confucianism is a 2500-year-oldChinese philosophical tradition that hasexerted a fundamental influence on the


Chinese and East Asian modes of think-ing and ways of behaving. The influ-ence of Confucianism on the Chinesestyle of business can be studied fromthe six basic Confucian values. (1)Moral cultivation. Confucianism em-phasizes people’s self-moral cultivationand lifelong learning. Trust and sincer-ity are among the most important qual-ities for being human. In Confucianterms, a ruler should govern his stateand people by means of moral persua-sion and rules of propriety instead oflaw. (2) Importance of interpersonal re-lationships. Confucianism is a practicalteaching of interpersonal relationshipsand conducts. It sees the human worldthrough the Five Cardinal Relationships(Wulun), which is, the relationships be-tween the ruler and subject, father andson, spouse and spouse, elder andyounger brothers, and senior and juniorfriends. The seniors must be loving andbenevolent to gain the respect and loy-alty from the juniors, and vice versa.Guanxi (the Chinese term for relation-ships, connections, or contacts) is a ma-jor mechanism in the Chinese socialpsychology.Guanxiis closely related torenqing (favor), and li (etiquette, pro-priety, and rules of conduct) in regulat-ing relationships. (3)Family and grouporientation. In the Chinese society,family is the most basic and importantsocial unit. In China where there hasbeen lack of a well functioning legalsystem for thousands of years, the Chi-nese family shoulders much of the so-cial responsibility. In the PRC,danweior zuzhi(“work unit” or “organization”)plays some of the roles traditionallyplayed by the family (e.g., allocation ofhousing, arrangement of pensions and

other welfare programs). (4)Respect forage and hierarchy. In the Confuciantradition, age is wisdom and must berespected. Hierarchy is honored throughordered relationships in which everyperson does his duty to contribute tosocial harmony and stability. (5)Avoid-ance of conflict and need for harmony.Confucianism stresses the need toachieve harmony in society throughmoral conduct in all kinds of relation-ships. Confucius says that a gentlemanhas no squabbles. When a gentleman isforced to compete, he will then competelike a gentleman. The Confucian idealis to achieve harmony between Heaven,Earth, and Man. (6)The concept of Chi-nese face(mianzi, lian). Although faceis a universal human nature, it is partic-ularly salient for the Chinese culture.Behind the Chinese concept of face, liesthe Confucian notion of shame. Con-fucius teaches a kind of statesmanshipthat advocates governing people by in-stilling “a sense of shame” into theirmind. Face as a self-regulating moralmechanism has fundamental impact onthe Chinese way of life (for interestingdiscussion on this issue see for exam-ple, Earley, 1997; Ting–Toomey, 1994;Weldon, 1997).

From the Confucian perspective, theChinese negotiators are “Confuciangentlemen” who look more for long-term working relationships to solveproblems that may crop up at any timein than for a one-off legal deal. How-ever, given the family centered Confu-cian tradition, the “Confucian gentlemen”may also appear to be formidable negoti-ators, when they bargain for the interestand face of their “family” or “group.”


Chinese Stratagems

Chinese stratagems, orji in Chinese,refer to a long-lasting Chinese culturaltradition that shapes the strategic Chi-nese business behavior.Ji is probablythe single most important word in theworld’s earliest treatise on militarystrategy—Art of War—written 2300years ago by the most famous ancientChinese military strategist Sun Tzu.Chinese stratagems can be understoodas carefully devised Chinese schemesthat deal with various kinds of situa-tions and gain psychological and mate-rial advantage over one’s adversary. Avariety of Chinese stratagems can befound in theArt of War, such as decep-tion, conquering by strategy, creating asituation, focus, espionage, benchmark-ing, shared vision, extraordinary troops,flanking, prudence, flexibility, leader-ship, and so forth. At the center of allthe Chinese stratagems lies Sun Tzu’saphorism (Sun Tzu, 1982: 77)1:

“To win one hundred victories in onehundred battles is not the acme of skill.To subdue the enemy without fighting isthe acme of skill.”

Hence, the Chinese assert the superi-ority of using human wisdom ratherthan engaging in pitched battles to con-quer the opponent. This traditional Chi-nese strategic thinking is diametricallydifferent from its Western counterpartas shown in von Clausewits’sOn Warpublished in 1832. Whereas the formeradvocates gaining victory without fight-ing, the latter teaches winning by apply-ing “absolute forces.”

