According to Ghauri (1997), the Republic of China opened up its economy to the rest of the world in 1978, hence attracting business communities from the west due to the large market, of about a billion people. However, the main challenge in doing business with China is complexity of negotiation process and time taken to complete negotiations. This paper seeks to describe the cross-cultural management approach used by Ericsson, the Swedish world leading telecommunications firm, in negotiating for business in China.
Effective approaches to cross-cultural dimensions used by Ericson
Negotiation is an interaction process of reaching agreements to provide terms and conditions for future behavior by parties involved as stated by Blackman (1997). The social-cultural dimension of the Chinese negotiation process is based on the Ping-Pong model developed by Ghauri (1997) and has two dimensions; stages of the Chinese business negotiation process, and dimensions of Chinese business culture.
The Chinese negotiation process has three steps as described in the negotiation model by Ghauri (1997): (1) Pre-negotiation. This involves lobbying, presentation, informal discussion and trust building. Through lobbying Ericson was able to convince the Chinese government that it has cutting edge technology, reliable image. Presentations on reliability, attractive products, technology, and reasonable prices were implemented by Ericson thus creating relationships with the Chinese government and in marketing the firm. (2)
Formal negotiation. Ericson was effective in exchanging of information by giving detailed presentations, having strong persuasion and marketing skills, entering concessions and reaching formidable agreements. (3) Post-negotiation. Ericson was effective in ensuring there was a smooth implementation process with regard to the contract terms and agreements with the Chinese government as stated by Churchman (1993, p.13).
Ericson was effective in handling the three dimensions of Chinese business culture that is made up of: (1) The Peoples Republic of China condition which is full of bureaucracy, red-tape and quick buying culture that avoids taking responsibility and fears criticism. (2) Confucianism – a philosophical tradition that influences peoples modes of thinking and behavior and (3) Chinese stratagems- based on “ji” a set of human wisdom and scheme with which Chinese deal with situations to gain material and psychological advantage over opponents. Before engaging in business Ericson recruited local representatives who helped in interpreting rules of engagement, culture and social aspects affecting business.
Ineffective cross-cultural dimensions used by Ericson
During pre-negotiation issues of communication and cultural differences erupted at informal discussions when concern on price arose. The Chinese government pegged its negotiations on price rather than system capacity, better technology and future expansion.
Ineffectiveness arose in having to present Ericson’s business at same time when Nokia – Ericson’s competitor – was business presenting to the Chinese government. This gave the Chinese government strong negotiation base. By not having lawyers as part of negotiating team the Chinese wasted time as they needed an explanation to the contract terms.
Management issues in socio-cultural environments are sensitive. According to Ghauri (1983), firms investing in China, like Ericson, require setting priorities right, patience, price sensitivity, precision and people-oriented approach. Fang (1997) pointed out five weaknesses that the Chinese negotiation style has.
These are lack of a systematic model, lack of cultural study of Chinese negotiation tactics, lack of presence of Chinese voice in the debates, weak empirical description and pre-dominance of the U.S-China negotiating literature. These are some of factors that need further research to help firms targeting the Chinese market.
Blackman, C., 1997. Negotiating China: Case studies and strategies. St. Leonards: Allen & Unwin
Churchman, D. ,1993. Negotiating tactics. Maryland:University Press of America. pg 13.
Fang, T., 1995. Stratagems and Chinese Business Negotiating Behavior: An introduction to ji Paper presented at 11th International Conference. Manchester Federal School of Business and Management, UK. September 7-9.
Ghauri, P., 1983. Negotiating International package deals: Swedish firms and developing countries. Stockholm: Almqvist & Wiksell.
Ghauri P. N., & Fang T. 1997. The Chinese Business negotiation process: A socio-cultural analysis. Journal of World Business, Vol. 36, No. 3, pp. 303-325