Chinese Automotive Industry grew at the 22% CAGR in year 2005 to 2014. It overtook the biggest car market USA in 2010. By 2020 as per ACG forecast it would touch 21million bigger than European market.
Like India, Chinese purchase behavior is different, currently second time buyers are more than first time buyers and they are interested to take budget (Upgrade) segment car. The buying sentiments and habits are different in different region, Segment and body type. The Chinese auto market drivers are giving positive signals to like urbanization, increasing household income, Infrastructure, Spending nature and penetration rates.
Car and Commercial vehicle market are two most important segment in China for foreign players like MAN, DAF, Scania, Volkswagen, General Motors, Ford, Audi, Mercedes, Renault, Peugeot, Landrover, Volvo etc. Market, Products, Pricing, Technology, Economy are some of the important factors but on the other hand there is one more important parameter which impact on entry and survival for any business in China. Intercultural management and negotiation are also very sensitive and important for any company which entered to planning to enter in Chinese market. This is real Business case study but we have changed the persons and Companies name.
Because of high potential of Chinese Truck market Munichh (Name change) has decided to enter into the Chinese market but do want to enter thru Greenfield strategy after doing some market research they found that Futon could be the right partner for the Joint Venture. Therefore, it has begun to investigate the possibility of forming a joint venture with the Futon, LV truck manufactures in China. Mr. Andreas and Carolyn Goodwin, from Munichh (Name change), have been given the assignment of traveling to Shanghai to meet with the high-level management of Futon. Their task is to lay the groundwork for a joint venture that would go into effect in about six months if things go smoothly. Andreas and Carolyn are experienced and tough contract negotiators who have handled a variety of business agreements for Munichh (Name change), but this is their first international negotiation. In preparation, they read a book on cross-border negotiations, and they both are confident that they will succeed in their overseas assignment.
On Sunday, Andreas and Carolyn checked into their hotel, the Grand Hyatt Shanghai, in the heart of Shanghai’s business and Auto hub, and spent the rest of the day resting up for their first negotiating session with Futon executives on Monday. They met for dinner and discussed the talking points that they would present at 8 am the next morning.
Andreas and Carolyn were unsure about who would be representing Futon, as the short memo they had received from President Wang had referred to “several company representatives” without giving specific names or titles. The president had also mentioned that the representatives spoke English fluently, so no translators would be required at the meetings.
“I am curious to see who the company sends to this meeting and whether Mr. Wang might attend,” said Andreas.
“Don’t count on seeing Wang. That would not be likely, considering the hierarchy that exists here. Maybe a vice-president but nothing higher. And look who Daimler sent to China—we’re not even upper management yet,” laughed Carolyn.
“Well, I’m just worried about not having the real decision makers at the table.
Remember how we got fooled in the Leland affair? We spent six difficult weeks before we realized that not one of the negotiators from Leland had the power to close the deal.”
“At least we did ok at the end. It just took more time than it should have. And we know President wants us back in Stuttgart one week from today. That puts a lot of pressure on us. Maybe we should start tomorrow by simply asking who has final say on the agreement. That should give us the information we need to proceed quickly.”
Monday morning, Andreas and Carolyn walked into the lobby at Futon half an hour early. They had decided to take no chances about being late to the first meeting. The receptionist escorted them to the conference room on the top floor and brought them tea and cookies. One hour later, no one from Futon had yet appeared, and Andreas went to the door to look for the receptionist. At that moment, four people came striding down the hall toward Andreas and entered the room. “Good morning. We are so sorry to keep you waiting. I am Han Su, this is Wu Mai, Chen Qing and Zeng Li. Please excuse our lateness, but the president called us into a meeting at the last minute.”
“No problem,” answered Andreas politely, as he introduced himself. He shook everyone’s hand and introduced the employees of Futon to Carolyn, who stood up to shake hands with the negotiators. Then all six negotiators took their seats at the table.
“We are very pleased to be here in Shanghai,” began Carolyn, smiling at the four people sitting across from her. “Now let’s get started, shall we? First of all, we would like to know who will be making the final decision on our proposal.”
“I will act as the spokesman,” replied Han Su with a serious expression on his face. “My colleagues will not speak unless necessary. We find negotiations work better this way, less confusing, you know? Also, I am able to speak English.” Han Su quickly opened his Palm pilot and made some notes.