The Chinese have summarized theirthousands of years of experience in

dealing with various kinds of peopleand situations into a 138-character com-pendium titled The Thirty-Six Strata-gems(The 36Ji’s) (see Table 1).2 Thecompendium was compiled by an anon-ymous Chinese in the late Ming (1368–1644) or early Qing (1644–1911) dy-nasties. These thirty-six ancientChinese stratagems are theoreticallygrouped into six categories: Numbers 1through 6 to be used when being supe-rior; Numbers 7 through 12 for confron-tation; Numbers 13 through 18 for at-tack; Numbers 19 through 24 forconfused situations; Numbers 25through 30 for gaining ground; andNumbers 31 through 36 to be usedwhen being put in an inferior situation.In practice, however, the stratagemsmay be flexibly used in any possiblesituation. The 36 stratagems all appearin the popular form of Chinese idioms,each of which is made up of less thanfour (inclusive) Chinese characters, ar-ranged so that when recited they pro-duce a rhythmic effect, making it easyeven for school children to rememberthem. These stratagems provide vividexamples of how the Chinese “subduethe enemy without fighting.” Chiao(1981) shows that Chinese stratagemsare a strategic force driving the Chinesemind in all Chinese societies the worldover, regardless of whether they areCommunist or non-Communist. TheChinese can use Chinese stratagems in-tentionally or unintentionally given thegreat influence of the stratagem cultureon the Chinese socialization process.

The 36 Chinese stratagems provide auseful guide for Western business peo-ple to diagnose Chinese negotiating tac-tics. Linking the concept of Chinese


stratagems with the Chinese businessnegotiating style literature, we find anamazing fit between the patterns of Chi-nese negotiating tactics and the recipes

of the 36 Chinese stratagems: Attackingthe opponent’s vulnerabilities= Strat-agem 2 (“Besiege Wei to rescueZhao”); Playing home court= Strata-

Table 1The Thirty-Six Ancient Chinese Stratagems

Stratagem 1 Cross the sea without Heaven’s knowledge—Man Tian Guo Hai

Stratagem 2 Besiege Wei to rescue Zhao—Wei Wei Jiu Zhao

Stratagem 3 Kill with a borrowed knife—Jie Dao Sha Ren

Stratagem 4 Await leisurely the exhausted enemy—Yi Yi Dai Lao

Stratagem 5 Loot a burning house—Chen Huo Da Jie

Stratagem 6 Clamour in the east but attack in the west—Sheng Dong Ji Xi

Stratagem 7 Create something out of nothing—Wu Zhong Sheng You

Stratagem 8 Openly repair the walkway but secretly march to Chen Cang—An Du Chen Cang

Stratagem 9 Watch the fire burning from across the river—Ge An Guan Huo

Stratagem 10 Hide a knife in a smile—Xiao Li Cang Dao

Stratagem 11 Let the plum tree wither in place of the peach tree—Li Dai Tao Jiang

Stratagem 12 Lead away a goat in passing—Shun Shou Qian Yang

Stratagem 13 Beat the grass to startle the snake—Da Cao Jing She

Stratagem 14 Borrow a corpse to return the soul—Jie Shi Huan Hun

Stratagem 15 Lure the tiger to leave the mountains—Diao Hu Li Shan

Stratagem 16 In order to capture, first let it go—Yu Qin Gu Zong

Stratagem 17 Toss out a brick to attract a piece of jade—Pao Zhuan Yin Yu

Stratagem 18 To capture bandits, first capture the ringleader—Qin Zei Qin Wang

Stratagem 19 Remove the firewood from under the cooking pot—Fu Di Chou Xin

Stratagem 20 Muddle the water to catch the fish—Hun Shui Mo Yu

Stratagem 21 The golden cicada sheds its shell—Jin Chan Tuo Qiao

Stratagem 22 Shut the door to catch the thief—Guan Men Zhuo Zei

Stratagem 23 Befriend the distant states while attacking the nearby ones—Yuan Jiao Jin Gong

Stratagem 24 Borrow the road to conquer Guo—Jia Dao Fa Guo

Stratagem 25 Steal the beams and change the pillars—Tou Liang Huan Zhu

Stratagem 26 Point at the mulberry tree but curse the locust tree—Zhi Sang Ma Huai

Stratagem 27 Play a sober-minded fool—Jia Chi Bu Dian

Stratagem 28 Lure the enemy onto the roof, then take away the ladder—Shang Wu Chou Ti

Stratagem 29 Flowers bloom in the tree—Shu Shang Kai Hua

Stratagem 30 The guest becomes the host—Fan Ke Wei Zhu

Stratagem 31 The beautiful woman stratagem—Mei Ren Ji

Stratagem 32 The empty city stratagem—Kong Cheng Ji

Stratagem 33 The counter-espionage stratagem—Fan Jian Ji

Stratagem 34 The self-torture stratagem—Ku Rou Ji

Stratagem 35 The stratagem of interrelated stratagems—Lian Huan Ji

Stratagem 36 Running away is the best stratagem—Zho Wei Shang Ji

Source:Fang (1999: 166).


gem 4 (“Await leisurely the exhaustedenemy”); Manipulating friendship andhospitality = Stratagem 10 (“Hide aknife in a smile”); and Stratagem 31(“The beautiful woman stratagem”);Playing the competitors against eachother= Stratagem 3 (“Kill with a bor-rowed knife”), and so forth. From theChinese stratagems perspective, theChinese negotiator is Sun Tzu-likestrategist who seldom wages a physicalbusiness war but rather is keen on apsychological wrestling of wit to createa favorable situation to manipulate hiscounterpart into doing business his way.

