1.

INTRODUCTION

To win one hundred victories in one hundred battles is not the acme of skill. To subdue the enemy without fighting is the acme of skill. ~ Sun Tzu, 1982 China has been one of the most favourite markets for western firms for the last decade. However, doing business with china is multifarious, largely due because negotiating with Chinese counterparts is quite complex. Sino-Western business negotiation is a key vibrant of the Sino-Western business relationships. Knowledge about the Chinese negotiating practices in the Sino-Western business negotiation process will generate insight into the Chinese business mindset, increase the success rate of Western business es with China, and ultimately, strengthen the Sino -Western business relationship (Ghauri & Fang, 2001). Three major sources of difficulty in the current business negotiations are identified: effort that arise from the newness of the relations; p roblems inherent in capitalist enterprises seeking to do business with the socialist economy and problems that arise from the differences between the Chinese and Western cultures. Unique Chinese cultural elements such as complicated local etiquette, obscured deci sionmaking processes, and heavy reliance on interpersonal relationships instead of legal instruments all add to the complexities of Sino -foreign business negotiations, and can make the process tiresome and protracted. Besides talking past each other, Chin ese and western negotiators often harbour mutually unfavourable perceptions.
2. KEY RELEVANT FACTORS OF NEGOTIATION (That should be considered)

It is very important to understand that business negotiations are effected by different cultural dimensions. Participants in cross-cultural negotiations do not necessarily share the same assumptions, mental models and ways of thin king and behaving (Woo and Prud homme, 1999; Sheer & Cheng, 2003). To be unaware of these different mental models will inevitably lead to misunderstandings, miscommunications (Martin et al, 1998) and eventually failed negotiations.

This section suggests the relevant success factors based on empirical studies by writer s such as Cialdini, R., (2004), Fang (1999), Fisher, R & W. Ury (1981:91), Hofstede G. (1980:83) and other that are vital for the negotiation between respective companies Dragon Manufacturing (DM) and Chemical Company International (CCI) includes brief suggestions such as meeting plans and etc, the same will provide the foundation for discussions in terms of the future agreements.
2.1. Environment

Outcome of a successful negotiation is principally reliant on what we can do beforehand and in the first opening meeting . Knowing exactly what each side wants and paying right attention to the timing, location, length of the meeting with a positive approach and finally opening with a friendly positive tone and ne utral words are key to success.

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2.1.1. Communication style

Poor communication in negotiation can direct to misunderstanding, uncooperative emotions, mistrust, sloppy thinking, and unfortunate results (Fisher & Brown, 1988). In cross-cultural business negotiations, communication is even more complicated because of different cultures and languages. The introductions of each team member will be done at the beginning to identify the key person responsible for each role. However care should be taken when dealing with highcontext cultures such as China, as the social context (personal relations and nonverbal behaviour) that surrounds a formal, written document is far more important than the written, legal documentation. By contrast, in low-context cultures such as Anglo-American and European countries, what counts is primarily what has been written in legal documents and contracts. Negotiator will play a key role in moulding the discussions and will object if the message between the parties is not clear to avoid misunderstandings. To ease the communication, negotiator may request detailed clarification on any point or concept if required. Negotiator will be also acting as a translator between the two parties.
2.1.2. Success Principles and Negotiation meetings Over brief

Negotiation is a dynamic process between two parties, with their own objectives and interests, leading to seek a mutually acceptable agreement on the basis of common synergies. Both the companies (DM & CCI) should show their willingness to understand each others view. They should understand that without such willingness, it would be difficult, if not impossible, to arrive at a mutually satisfactory agreement . Both companies and the negotiator should understand that the deal is greatly advantageous for both the companies and should be targeting a mutual agreement focusing on a win-win relationship. If in between the process it is stalled by disagreements; negotiators will try to resolve these by keeping an open mind, using the right language, paying attention to what the other party is really saying, and eliminating distraction s . 2.1.2.1. Points of discussions The recommended main points of discussions during the meetings are as follows:       Decision making Authority / Contact responsible from both companies. Payment Terms. Supply agreement terms and conditions. Exclusive supply agreement. Minimum/ maximum of supply per year/ Demand patterns. Quality assurance of the goods.