Andreas and Carolyn looked at each other, perplexed by Han Su’s response. “We will both be speaking for Munichh (Name change),” said Carolyn. “And we’ll try to be clear and to the point and not waste your time. Daimler has sent us here for one week. We have a deadline to meet, and we’re going to need every minute to get this project going.”
“Of course, that’s true, so let us have some tea,” said Han Su. “Then we can hear your proposal. And how was your flight from Stuttgart? Is your hotel comfortable?”
“The flight was fine, and we already had tea, thanks,” Andreas answered impatiently.
“Perhaps we could simply begin with our proposal for a joint venture between Munichh (Name change) and Futon. Our President Brighton is hoping we can work together to offer mutual funds here in China. Your market is potentially huge and by 2010 has been projected to be $300 billion if funded pension plans are introduced by the government. As your partner, Munichh (Name change) would provide the technology and creative input in return for control of marketing, compliance, and investments.” Andreas looked directly at the four Futon negotiators as he was speaking. He handed a two-page proposal to each of them.
Futon wants to keep domestic market specially in LV segment; below 15t.
“Carolyn, could you outline the details of our proposal?” Certainly, Andreas.
Our company as the minority partner would agree to 33% now, with the understanding that our stake would increase to 49% from 2005, in accor with China’s regulations. However, we request the right to control investment decisions, as well as marketing strategy and compliance. Our experience in this field speaks for itself, and we have a proven track record in Automobile industry, we sold 3,680 units in 2008. We have a wide range of Product portfolio below than 15 tones. ”
While Carolyn was providing this information to her counterparts from Futon, she noticed that Han Su, Wu Mai, Chen Qing and Zeng Li were looking down at the Munichh (Name change) documents, out the windows, and at each other, but rarely looked at Carolyn or Andreas. She found this seeming lack of attention slightly disconcerting, but she did her best to focus on the proposal.
When Carolyn had finished, Han Su made a few notes on his Palm pilot, scanned the two-page proposal, and began to speak slowly.
“Thank you again for coming to Shanghai and meeting with us. The meaning of Futon, our company name, is vision, and we are known for having that characteristic. But we are a conservative company and do not act quickly. A joint venture is an interesting concept, and we will bring your proposal to our president, who is unusually busy this week and can’t meet with you until next week. Naturally he is the one who must consider your offer of a partnership although it will be a group decision. We will be in touch about our next meeting.” Han Su closed his Palm pilot and put it in his briefcase.
“What? When will that be?” asked Andreas. “Ms. Carolyn and I have to return to Stuttgart on Saturday. I’m sure we sent you our travel schedule in advance. It is important that we reach at least a tentative agreement before we leave. Time is money, as we say in the States. Would it be possible to meet with President Wang? We have come quite a distance to present this proposal and to discuss the possibilities of our working together.”
“Thank you very much and please excuse us at this time. It is our hope that we can proceed with these discussions, but now our business responsibilities are heavy. We will send you an e-mail with suggestions for our next session.” With that statement, the Futon employees stood up and shook hands with Andreas and Carolyn before leaving the conference room. The entire negotiating session had lasted just fifteen minutes.
Andreas and Carolyn were shocked. “We’d better e-mail president right away and give him a heads up on this no-progress situation. He might have to fly over himself if he wants to make this deal happen,” said Andreas. “I just wonder why we struck out so totally. What a mess. Do you realize that we did not even set up another meeting? What went wrong?”
“Cross-cultural misunderstanding, perhaps,” said Carolyn. “I seem to remember
something about the Chinese perception of time being much different from our own. The Chinese are not in a hurry, and they take plenty of time before making a business decision. It’s something to do with their cyclical view of time and their belief in considering the past and the future, not just the present. We should have planned a better strategy and not pushed them so hard. Maybe we appeared too aggressive.”
Andreas thought about what Carolyn was saying. “Putting pressure on them probably backfired. Well, let’s see if we can still keep the negotiations going, at least while we’re here in town. And I could call President Wang and try to persuade him to see us. Then we can tell Dieter Zetsche we gave it our best shot.”