The Chinese are intensely practicalpeople. For them, Confucianism, Tao-ism, and Buddhism, often regarded bymany Westerners as the three religionsof china, are more of philosophies thanreligions. Chinese business cultureframework suggests that the Chinesenegotiators have a “three-in-one” nego-tiating style; they negotiate like “bu-reaucrats”, “gentlemen”, and “strate-gists.” Trust is a prime indicatorshowing which role the Chinese are go-ing to play. When mutual trust betweenthe business partners is high, the Chi-nese will negotiate as “gentlemen”;when it is low, they will negotiate asstrategists! The PRC negotiators alsonegotiate as “bureaucrats,” particularlyso when the political wind blows.

Analysis of the Sino-WesternBusiness Negotiation Process

In this section, we use the “Ping-Pong” model to analyze the Sino-Western business negotiation processbased on our empirical investigations ofbusiness negotiations between the for-

eign firm Ericsson and its Chinese cus-tomers.

Pre-Negotiation

The Chinese negotiation processstarts with early contacts with the Chi-nese government authorities. The Chi-nese show keen interests in getting toknow the other party during these initialcontacts. They try to ascertain whetheror not the foreign firm has (1) the mostadvanced technology required for theproject; (2) the willingness to sell ortransfer it to the Chinese side by way of,for example, joint venture; and (3) thecapacity of delivering the products ontime. As one of the Chinese negotiatorsexplained:

“Our intention is to import the most ad-vanced technology and to cooperate withlarge, world-famous foreign companies,because the life cycle of a technology isshort. We pay even more attention to thesupplier’s houjing (reserve strength) forcontinuous technological development.”

Lobbying

Lobbying before the Chinese govern-ment authorities is one of the most im-portant marketing activities facing for-eign firms that want to sell largeindustrial projects in Chinese key indus-tries like telecommunications. Foreignfirms must convince the Chinese thatthey have cutting-edge technologiesthat suit Chinese government’s priori-ties, that they have long-term commit-ment to the Chinese market, and thatthey are financially strong. They mustpresent a highly reliable image beforethe Chinese, making them feel safe todo business with them. The Chinese


said that they liked to do business with“big mountains” like Ericsson that theycould trust and rely on in the long run.One Ericsson manager (local Chinese)emphasized that lobbying, though exist-ing in all countries, is particularly im-portant in China. Lobbying must occurnot only in Beijing but also in all largecities, both coastal and inland. Lobby-ing channels include visits to govern-ment authorities (e.g., MPT), presenta-tions, technical seminars, advertising inChinese professional journals and infor-mal channels such as dinner parties.

Presentation

Giving attractive and reliable presen-tations to let potential Chinese partnersknow the company, products and nego-tiating team members, is an importantstep toward formal negotiation sessions.Presentations aim to convince the Chi-nese of the sincerity of the company indoing business with China and show theChinese that the company’s productsare an advanced technology with highquality and reasonable price. Foreignfirms need to present themselves andtheir technologies to a number of au-thorities. Very often one has to end-lessly repeat the same things to differentnegotiators who may suddenly, withoutexplanation, be replaced by anotherteam. From the Chinese point of view, itis done to check the reliability and firm-ness of the supplier. One Ericsson ne-gotiator said:

“You have to learn how to make presen-tations . . . youhave to present your tech-nology and company many times to dif-ferent groups . . . andsometimes the samegroup comes back, but of course, they do

not remember anything from the earlierpresentation . . . they ask the same ques-tions . . . I think they do this to checkyou.”

Ericsson provided all the presentationmaterial in English and Chinese, sincemost Chinese decision-makers wereabove 50 years of age and did not speakEnglish. Sometimes the foreign team of3 to 4 persons had to meet a Chineseteam of 10 to 15 people; one interpreteron the foreign team was not enough tohelp communicate efficiently with theChinese. As people ask many questions,especially in between the formal ses-sions, you need to have a couple ofpeople to handle bigger groups. Thepresentation materials were made avail-able for both potential end-users (e.g.,the local post and telecommunicationadministration, the MPT affiliatedplants) and various Chinese governmentauthorities (e.g., State Planning Com-mission, MPT, and Ministry of ForeignTrade and Economic Cooperation—MOFTEC). It was at times a problem toduplicate high quality presentation ma-terials quickly in China. A portable PCand printer, along with all the informa-tion and calculations when visiting Chi-nese customers is a necessity.

Informal Discussion

Initial and informal discussions withChinese organizations often occur di-rectly after the presentations. At thisearly stage, the Chinese already showeda keen concern fortechnology andprice. For example, they were interestedin not only the price but also in com-paring the price with competitors. Inone case, Ericsson succeeded in con-


vincing the Chinese that although itsprice was much higher than that of theJapanese, its system capacity was morepowerful; and its technology was betterand would facilitate future expansions.

Trust Building

The Chinese attach great importanceto trust building in business negotia-tions. One of the Chinese negotiatorsexplained:

“They [Western firms] want to comeand sign the contract quickly and do notknow that [if] we do not understand eachother . . . there is no business relationship.First, we have to know and trust eachother, then we sign the contract.”