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2.1.2.6. Timings and ocation DM office will be the venue of first meeting ,visit to china will not only provide CCI team members the desired exposure to Chinese culture but also to be acquainted with DMs facilities .It is advised DM should provide a room that affords both privacy and comfort. DM management should supply beverages and possibly snacks. Reserving a Hotel for CCI members by DM officials and also receiving them at airport will be highly beneficial in terms of relationship development and building for both companies. Timings for the meetings will be confirmed and notified to each company accordingly well before the meetings by the negotiator.

2.2. Key Pre- Negotiation Pillars & Other Factors

In addition to the factors discussed above, it is important for each party to know the four pillars of business negotiation adopted from Cialdini (2004).
2.2.1. Vision

Understanding your counterpart is very important. Vision includes understanding each side`s power/interests, negotiation strategy and finally the successful tactics that can be applied during the negotiation process . 2.2.1.1. Power position and interests : According to Newton (2011), there are various sources of power like Personal, Knowledge, positional Temporal and situations (Newton, 2011 ). While CCI definitely has a higher power in terms of its huge turnover and overall scale of company, the key power and interests identified for both the companies are as follows:

2.2.1.2. Negotiation Strategy : A win win strategy is recommended keeping the importance of cultural value in current d eal and also a win-lose strategy does not lead to as productive and satisfactory outcomes as does a win-win strategy (Fisher & Ury, 1981; Nierenberg, 1986; Ulijn & Strother, 199 ). Also nurturing mutual trust and long -term relationships and expanding mutual benefits are frequently mentioned as the foundation of the win -win strategy (Fisher & Brown, 1988;

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Lewicki, Hiam & Olander, 1996; Walker & Harris, 199 ). The recommended win-win strategy will incorporate the Chinese virtues and are consistent with those advocated by Newton (2011) in Negotiation management module, Fisher and Ury (1981) in Getting to Yes and by Fisher and Brown (1988) in Getting Together. Both companies should follow and adopt the win-win strategy; leading to much easier, and more mutually beneficial negotiations. 2.2.1.3. Negotiation Tactics According to Newton (2011) there can be various techniques for negotiation like controlling, avoiding, compromising, collaborating and accommodating. Collaborative tactics will be used keeping in mind high assertiveness and high cooperativeness which is required for current deal.
2.2.2. Value

The current deal will be to create added value to both companies. For DM this will certainly provide a opportunity for export supply agreement, long term agreement, plausible learning and new market experience and also a great opportunity to expand business/ revenue .While for CCI this will bring in long term supply agreement, increased market share with exclusive agreements and a Chinese business partner synergies.
2.2.3. Relationships and Cross cultural issues.

Key question to ask is this meeting an Evaluation of contacts or contracts ? Main role of negotiator in the current deal is to achieve mutual understanding, trust, benefit and long-term cooperation through two-way communication. Chinese businesses are very much inclined to the theme of Confucianism in particular to interpersonal relationships and in the eyes of the Chinese people, any relationship between businesses is ultimately built upon relationships between individuals not on organisations. It is very important to understand that CCI may tend to view interpersonal relationships as important, but not prerequisite to business relationships. In the West, relationships often grow out of business deals, whereas in China business deals usually grow out of relationships (Wilfried R. Vanhonacker,, 2004). Therefore, members of low-context cultures (Great Britain) when communicate with members of high-context cultures (China), they need to be especially aware of the cultural context such as harmony, status, and showing respect to their Chinese counterparts. Businesses in china are highly influenced by traditional Chinese philosophies like Confucianism, Taoism, and war stratagems. They are such well-known characteristics of Chinese business negotiations such as patience (a famous Confucian virtue), an orientation towards harmonious relationships (a fundamental concept of Taoism), and survival instinct (a motivation of war stratagems). Such different approaches often generate culture clashes during Sino-foreign negotiations.

