Negotiation in the People's Republic of China: Results of a Survey of Small Businesses in Hong Kong

By Leung, Thomas; Yeung, L. L. | Journal of Small Business Management, January 1995 | Go to article overview

Negotiation in the People's Republic of China: Results of a Survey of Small Businesses in Hong Kong


Leung, Thomas, Yeung, L. L., Journal of Small Business Management


Since the Chinese Leader Den Xiaoping approved the formation of the 14 new special economic zones in addition to the original four (Shenzhen, Zhuhai, Shantou, and Xiamen) in 1984, the socialist modernization in China has entered into a new era of growth (Anyansi-Archibong 1989). Ji (1991) noted that in the Eighth Five-Year Plan proposal and the 10-Year Program for Social and Economic Development, the Central Committee of the China's People's Congress emphasized that maintenance of economic reform and an open door policy were mandatory. More than 200 new laws, regulations, decrees, and rules related to foreign investment have been implemented to govern a wide range of affairs including direct investment, new technology transfer, business negotiated contracts, taxation, land control, foreign-exchange control, etc., in the 10-year period ending in 1991. No doubt the Chinese Government intended to provide a stable and yet exciting investment environment. Giant multi-national corporations which have prominent brand name products and huge financial resources, such as Coca-Cola, Pepsi Cola, and Philip Morris, were able to negotiate very favorable joint venture contracts to set up their operations to take advantage of the stable environment, comparative low labor costs, and huge domestic market potential in the People's Republic of China (PRC) (Hong Kong Economic Times 1993, 1994)

However, small business entrepreneurs in the U.S. have encountered problems when they have attempted to negotiate business contracts with their counterparts in the PRC because of their lack of competitive advantage as compared to the giant corporations on the one hand and their poor understanding of Chinese negotiation styles on the other.

Firms headquartered in Hong Kong have been major players in opening of the China market. However, there is comparatively little literature concerning Sino-Hong Kong negotiations. A report showed that from 1979 to 1991, 62.2 percent of all foreign investments in the PRC were generated by Hong Kong and Macau (Hong Kong Economics Journal 1993). Therefore, we believed a study of Hong Kong businessmen's approach to Chinese negotiations was needed. This article reveals the findings of research related to negotiation between Hong Kong entrepreneurs and their Chinese counterparts in order to provide executives of small businesses some distinctive insights to negotiation styles in the PRC.

Literature Review

Pye (1982) found that Chinese negotiation styles were different from those in the West and proposed some tactics to deal with these cultural differences. Mente (1992) noted that the foreign team should prepare for a variety of stress-causing situations because the Chinese intentionally did not give direct answers. Gordon (1986) said that Chinese negotiators were famous for their shrewdness. Their representatives were experienced in the art of posturing, pricing, psychology, and the effective use of timing. They operated by knowing their adversary's strengths and weaknesses well enough to get maximum advantage. Lee and Lo (1988) surveyed 136 American firms who were members of the American Chamber of Commerce in Hong Kong, and they concluded that "relationship" was important. Persuasion was primarily accomplished behind the scenes in order to have a successful negotiation with the PRC.

Stewart and Keown (1989) conducted research on 50 traders with China from a variety of western firms in Hong Kong. They concluded that these traders should expect to spend vast amounts of time elaborating on technical features and negotiating price and should be expected to make sudden demands or changes apparently to put the Western teams at a disadvantage. In addition, they noted that non-personal factors such as product and financing were more important than the personal and cultural factors. However, recent research by Leung and Wong (1993) on 150 firms in Hong Kong revealed that "personal relationship" or "guanxi" was of paramount importance when a firm participated in trade with China. …

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