Nevertheless, an Ericsson managerobserved that it was rather difficult todevelop close social relationships withthe Chinese. For example, the Chineseseldom invited foreigners to theirhomes. During the pre-negotiationphase, Chinese organizations sent dele-gations abroad for fact-finding tours.Being the host, the foreign firm couldget many insights into Chinese priori-ties in industrial policies and develop-ment plans. In several instances, theSwedes invited the Chinese to come toSweden to inspect the technical systemsin operation. It proved to be much eas-ier to understand the Chinese prioritiesand concerns during such visits, be-cause decision-makers were, more oftenthan not, included in the trip. Hosting aChinese delegation also provides a goodopportunity for foreign firms tostrengthen friendship with the Chinese.For example, Ericsson invited the Chi-nese to Sweden not only to show them

plants, facilities and technologies, butalso to take them sight-seeing and havethem participate in social activities suchas, inviting them to private houses fordinner and taking them to “midsum-mer” celebrations. During these negoti-ations, Swedish pop Group Roxette vis-ited Beijing, and Ericsson invited theChinese negotiators to go and see themtogether, which was highly appreciated.These gestures of hospitality turned outto be greatly valued by the Chinese.

We can link the Chinese negotiatingstyle in the pre-negotiation stage withthe Chinese business culture discussedearlier. The Chinese change of negoti-ating team members was seen in thiscase as maneuvering a typical Chinesestratagem “Steal the beams and changethe pillars” (Stratagem 25, see Table 1).In Chinese culture, trust is high withinbut low outside family and kinship bor-ders. The Chinese constantly find them-selves in such a quandary: business canonly be done between people who havea high level of mutual respect and trust;however, business partners cannot al-ways be immediate or extended familymembers. The Chinese “relying on bigmountains” mentality also reflects thedeep-seated Chinese psychologicalcraving for face: doing business withsecond-class, technologically weaker,firms would make the Chinese loseface. This behavior can also be ex-plained from the Chinese stratagemsperspective: teaming up with a strongforeign partner will help breath new lifeinto “dying” Chinese firms that havemany technological, financial and man-agement problems, a stratagem called“Borrow a corpse to return the soul”(Stratagem 14, see Table 1). The Chi-


nese sensitivity to price is well known;the average living standard in the PRCand Chinese companies’ lack of foreignexchange, are main reasons. That theChinese do not invite foreigners to theirhomes should not be blamed on a lackof hospitality. In the PRC, every stateemployee belongs to adanwei,whichcontrols much of the employee’s life.Internal regulations generally do not en-courage individuals to receive foreignvisitors alone.

Formal Negotiation

Task-Related Exchange of Information

Formal negotiation starts when theChinese show a strong interest in “fur-ther discussions” and both parties sign a“letter of intent.” The Chinese tend tosend a formal document, informing theforeign party of the composition of theChinese team and ideas for future meet-ings. In all cases, the following Chineseorganizations were involved in the for-mal negotiation sessions: Managersfrom national industrial corporationsunder MPT, managers from MPT-affiliated plants (end users of the tech-nology to be transferred), officials fromthe Bank of China (foreign exchangecontrolling organization), design stafffrom research institutes and sometimeslocal government officials. On theSwedish side, the negotiators were Er-icssons’ China area manager, product/technology manager, in-house lawyer,technical support and an intermediary (aliaison officer). An obvious contrast be-tween the Chinese and the foreignteams was that the Chinese lawyersnever participated in the formal negoti-

ation sessions. Five major contentiousissues during the formal negotiationsessions are singled out from our inves-tigations: equity share, contribution ofeach party, management control, tech-nology, price and other financial issues:

● Equity share. The Chinese were sen-sitive to their equity holdings and tostart with, they wanted to have amajority share. However, after real-izing that they could not achievethat, they insisted on having at least50% holding, because they believedthat majority ownership would leadto management control. The Chinesealso considered the equity share amatter of “state sovereignty” havingpolitical importance.

● Contribution of each party. The Chi-nese side contributed tangible re-sources like production premises,existing machinery and equipment,labor, and so forth; while the foreignside, besides initial capital, providedintangible resources like technology,managerial training, marketingknow-how, international network-ing, and so forth. It was relativelyeasy to estimate the tangible costsbut difficult to assess the intangiblecosts.

● Management control. While theSwedes wanted to “teach” the Chi-nese modern technical know-howthrough keeping as many seniormanagement positions in the jointventure as possible, the Chinesewanted to share senior managementpositions with the Swedes exactly inproportion to the parties’ equityshare. The Chinese were very inter-ested in acquiring financial manager


and administrative (or human re-source) manager positions.

● Technology. The Chinese wantedabsolutely to obtain the most up-to-date technology. They were deeplyconcerned about the Western firms’willingness to transfer the technol-ogy and to train the local Chinese.The foreign side was, on the otherhand, very concerned about how toprotect its technology and patents.Ericsson spends 18% of its sales onR&D annually. According to oneEricsson negotiator, it was difficultto make the Chinese understand theR&D cost incurred by the foreignfirm; they believed that once theyhad paid for the project they wouldautomatically be entitled to usewhatever technologies they pleased.The term “rolling technology” (gundong ji shu) is coined by the Chineseto refer to the newer generations ofthe technology being “rolled” con-stantly into the joint venture.