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3. 3. .

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The egoti tion ocess lied ill e 5 st ge ocess f ework rovided 7 in his journal negotiating china as shown in the figure 2

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Figure: 2

The first stage of negotiations will discuss the approach to negotiation, willingness and will emphasi e on hierarchical nature of hinese team. hile the second stage will e a slow process and oth the teams should e very patient in the second stage. hile the fourth and fifth stage will include the contract discussion which will e dominated y technicalities and I developments of clauses and the development of counter clauses. the 3. . i i m l m

I should egin with the n egotiation explaining the interest on eing supplied y the in china. Explaining riefly their spe cific requirements in terms of quantity, what quality and demand they like to propose for next 5 years. The demands should e placed such that it is easier for oth parties to understand. This will provide the initial ase for the relationship and the future expectations etween them. should e able to evaluate their requirements and specifically elaborate on conditions I requ irements and also for the scenarios where would not they would be able to meet I requirements. be able to full fill This will include both companies explaining their current position in the market and what each of them has to offer in plate , including their power and interest objectives. Each ember of teams should be prepared with specific role or task related questions and to avoid misunderstandings during the talks, the team members should not ask any isolated out of the box questions.

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3.3. Long term Supplier Agreement and exclus ive contract

CCI would like to have a overall supply contract of at least 10 years of which 3 - on an exclusive basis, while DM has agreed to an overall supply contract for at least years if CCI would like to have a 3 years exclusive contract . DM should note that CCI has already invested in R&D of the project and would need a longer period contract to get handsome return and also create a barrier to competition by increasing their market share. Having a contract for at least 8 years of supply a nd minimum 4 years for exclusivity will be beneficial for both the parties and should be considered. This will provide enough time for CCI to capture the market and also for DM to fully benefit from the deal. This mean point agreement between the both will increase revenues for both and also enhance knowledge transfer for DM in R&D and Supply Chain respectively.
3.4. Demand pattern and guaranteed level of production (quantity)

Here CCI should specifically provide demand patterns and their projected demand for th e goods to DM, proving their minimum and maximum bandwidth of the demand. This will let DM to work out the average demand and what they have in plate if the demands are really low. DM has specifically asked for 0 million of VBY per year (10% increase per year) while CCI would like to guarantee level of 30 million VBY and it could increase if the demand is favourable. At this point if DM goes exclusive contracts with CCI, CCI should like to accept the guaranteed offer of 40 million for a year to DM and 0 million for next 4 years. On the other hand DM should remove the 10 % yearly escalation clause and should foresee escalation depending on the market forecast favourable conditions.
3.5. Payment Terms

CCI should consider that DM has requested for a 30 days payment terms as they would be financing themselves for this huge opportunity only because of CCI offer, hence CCI should provide DM 30 days of payment terms for first 4 years (Till DM is exclusive supplier) and afterwards once DM is not an exclusive supplier for CCI they can consider to revise the clause to 60 days payment terms.
3.6. Quality Assurances

In order to finalize the contract the desired quality demands from CCI should be met by DM, DM should specifically elaborate the quality standards to which they will comply and also indicate the quality process they have in place to meet CCI requirements. Planned Quality assurances should be followed by DM in agreement with CCI. This should include any quality certifications required by CCI from DM and should be placed on table during the discussions.

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3.7. The Key Trade terms

Once the above are finalised both the counterparts should agree on the Incoterms of the Trade (they are not laws but voluntary rules). Regardless of the incoterms used, DM and CCI should refer to the specific points at which the obligations and liabilities of the seller (DM) are passed to the buyer (CCI) and vice versa. Beneficial incoterms for both the parties in current deal are CIF, FOB/FCA and EXW`s. As below are the some recommended incoterms that should be considered for the current business need.

3.7.1. Where the title of goods will exchange

Terms beneficial for both are FCA basis where DM delivery obligations will be completed when they will hand over the goods , cleared from export , t o the carrier named by the CCI and to a specified port (by CCI). As CCI has no party contacts in CHINA FCA will be better option for CCI than FOB and also it will provide the necessary knowledge based competency to DM in terms of international export businesses.