1. What type of preparation is necessary for people who engage in cross-border negotiations?
2. How prepared were Andreas and Carolyn for their negotiating session?
3. Why did Andreas and Carolyn make no progress in their first negotiating session?
4. What approach should Andreas and Carolyn have used with the Futon negotiators?
5. What cross-cultural differences caused problems in the negotiation?
6. Should Carolyn and Andreas call President Wang and ask for a meeting?
7. How can Carolyn and Andreas improve their chances of negotiating a joint venture with Futon?
After considering the Intercultural Dimensions and case study:
Apparently, even before Mr. Andreas arrived in China, the joint venture is already bound for a complicated implementation. The three biggest challenges that have become big obstacles in the smooth attainment of objectives have been the inability of both parties to understand each others’ cultures, the lack of clear objectives that is relayed by both parties and the different expectations of the project. Concurrently though, the biggest obstacle has been that of cultural differences- while the Germans believe in merit system of recruitment wherein, even if one person is laid off in one job, the expectations that he/she can find another work is prevalent. The same is not true in China where the scarcity of work coupled with the difficulty of landing a government job is very difficult.
According to Hofstede the main cultural dimensions in organizations include that of power distance (how employees accept hierarchy), uncertainty avoidance (tolerance for uncertainty and ambiguity), individualism versus collectivism (concern to one’s self and to the group, long-term versus short-term orientation (future goals and immediate goals), and masculinity versus femininity (personal goals and friendly atmosphere as opposed to income. On the other hand, Trompenaars have illustrated that culture has different layers: the outer layer captures an individual’s interest at first when he is experiencing a new culture; the middle layer, consists of norms and values or the sense of what is right or wrong; and the core layer which focuses on the fight for survival.
Here are the steps that can be taken in order to fit into the organization as well as institute small changes concerning his work:
- Chinese culture is largely collectivist in nature- they work as a team and not as competitive individuals. Thus, critiquing one person would imply a critique of the whole organization. Foreign workers should take into consideration that Chinese would receive constructive criticisms in view of improving their work by working with the team and showing them other means to improve their efficiency.
- Chinese are largely non-confrontational in nature. Thus, confronting them or criticizing them upfront can merit antagonism not only among the managers but the workers as well. Assertiveness should therefore be limited to constructive criticisms. For instance, instead of disapproving some practices, a foreign worker can introduce alternatives. It should be remembered though that before doing this, the foreigner should consult with management and higher officials before speaking. This is a form of respect in China and one that is practiced strictly.
- Chinese would tend not to talk much. However, foreign workers can work with the team by inviting the managers and co-workers to dinners or lunch. In doing so, Chinese typically invites back the foreigner and friendships can ensue which can then allow the foreigner to have more freedom in talking about changes in the workplace.
- Foreign workers or managers must also remember that in working with the Chinese, humility is important. One should not upstage the superior or the more senior worker. The key here is to work by showing what should be done. The rule therefore is less talk, more work. By doing so, the foreigner may even encourage old workers and new recruits to improve their current work practices.
- Lastly, in dealing with the management, it is important that the foreign worker must always place courtesy first and positive insights instead of providing negative feedbacks.
Chinese managers have traditional management views that see managers as the ultimate decision-makers and thus, are responsible even for the work of the lowest worker. A critique on a worker is therefore a critique to the manager and the organization as a whole. For the Mr. Andreas not to offend the managers and at the same time provide his view on the matter, cultural considerations needs to be integrated in the presentation of the Andreas’s view. For instance, Andreas can cite the strengths of the company as well as the workers and indicate the improvements that are being done which can tremendously help the workplace once finished. The emphasis on the improvement and the development plans of the organization implies that while the German employee is talking about the shortcomings of the organization, he is nonetheless, doing it by praising the managers and the organization.
Indeed, the culture of China differs significantly from that of Western countries. It should be noted however, that there is no universal business management or economic formula to succeed. Culture plays a critical role in the process and this should be remembered in every business dealings in countries such as China.
To a significant extent, Mr. Andreas simply did not have the power to aid in the cultural differences between the two partners. Culture is being socially and deeply rooted in China. Thus, the measures that could have been done would be for Technology Link to ensure that FUTON and the Chinese managers are ready to accept change not only in their organization but also on matters concerning their own work.
Next Article wil be on detail Analysis of Car and Commercial vehicle Market Analysis along with Forecast 2020.