● Price. The Chinese demanded verylow technology transfer prices, roy-alty fees, documentation fees, and soon. They thought prices offered bythe foreign party were always toohigh. The Swedes, on the otherhand, considered the Chinese the“only take, never give” type. How-ever, the Chinese side consideredthat they had already given toomuch—a huge Chinese market—tothe foreigners. It seemed that theChinese keenly knew the value ofthe Chinese market as well as thevalue of foreign technology. Whatthe Chinese did was to “trade” theChinese market for foreign technol-ogy. The financial issues such as fi-

nancing of the project, terms of pay-ment, definition of net sales,countertrade or buy-back tend alsoto be a bone of contention betweenthe parties. As pointed out by theSwedish negotiator:

“The Chinese were all the time using thistactic and saying, ”You know that we arepoor and lag behind. We have no technol-ogy and you must help us. You will get anenormous market here. China is a vastcountry with huge buying power, you willsell in huge volume here.“

Persuasion

The Chinese use a variety of negoti-ating tactics to persuade the other partyto do business their way during the for-mal negotiation sessions: flattery, iden-tifying the opponent’s problems, sham-ing, deception and pitting competingforeign companies against one another.But you must be firm on your offer andbuild credibility. This can be done inthe sessions and also in between ses-sions. One Ericsson manager gave anexample:

“Once one of the Chinese negotiators in-sisted that our project in Thailand hadsome problems and that our technologydid not work well. I did not say anything,but when I came back to the hotel, I calledthe head office and asked our office inBangkok to check . . . there was no prob-lem. Next day, in a private meeting, overthe dinner, I told the Chinese Managerthat his statement about Thailand was notcorrect and that I did not say anything inyesterday’s meeting not to embarrasshim . . . I gave him the telephone numberof our Thai counterpart and asked him tocheck for himself. After that he became


very friendly and even helped us to getthat order.”

In another case, the Chinese weredriving parallel negotiations with Eric-sson and Nokia. These two Nordic“brothers” had a hard time in thosedays: they not only took their turns tocourt the same “bride,” but also hap-pened to stay in the same hotel in Bei-jing, looking into each other’s heavy-hearted eyes over the breakfast tablesevery morning.

Concessions and Agreement

The formal negotiation ends with anagreement by the negotiating partiesthrough their concessions or compro-mise. In this stage, the Chinese show astrong inclination to settle all suspend-ing issues in a “package deal.” The Chi-nese made concessions too; however,their concessions very often turned outto be a disguised gesture devised toattract the counterpart into making realconcessions. For every concession, theywanted a counter concession. As Erics-son’s negotiator for BMC recalled:

“They [the Chinese] often make threats,”You answer yes or no. If no, we will talkwith Nokia. Nokia is right here in thehotel, but we do not want to talk to them,we want to talk to you first.“

When drafting the contract, the Chi-nese weighed words meticulously whenit came to the clauses that would affectthe Chinese, while treating issues ofconcern to the foreign party as generallyas possible. Agreement was almost al-ways signed in the presence of high-ranking officials from the government

authorities and followed by a series oflavish banquets and ceremonies. Whileenjoying the Chinese hospitality and et-iquette, one Swedish negotiator also de-scribed a Chinese negotiating tactic:

“A tactic which I believe that the Chineseemploy is that . . . they set the deadline ona certain week and arrange a banquet longbefore the contract is actually ready. Theytold us that things must be ready on Sat-urday when the mayor would come to thebanquet. In this way, the Chinese appliedpressure on us to reach an agreement.This was common. . . . Youbecame a lit-tle disappointed the first time you cameacross such a situation. But, after a while,when you recognized the same thing hap-pening again in other places, you knewthat it was a tactic.”

In analyzing the formal negotiationstage, we find that Chinese negotiatingteams tend to be large; people frommany organizations and departmentstake part in negotiations and ask manyquestions. From the PRC conditionpoint of view, Chinese companies arenot companies in Western terms; rather,they are “factories” of the Chinese gov-ernment. “Collective participation”—alarge number of people are involved innegotiations and keep asking questions–facilitates communication among theChinese and in case something goesamiss, the “collective responsibility”would also allow individuals to escapepunishment. The Chinese propensity toask many questions seems necessarygiven China’s relatively new involve-ment in international business and theircuriosity about foreign technologies.But the same behavior may also be un-derstood from the Chinese stratagemsperspective as a tactical move to stim-


ulate the other party to show their handfirst: “Beat the grass to startle thesnake” (Stratagem 13). The absence ofChinese lawyers at the face-to-face ne-gotiation table could be viewed as atypical Confucian business behavior; le-gal power does not feature at all inConfucianism. From the PRC conditionvantagepoint, the legal framework ofthe PRC was still young and Chineselawyers did not have the same statusand respect compared with their West-ern counterparts (though the situation isimproving in the recent years). In BMCcase we found that Chinese negotiatorsdid communicate with their internallawyers beyond the negotiation table,but they never showed up during theface-to-face negotiations sessions.