3.7.2. When responsibility for damage will be passed from D

to CCI

Under current circumstances the damage risk of goods will pass from DM to CCI when the goods pass over the ship`s rail or pass to the Air cargo (after customs clearance).

3.7.3. Which party will clear the goods from customs

DM will do the exports china custom clearances while CCI will in charge of UK import custom clearances.

3.7.4. Who will be paying for the packaging

The payments for the packaging can be discussed either on mutual sharing basis or should be paid by DM accordingly to the specific requirements of CCI.

3.7.5. Who will be buying the exporters licence

Exporter license should be bought by DM as this will help them in securing the basic legal need to exports goods out of china and should be paying for it regardless of the contract.

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3.8. Additional documents required Legal/necessary documents

Apart from the above mentioned documents both parties should discuss on confirmations regarding delivery, flexibility in delivery dates and also the implications of non delivery on time.
3.8.1. Export licence Certificate with current tariffs

DM should provide a valid export licence certificate on FOC terms and the condition s in the contract should read DM to provide for export certificate enabling CCI to obtain import licence into EEC under tariff 0 .06 with 6% import levy . This is in accordance to current import duty charge in U.K , certificates are very important as increase of tariffs on import duties in future may lead to a conflict on owing the liability of increase in tariffs.
3.8.2. Certificate of Origin

CCI should be offered a certificate of origin of goods by DM in order to facilitate and obtain the currency remittance authorisation. The cost of export documents should be accepted by DM and similarly import documents costs should be taken care by CCI respectively.
3.8.3. Letter of Credit ( ode of payment )

CCI should make payments to DM via LC terms as it is the best way to balance the risk of seller being paid, with the risk of the buyer not receiving the goods.
3.8.4. ill of landing and Insurance

While BL (Bill of landing) should be paid by CCI and insurance of goods in transit should be paid by CCI (as they will be using their own transport) .
3.9. Inspection of goods before shipping

Inspections of goods before shipping are very important and it should be done by a 3 rd party, for which they normally charge a very low fees of about 2% of the value of goods. This is beneficial to built trust for both parties; will certainly help in transparency of owning of damages and cost of this should be shared by both DM and CCI resp ectively.
3.10. Keeping the deal confidential

Last but not the least the deal should be confidential in terms of international sale. Neither party may want the terms of contract like price, type, source and quantities of the goods to be out to any competitors. Both companies should acknowledge that this is not a one of deal and long term relationship is the motive hence confidentiality should be made at each possible stage of the contract/deal.

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4. P

IS S

As shown in the figure during the buying/selling and I deal the risk negotiation process as in the becomes the key concern over time between the two parties, no negotiation deal is complete without discussing the risks involved. It is always a challenging for a buyer I to verify the abilities to meet their myriad suppliers requirements.

Figure: 3

non-performance even at the basic level can have dreadful consequences for the and vice versa, as recounted below through a simple nursery rhyme

I,

or want of a nail the shoe was lost, or want of a shoe the horse was lost, or want of a horse the rider was lost, or want of a rider the battle was lost, or want of a battle the Anonymous kingdom was lost And all for the want of a horseshoe ail ence it is very important to verify and discuss the abilities to meet I requirements. should specify how comfortable they are in increasing delivery quantities within short I may be uncertain about their exact quantity needs over the life lead times, as sometimes has full right to know in depth the f inancial status of I to ensure rightly of the contract. payments for their products. ther key negotiation related risks associated with this deal to both the companies are as below:

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5. CONFIDENTIAL

RIEFINGS TO CCI

5.1. CCI Previous preparations to negotiation

It is very important for each team members in CCI to understand their role and responsibility during the negotiation process. Team should be prepared to answer any specific questions according to each team member roles and responsibilities to avoid any confusion and like chalk and cheese answers to same questions which may be misleading. As already mentioned Chinese business culture and negotiations are based on traditional Chinese philosophies largely Confucianism, Taoism, and war stratagems. Having said that we will wait patiently, be calm so as we can go through each section serenely and collaboratively.
5.2. Negotiation Environmental recommendation

