By Li Ma, Jeanne Brett, Hao Wang & Zhi-Xue Zhang
IF you’re one of the many managers who negotiate with companies in China—the world’s largest emerging economy—you probably need to change your approach. The competitive and regulatory environment has changed so quickly that what worked a year or two ago is no longer effective.
Last year China’s outbound foreign direct investment (FDI) surpassed its inbound FDI for the first time. That’s a big shift from the beginning of the millennium, when the government courted investors who could bring in capital, manufacturing know-how and jobs. It’s critical to know what Chinese companies are looking for now if you want to make your firm a more attractive investor, partner or acquisition target:
Resources. Chinese companies want access to energy, raw materials and food. For example, Shineway’s recent purchase of Smithfield, a major US producer of pork.
Technology. The premium is on technology that will help a company expand. In 2010 Geely, a low-end Chinese carmaker, bought Sweden’s Volvo to acquire its technology and brand and enter middle- and higher-end markets.
Access to mature global markets. Lenovo bought IBM’s personal computer business in 2004 (and its x86 server business in 2014) for access to brands and customer relationships in mature markets in developed countries. Lenovo became the largest server supplier in China and the third largest in the world.
Determine what you have to offer in these key areas. How is what you have to offer better than the competition? Deeper resource reserves, superior technology and higher margins will make you stand out in China, but don’t ignore the value of taking the time to build a trusting relationship with your potential Chinese partner and capitalizing on your reputation for integrity.
Finally, identify what you want in return. Some Chinese companies may be better at meeting your needs than others.
It will strengthen your position in negotiations to know about multiple firms with whom you might collaborate.
Li Ma is an associate professor of management at Guanghua School of Management, Peking University, in China. Jeanne Brett is the professor of dispute resolution and organizations at the Kellogg School of Management, Northwestern University. Hao Wang is a doctoral student at Fisher College of Business, Ohio State University. Zhi-Xue Zhang is a professor of management at Guanghua School of Management, Peking University, in China.