In terms of management control, theChinese wanted to acquire financialmanager and administration managerpositions. The PRC condition providesthe answer: in state-owned Chinese en-terprises, financial and administration/personnel departments assume the mostpower. Also, the Chinese believed someof the Western management practiceswould not be applicable in China.

The persuasion tactics used by theChinese were all of this type: usingexternal forces to influence instead ofdirect confrontation. For example, theChinese reference to the Thailandproject (a third party) was aimed at at-tacking the foreign party’s weakness(e.g., quality) to gain more bargainingpower on other issues (e.g., price). Theprototype of this tactic can be found inthe Thirty-Six Chinese Stratagems:“Besiege Wei to rescue Zhao” (Strata-gem 2) and “Clamour in the east butattack in the west” (Stratagem 6). It

turned out that the Chinese attack wasgroundless, probably because they hadnot carefully ascertained their source ofinformation. But “Create something outof nothing” (Stratagem 7) is a Chinesestratagem which serves to gain advan-tage by conjuring illusions. The Swed-ish manager did not argue with the Chi-nese in the formal sessions but ratherexplained to him informally. Thisproved to work well; the Chinese cer-tainly felt the Swede was honest andsincere and, most important of all,helped the Chinese save face. There-fore, he also became friendly, helpful,and did favors in return.

The Chinese way of making conces-sions is to “Toss out a brick to attract apiece of jade” (Stratagem 17) or to ex-change their “small things” with the op-ponent’s “big things” as the Swedishnegotiator remarked. In wording thecontract, the Chinese style of dealingwith details is a direct outcome of theChinese bureaucracy. In the bureau-cratic system, the Chinese are punishedif they make mistakes but they arerarely rewarded for their outstandingperformance; this rule of the Chinesebureaucratic game prods the Chinese toprefer doing nothing to doing one hun-dred things with one mistake.

Post-Negotiation

Implementation and New Rounds ofNegotiations

Our empirical findings reveal thatproblems in negotiating with China alsoexist after the formal negotiations arefinished, that is, during the phase ofimplementation of the agreement. Gen-


erally speaking, the Chinese honor theircontract; however, cases of Chinesenonfulfilment of their obligations do oc-cur. In one case, the Swedish firm en-tered a joint-venture agreement with theChinese. It was agreed by the partiesthat the joint venture would have aSwedish managing director (MD) andthat he would be provided with aWestern-standard residence in China.Later, when the Swedish MD arrived inChina, he was offered a Chinese-standard residence similar to those ofother Chinese senior executives, closerto MD’s rank. The Swedish side askedthe Chinese to observe what was stipu-lated in the contract but the Chinese didnot agree. The Chinese argued that pro-viding a Western-standard residence forthe Swedish MD was unfair to the Chi-nese senior executives who worked inthe same joint venture. The conflict de-teriorated to the point that the Swedishside was about to calculate the conse-quences of terminating the contract.However, the Chinese were stubborn ontheir stand, reasoning that the Western-style residence demanded by the MDwould cost about US$70,000 per yearequal to the salaries of some 200 ordi-nary Chinese workers altogether and thejoint venture could not bear such a cost.Finally, a compromise solution wasreached through new rounds of negoti-ations.

The Chinese attitude toward contract-ing is problem solving based on thechanging situations instead of contracts.We believe that the Chinese, in thiscase, must have known what theWestern-style residence meant whensigning the agreement. Flatly rejectingthe implementation of the agreement

certainly violated the “law of Chineseface.” The Chinese side might probablyhave been “forced” by their superiors tomake a “fair” adjustment of the contractbased on the market conditions, feelingsof the Chinese executives, and the jointventure’s interests. One Swedish nego-tiator recalls:

“I have worked with Ericsson in differentplaces for 20 years. I have quite a broadnegotiating experience with European,Middle Eastern and African countries.The difference between Chinese and thesecountries [negotiators] was that althoughone also has tough negotiations there,once an agreement was made the issuewas clear and over. Negotiators did notcall the old issue into question again. Butthis was not the case with Chinese. TheChinese could take up and renegotiatewhatever whenever they wanted. Theydid not stand by what they had alreadysaid.”

Managerial Implications

Based on the foregoing discussions,we can draw some managerial impli-cations for negotiating effectivelywith the PRC. Our advice is organizedby way of 4 P’s: Priority, Patience,Price, and People.