While the author/negotiator will be introducing each of the team members in accordance to the respective hierarchy in both companies, however it is the responsibility of each participant to mention the role and exchange their business cards respectively. It is very vital to understand that when exchanging the business cards each CCI member should give/accept the card via both hands, read the name, position and thank for it. Chinese counterparts will highly respect this gesture and it will lead to an increase in mutual respect and trust.
5.3. CCI Focus on relationships

CCI should be very careful and target on developing interpersonal relationships with DM members as in the eyes of Chinese people, any relationship between businesses is ultimately built upon relationships between individuals and it is not doing business between organisations, but doing business between people.
5.4. Respect of ierarchy and expectation of reciprocity

Chinese people give high respect to Hierarchy and reciprocity. CCI should acknowledge that failure to honour these characteristics may lead to jeopardize interpersonal relationships as well as mutual trust among DM and CCI. Chinese people often like to talk and deal with the person of same hierarchical level and often address and greet people on the basis of hierarchy. It would be highly recommended to keep CEO of CCI as a part of the negotiation deal as so the DM CEO doesnt feel humiliated and offensive.
5.5. CCI Cross Cultural recommendation

During discussions Chinese people usually take time to respond to any question this is just a style of oriental speech pattern and to facilitate the communication without pushing for an answer CCI members should understand the DM differences in response speed.
5.6. CCI Face savings

CCI team member should strictly refrain themselves from constructive criticism as it is often difficult for Chinese people to accept constructive criticism , which is frequently adopted by
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westerners (intentional or unintentional) especially during similar public presentations and group discussion.
5.7. Principles of Persuasion for CCI adopted from Cialdini (2004)

CCI team members can make use of the below mentioned suggested techniques based on principles of persuasion ( Cialdini, 2004) during the meetings with DM:
5.7.1. Reciprocation : While listening to the offers of DM, CCI members should analyse and provide more information on the same so as to facilitate the deal for both parties . 5.7.2. Commitment and consistency : Showing commitment is very crucial for the deal. Real commitment will not only increase the rapport with DM but will also build trust, leading to deeper willingness of sharing information from both sides. 5.7.3. Social proof: CCI members should provide ample facts, sales figure and examples to show realistic market forecasts. The more transparent and truthful the information will be; the more willing DMs executives will be to share inf ormation and concerns with CCI. 5.7.4. Liking: Similarities and mutual synergies should be shown only in business and current deal context. Personal flattering exaggerations should be strictly avoided. 5.7.5. Scarcity: CCI should clearly specify the need of DM as an exclusive supplier for long term. 5.8. Pre negotiations Check list for CCI adopted from Cialdini (2004).

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6. CONFIDENTIAL 6.1. D

RIEFINGS TO DRAGON

ANUFACTURING (D )

Previous preparations to negotiation

Dm should understand their power position while dealing CCI as being the only exclusive supplier CCI can have in the market. It is very important for each team members in CCI to understand their role and responsibility during the negotiation process. Each team member should predefine who should answer the questions in relation to each of the ir roles and responsibilities to avoid any confusion and providing dissimilar answers to a question which may be misleading.
6.2. Negotiation Environmental recommendation

Western people are not used to firm modus operandi when exchanging business cards. This may not be seen as disrespectful as the y prefer to get to know your roles rather than yourself.
6.3. Space

Close approach and calling DM members by their second names by CCI team shouldn`t be understood as an aggression but as a way of western people to show comfort and confidence in the deal/discussions.
6.4. D Cross Cultural recommendation

When members of high-context cultures (china) communicate with members of low-context cultures, they need to pay special attention to the words and what the words actually say, not what may be implied by the words or inferred from the words (Varner & Beamer, 199 ). A western manager who enters the room might shake hand s with each of the team member, starting with the person closest to the door, if that person happens to be low ranking member of the DM team, the leader of the DM team should not lose face. Also as already mentioned CCI might express the closeness of the relationship, addressing senior members of the DM team by name, without any title, in the meeting which should not be taken as highly impolite.
6.5. Face savings

Please note western people often tend to adopt constructive criticism which should not be taken as offence by the team members of DM.
6.6. Principles of Persuasion for D

(adopted from Cialdini, 2004).

