The China Venture

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The bargaining power of a SME in relation to that of a Chinese partner cannot be generalised. It is determined by many factors, not only by the technology and its availability but also by the size of the partner, its financial strength, the experience of the negotiation team, among many others. It may range from very strong to almost insignificant. 3.3.3.3 Bargaining Situation III: SME – Trading House / Distributor High-Tech SME Trading House / Distributor • Wide geographical coverage, preferably whole of China • Excellent service and maintenance for products • Committed marketing • Brand name • High margin • High volume sales • 1st priority: established customers • SME only if product has excellent market potential, competitive product TABLE 3-16: Interests, objectives and expectations between High-Tech SMEs and distributors As outlined in a previous paper, large foreign trading houses who cover many provinces usually have a long track record of activities in China. They have stable long term relationships with the companies which they represent, often large MNCs with well known brand names. Usually they are reluctant to take SMEs as new clients. Only under special circumstances: when the SME’s product complements the existing product mix or when the product has an especially high market potential in China, new applicants will be considered 117 . Still then, SMEs will often be only second league clients in terms of marketing effort or service and maintenance support. In general, smaller trading houses are willing to take new clients, provided the products fit into their existing product portfolio. Although new SMEs may be along with others equal “first league clients”, the small trading house may not have the resources to do an efficient marketing or to give appropriate service support to the customer. They are unlikely to cover the whole of China but focus a geographic region. Sources of bargaining power vis a vis a large trading house are obvious: the greater the market potential of the product (as estimated by the trading house), the more likely the trading house will give appropriate attention to the product (marketing effort and customer service). The same is true for excellent price competitiveness, meaning the trading house can realise high margins. Although SMEs do not have well known brand names such as for example 117 Presentation at Sieber Hegner Trading, Shanghai, 17.04.1997. 122
Siemens or Motorola, they may have a reputation and a well known brand name in their niche market – a fact that should help in negotiations with a trading house. To sum up briefly, unless an SME’s product has not an extraordinary market potential, the bargaining position of SMEs in respect to large well established trading houses is rather weak. 3.3.3.4 Bargaining Relation IV: SME – Chinese Technology Recipient High-Tech SME Chinese Technology Recipient • Appropriate price for technology • Free choice of business model (licensing, sale, royalties) • Delivery of appropriate technology to avoid problems • Protection of technology • Low cost upgrading of process and product technology, new products • Complete disclosure of technology • Extensive guarantees • Most advanced technology • Training • No tie-in contracts • No restriction on sales region and no min. sales price TABLE 3-17: Interests, objectives and expectations between High-Tech SMEs and Chinese Technology Recipient Regardless of the form of payment, SMEs expect an adequate financial compensation for technology transfer. This leads to a first set of problems (Guo / Akroyd, 1996): Chinese technology buyers are very cost sensitive, yet routinely request the most advanced and sophisticated technology, even though they may lack of foreign exchange, adequate infrastructure to utilise complex technology and trained personnel (Chen, 1993). There is no tradition of commercial technology transfer in China, previously technology was transferred between the state owned conglomerates free of charge. In the end the price is us ually the decisive factor, given the technology fulfils the basic requirements. Flexible pricing strategies, such as modular pricing of individual components are a good method to make the deal transparent for the Chinese and give them options to chose from. Still, the value of a technology is often hotly debated in negotiations. Asking for the most advanced technology is understandable from the Chinese point of view – catching up with the first league industrialised countries as fast as possible is an implicit goal in many actions. However, in many cases leading front end technology is inappropriate and only a second best solution. Technology providers face the problem that they have to give guarantees concerning the performance of the technology although they do not ha ve control over the quality of material inputs or correct handling of the process. They are trapped in a dilemma, knowing that a more mature technology suits better for the purpose while the 123
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The China Venture: Business Environ
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Table of Contents List of Figures .
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3.2.3.2 Special Funds for Setting U
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3.4.1.1 National Culture ..........
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List of Tables TABLE 2-1: THE AREAS
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GBP Pounds Sterling GDB Guangdong D
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1. Introduction: The China Venture
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After a short discussion with the p
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co-operate with other firms, especi
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The Chinese operating legal system
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First of all, Britain’s predomina
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democratic centralism, all governme
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The courts are the state organs exe
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more than three hundred intermedia
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2.2.8 Company Law China’s first n
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Things seem have to become a lot cl
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2.3.1.1 Financial sector developmen
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securities, trading, initial public
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underdeveloped compared with market
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established in January 1996 by 59 p
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Chinese Banks Foreign Banks Financi
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system formulation has been put on
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The separation of production and co
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swap centres (see also above). From
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investors with little experience an
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them, while a branch with a shortag
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Loans, public offerings of shares,
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is often to acquire foreign capital
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2.3.3.2 Debt financing As getting t
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the approval of special authorities
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control compared to national enterp
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usiness in China and related issues
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3. Pre-Entry Strategic Consideratio
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While the testing for the general r
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of relevant contacts to suppliers a
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partner companies with free servici
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strengths which his own company lac
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Central Committee of the Communist
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environment for foreign investment
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legal and regulatory environment of
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3.2.4.3 Legal Framework for Foreign
Page 83 and 84: • China’s entry into membership
Page 85 and 86: • stipulates that advanced techno
Page 87 and 88: Government approval. Foreign invest
Page 89 and 90: Co-operative Joint Venture Status P
Page 91 and 92: Reflecting on these points the foll
Page 93 and 94: Success Factors concerning Products
Page 95 and 96: Success Factors concerning Company
Page 97 and 98: high-technology are eligible for th
Page 99 and 100: Available Distribution Channels A m
Page 101 and 102: Available Distribution Channels Mar
Page 105 and 106: Illustrative Case Studies The follo
Page 109 and 110: Which Aspects should SME's Focus on
Page 111 and 112: Strategy No. 1: Have Cash A comfort
Page 113 and 114: expenses have a detrimental effect
Page 115 and 116: As a conclusion, network oriented m
Page 117 and 118: 3.2.13 Case Study: Swisstec, Lyss 3
Page 119 and 120: factor which makes the foreign firm
Page 121 and 122: developed within the SME, its impac
Page 123 and 124: 3.3.1.3 The Role of Technology Mana
Page 125 and 126: Indirect export and direct export a
Page 127 and 128: maintenance or the use of establish
Page 129 and 130: Government Central Exploiting Sales
Page 131 and 132: in the most advanced provinces and
Page 133: network through which the products
Page 137 and 138: Chinese partners. He also began to
Page 139 and 140: orders. However, a country may also
Page 141 and 142: Germany/Switzerland China democrati
Page 143 and 144: 3.4.2.4 Conversation at the first m
Page 145 and 146: only after a certain time and even
Page 147 and 148: 3.4.3 Experiences of European Compa
Page 149 and 150: ones who atte nded a course. They s
Page 151 and 152: Another Chinese tactic is, as menti
Page 153 and 154: 4. Post-Entry Strategic Considerati
Page 155 and 156: and the other one in China. The com
Page 157 and 158: experience in operating production
Page 159 and 160: In these two cases, the companies m
Page 161 and 162: 5. References Aharoni, Y. (1966): T
Page 163 and 164: Dony, A. G. (1998): Market Entry St
Page 165 and 166: Islam, I. / Chowdhury, A. (1997): A
Page 167 and 168: Madura, J. (1993): International Fi
Page 169 and 170: Semkow, B. W. (ed.) (1995): China F
Page 171 and 172: 6. Appendix 6.1 Fact Sheet People
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