Priority

Driven by “China fever” and the be-lief that China needs foreign technolo-gies, Western business people rushedinto the Chinese market with variousadvanced technological solutions.Many succeeded but many othersfailed. An important reason for the fail-ure is that the PRC condition has notbeen paid sufficient attention: Chinesegovernment is the “biggest boss” and all


Chinese state enterprises do businessaccording to the government’s priori-ties, policies and plans. Our researchsuggests that in negotiating large indus-trial projects with the PRC, foreignfirms should above all, be sensitive tothe guiding principles of China’s socialand economic development set forth bythe Chinese Communist Party and theChinese government, and also, shouldmake a careful study of the Chinesegovernment’s priorities and implemen-tation policies. These policies are oftenstated in five-year plans and officialplans for different provinces and sec-tors. The priorities are also available insome Western statistics, such as the USDepartment of State’s Country Com-mercial Guide. The priorities are alsoimportant indicators of what the Chi-nese want to spend their foreign ex-change on. Therefore, it is vitally im-portant for a Western firm to determinewhether its project comes into the pri-ority project category or not. If theproject is included in the Chinese prior-ity categories, it will interest the Chi-nese side and negotiations will proceedrelatively quickly; if not, there may beproblems in everything. Energy, trans-portation and telecommunications areamong the traditional Chinese priori-ties. Recently, revitalizing China’sdeficit-ridden state-owned enterprises isalso added to the list of Chinese prior-ities. Before priorities become publicknowledge, foreign firms may still beable to glimpse much of the picture. Forexample, this can be done by establish-ing good relationships with the counter-part (Chinese negotiators) and by ask-ing questions about the status of theparticular project. The middleman can

also be helpful in this case. This studysuggests that Chinese delegations’ visitsto foreign firms help to provide valuableopportunities for the latter to receiveinsights into Chinese priorities and pref-erences.

Patience

Patience is the most important quali-fication for successful negotiations withthe Chinese. From the PRC conditionpoint of view, China is large with manyyet underdeveloped areas ranging frominfrastructure to living facilities andproblems of various types are bound tohappen. Negotiations in China oftentake time because different Chinese or-ganizations and different departmentswithin one organization tend to be in-volved in negotiation processes anddecision-making within the Chinese bu-reaucracy often takes time. From thevantage point of Confucianism, the Chi-nese will not rush into any serious meet-ings with someone whom they do notknow; trust and a certain feeling ofcloseness must be in place for any ne-gotiation to start. The Confucian no-tions of relationship, face, etiquette,harmony, and so forth, are all time-consuming qualifications. Therefore, ittakes time to negotiate with the Chinesebecause it takes time to communicatewith the “Confucian gentlemen.” Fromthe Chinese stratagems perspective (seeStratagem4 . . .await leisurely the ex-hausted enemy), the Chinese are decep-tive negotiators who can use, deliber-ately or inadvertently, a variety ofChinese stratagems to achieve their ob-jectives. When mutual trust is not veryhigh and the Chinese are exposed to


bureaucratic pressures, tricky situationsare but common scenes in negotiatingwith the Chinese. In an interview, oneEricsson manager said that when get-ting very upset with the Chinese some-times, he kept telling himself to be pa-tient, patient and patient to work for thelong-term interest of his company. Herecalled:

“The Chinese are generally nice. But dur-ing the negotiations, sometimes the Chi-nese team tried to quicken the pace. Theyshowed they were angry. They wereshouting, rising from the table, putting ontheir coats, and leaving the negotiationroom . . .only for the purpose of gettingthrough their terms.”

Price

Price is a difficult and crucial factorin international business negotiationseverywhere. But it proves to be evenmore difficult and crucial in negotiatingwith the Chinese. On the one hand, theChinese emphasize trust and sincerity;if a foreign firm reduces its price radi-cally, the Chinese negotiators will getsuspicious and the risk is high that thefirm will lose its credibility in the eyesof the Chinese. On the other hand, theChinese are face-conscious creatures; ifa foreign firm rejects any Chinese re-quest for a price discount, the Chinesewill most probably feel insulted. Oncethe Chinese feel they have lost facebefore the foreign “evils of capitalism,”they will certainly try to repay your“evils” by using whatever Chinese strat-agems are necessary to deal with you inthe next round. As a case in this papersuggests, when the Chinese find that theforeign side is “giving face” to them,

they will adjust themselves accordinglyand be more helpful and friendly in thelater rounds of negotiations. Therefore,we recommend that foreign parties cal-culate prices and bargaining limits care-fully, and always reserve certain mar-gins to the Chinese to allow them togain face.

Our experience shows, that the Chi-nese negotiators often demand a rebateof 5% - 7% in price at the final stage ofnegotiations. Then the foreign partyshould remain firm in the offers, em-phasizing features (e.g., technologicalsuperiority, high system capacity, roomfor product upgrading, and convenientpostsale service) other than price thatmay bring special added value to theChinese. Foreign firms can also adoptother strategies to try to influence theChinese to negotiate the foreign way.Earlier, we mentioned the Chinese del-egation visiting Sweden. In Sweden andother Scandinavian countries, businessis seldom done on a bargaining basis (ofcourse, buying houses, cars, and boatsare among a few exceptions). Our ob-servation reveals that after the Chinesehad stayed enough time in Scandinaviaand discovered that Scandinavian peo-ple do business in a different culturalambience, the Chinese could reducetheir bargaining tone to a certain extent.Another issue concerns the cost of for-eign personnel. The Chinese do notseem to be willing to pay for the hugecost of foreign expatriates. The dailycost of a foreign expatriate could be asmuch as the yearly cost of a dozen ofChinese employees. We suggest that theparties exchange views on both the PRCand the Westernconditions in a frankand supportive manner to find win-win


solutions to the problems. However,they do compare your price to that ofthe competitors. In one case, where Er-icsson was competing with Motorola,the Chinese negotiator recalled:

“We asked both companies to providetheir total offer including the price for thesystem, hand phones, components, kits,and parts. It turned out that Motorola’soffer was really lower than Ericsson’swas. For example, Ericsson offered thelicense fee at US$1.5 million, comparedto Motorola’s US$0.5 million. Ericsson’sprice for hand phones was one thousandand several hundred dollars, while Mo-torola’s price was US$1050 . . . We atPTIC were for Ericsson, but at the fac-tory, people were for Motorola, mainlybecause of the price.”