6.6.1. Commitment and consistency : Strictly the team members should show commitment and be consistent with the data; further contradictions may lead to lose mutual trust. 6.6.2. Likings: Try to link business related likings and synergies to facilitate the negotiation. 6.6.3. Scarcity: As Dm is one of the very few available suppliers in market, we have a high opportunity of getting a better deal if we provide the product exclusively to CCI. DM should use this as a big advantage emphasizing the potential impact on CCI if not considered our proposal.

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6.7. Adoption of International best practices and rules

Following the china entering to WTO in 2000 ; CCI expects the terms and business contracts according to the International Standards, having said that DM should be prepared and focus CCI attention to these laws in terms of building trust in the deal and future business.

6.8. Pre negotiations check list for D , adopted from Cialdini (2004).

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7. REFERENCES

 Newton Tony, 2011. The negotiation Module , Durham Full Time MBA , accessed via www.duo.dur.ac.uk and [accessed on 20 th May , 2011]  Blackman, C. (199 ). Negotiating China: Case studies and strategies. Australia: Allen and Unwin Pty. Ltd.  Cialdini, R., 2004, The Language of Persuasion, Harvard Management Update, Sep2004  Cialdini, R., 2004, The SCIENCE o f Persuasion, Scientific American Special Edition  James K. Sebenius,Cheng(Jason) Qian,2008, Cultural notes on Chinese Negotiating behavious Harvard Business School, working paper 09 -0 6.  Fang, T. (1999). Chinese business negotiating style. Thou sand Oaks: CA.Sage.  Ghauri, P. & Fang, T. (2001). Negotiating with Chinese : A social and cultural analysis. Journal of World Business, 36(3): pp.303 -32 .  Hofstede, G. (1980). Cultures consequences: International differences in work related values. California: Sage Publications.  Sun Tzu. (1982). Sun Tzu: The art of war (translated by Samuel B. Griffith). London: Oxford University Press.  Tung, R. (1999). Ne go ti at ing with East Asians: How to attain win-win out - comes. Management International Review, 39(2): pp.103 -122.  Woo, H.S., & Prudhomme C, 1999, Cultural Characteristics Prevalent in the Chinese Negotiation Process, European Business Review, v99 n p.313.  Sheer VC & Chen L, 2003, Successful Sino-Western Business Negotiation: Participants Accounts of National and Political Cultures, Journal of Business Communication.  Martin D, Mayfield J, Mayfield M and Herbig P, 1998, International Negotiations: An Entirely Different Animal, in Lewicki, Saunders, Minton & Barry 2003, pp.340 -3 4  Getting to yes: negotiating an agreement without giving in / R. Fisher & W. Ury. London : Business Books, 1991  Getting to yes: negotiating an agreement without giving in / R. Fisher & W. Ury. London : Business Books, 1981

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 Ulijn, J.M. and J. B. Strother (199 ): Communicating in Technology and Business: from Psycholinguistic Theory to International Practice, Frankfurt/New York  Walker, M. A., & Harris, G. L. (199 ). Negotiations: Six steps to success. Upper Saddle River, NJ: Prentice Hall.  Hofstede, G. (1983). The cultural relativity of organizational practices and theories. Joumal of International Business Studies, 14, -89.  Fisher, R., & Brown, S. (1988). Getting together: Building a relationship that gets to yes. Boston  Lewicki, R. J., Hiam, A., & Olander, K. W. (1996). Think before you speak: The complete guide to strategic negotiation. New York: Wiley.  Nierenberg, G. I. (1986). The complete negotiator. New York: Nierenherg & Zeif.

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