People

Because of the deep Confucian aver-sion to law and orientation toward in-terpersonal relationships, the Chinesebelieve in people more than contracts.Foreign firms need to take a people-oriented approach and try to establish ahigh level of trust with their Chinesepartners. A trusting relationship is alsothe best way to neutralize the Chinesestratagems. Chinese teams’ foreign vis-its are probably the best time for theforeign party to develop rapport andguanxi with the Chinese decision-makers. Traveling in Western countriesis still considered by many Chinese aprivilege and, if offered with specialhospitality, will be greatly appreciatedby the Chinese. According to the Con-fucian rules of relationships, the Chi-nese will reciprocate your hospitalitywhen you visit China next time. Rela-tionship marketing with the focus on

people has become a buzzword in West-ern marketing theory since the late1980s and a competitive advantagesought by many Western firms recently.In China, everyone will answer thequestion of what marketing is all aboutwithout hesitation:Guanxi. Therefore,we highly appreciate the business phi-losophy of a senior Ericsson executivein China (local Chinese) who said: “Todo things in China, you must do peoplefirst.” In case of Ericsson, a middleman,a liaison officer, was used to enhancethis understanding to establish a rela-tionship with the Chinese. As one Chi-nese negotiator reported:

“Another very important reason why wefinally chose Ericsson was that they had azhongjianren[middleman], that is, Erics-son’s Chinese employee, a Shanghaineseworking for Ericsson. He was a very goodfriend of ours, and had a goodguanxiwithboth sides. He contributed a lot to thesuccess of this project. He was like thematchmaker in a marriage. You know, weare all people that have feelings. When-ever the negotiation deadlocked, he ex-plained to the parties. A friend coming tous to explain is always better than thesame work performed by alaowai [for-eigner]. This is in fact a question of trust.”

CONCLUSION

This paper has proposed a “Ping-Pong”model to analyze Chinese negotiatingstyle in the Sino-Western business ne-gotiation process which is divided intothree stages: pre-negotiation (lobbying,presentation, informal discussion, andtrust building), formal negotiation(task-related exchange of information,persuasion, concessions, and agree-ment), and post-negotiation (implemen-


tation and new rounds of negotiations).The Ping-Pong model is focused on theprocess of Chinese business negotiationanalyzed from the Chinese socio-cultural perspective. As compared tomost other “generic” models of interna-tional business negotiations, this modelprovides a more “emic” understandingof negotiating with the Chinese. That is,using indigenous components of Chi-nese culture to explain Chinese negoti-ation behavior and tactics. Another fea-ture of this model is that it is processoriented. Few studies have used thatapproach earlier. We believe Ericsson’snegotiation experience is relevant for allthat seek to deal with the Chinese busi-ness people and extremely valuable forthose that negotiate in Chinese key in-dustries (such as; telecommunication,IT, energy, agriculture, and environ-ment) where government has strongcontrol.

Five major contentious issues in theformal negotiation sessions are iden-tified: equity share, contribution ofeach party, management control, tech-nology, price, and other financial is-sues. The Chinese negotiating behav-iors observed in the negotiationprocess are explained from the per-spectives of the PRC condition, Con-fucianism, and Chinese stratagems.We have demonstrated that the “Ping-Pong” model developed by us reallyworks well and captures the essenceof the Chinese negotiation behaviorwhile negotiating with Western par-ties. However, we believe there is aneed for further studies on Chinesenegotiation behavior and perhapsstudies where the model can be statis-tically tested.

The paper has also drawn manage-rial implications for effective negoti-ation with the PRC in terms of 4P’s:Priority, Patience, Price, and People.These 4P’s should be considered in allthe three stages of the Sino-Westernbusiness negotiation process; yet,some are more stage-specific. For ex-ample, a Western firm has to find out,in the pre-negotiation stage, whetheror not its China project falls into theChinese priority category. Patience isrequired throughout the entire pro-cess. Price needs to be calculated asearly as the pre-negotiation stage, andto be negotiated carefully in the formalnegotiation sessions. Although peopleand trust building are most critical in thepre-negotiation stage, they should behandled and further developed duringthe later stages of negotiations.

NOTES

1 In Sun Tzu (1982),ji is translated by Samuel B.Griffith as “strategy”.

2. For a detailed historical and legendary account ofThe Thirty-Six Stratagems,readers are referredto Chu (1991), Gao (1991), Sun (1991), and VonSenger (1991).

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