Volkswagen-Chinese Government Business Negotiation

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Introduction

Negotiation, as Churchman (1993) puts it, is the process of trying to get concessions and agreement from the opponent. Negotiations do happen in a variety of areas, ranging from businesses to making peace deals within a nation or between nations.

The business world has been increasingly getting competitive day by day, with many large corporations and government agencies having a cut throat approach to acquiring big business deals and contracts all over the world. It has consequently left many multinational companies and government agencies to think more about their long term strategies of communication and business negotiations that can give them an upper hand over their competitors in acquiring these business deals.

It therefore means that for any large multinational company or a business entity to prosper in the global economic system, it’s quite clear that people in charge must be willing to communicate, negotiate, and most importantly accept what is offered by the other party in a strategic manner. This leads us to an insightful knowledge that for a successful negotiation process, the negotiating team must have some aspects of basic bargaining or negotiation power and behavior for the deal to be successful.

For example, it is agreed by many international business scholars that for any international business negotiation, there must be a certain influential outcome of interaction that occurs between negotiators from different cultural background or countries due to the assumption that they are generally more complex and time consuming than if such negotiations involved people from same cultural backgrounds or country (Harris and Moran, 1981). It is therefore prudent to adopt a good knowledge of specific cultural characteristics, traditions in business structure and conditions of the negotiating parties (Nierenberg, 1992).

Case study: Volkswagen and China

The Volkswagen, Germany-based automaker, made an agreement with the Chinese government to establish a manufacturing plant in Shanghai, after a long negotiation that took six years to complete.

The deal that involved several government authorities of the Republic of China, that is, Ministry of Foreign Trade and Cooperation, State planning Commission, the State Economic Commission, the Ministry of Finance, the Bank of China (BOC), The Municipal Government of Shanghai, and the National Automobile Industry Corporation (CNAIC), began in 1977 when the China National Technical Import Corporation approached Volkswagen, followed by a visit at the Volkswagen Headquarters in Wolfsburg, Germany by the Chinese delegation in 1978n (March, 200), The Volkswagen delegation visited China the following year, 1979, where venture contract, technological transfer agreement, articles of association, supply agreement, and planning agreement were negotiated.

The China’s first major venture agreement was completed in 1984 when the two negotiating parties signed the agreement in 1984, giving way to what would become the most successful automaker in history to venture into the Chinese market with a big competitive edge (March, 200).

The objective of this negotiation

Such a big business deal cannot go unnoticed without some analysis on the basis in which it prospered. It is therefore possible to assume that there were some principles of negotiations that took center stage at the beginning and process of the deal-making or negotiation, which eventually led to its successful completion and execution. Secondly, there must have been some basic elements of common understanding between the negotiating parties, with special vested interests as the driving force that leading to the objective setting for this negotiation. In principle, the Chinese government involvement of their corporation (China National Technical Import Corporation) was a sign that they wanted to get the economic uplift in terms of technology and trade.

This was the essence of the government’s ownership of a half of the shares through its local companies Shanghai Tractor and Automobile Corporation (STAC), Shanghai Trust and Consultant Company, and the China National Automobile Industry Corporation. The Volkswagen Company on the other hand had found the opportunity to be the foreign market leader by expanding their manufacturing base to China, thereby increasing their capital base in the markets outside Europe to capitalize on the then less explored market hence increasing competitiveness (March, 200).

Results of negotiation

The deal was sealed and it eventually led to the establishment of the first manufacturing facility in Shanghai in 1986 with a capacity of manufacturing 30, 000 vehicles with sales less than 30, 000 (March, 200). By the year 2003, there were two plants manufacturing about 400,000 vehicles annually. The company has therefore achieved their goal of market leadership through the quality of their product, good reputation, and pricing that has set them apart from other automakers. This success has also led to Volkswagen’s plan to import a relatively cheap Skoda make for low market segment (March, 200).

Negotiation Approaches

There are different approaches to negotiation as manifested in this particular deal between Volkswagen and the Chinese government. As observed by Requejo &Graham (2008), bargaining is a daily occurrence in human behavioral approach to striking a deal that does not belong to one particular discipline hence the multidisciplinary nature approach that has been applied over the period globalization. It therefore follows that when negotiating for any particular agreement, it is advisable not to stick to a certain type of art, but to be flexible enough and offer alternative solutions to the way issues emanate (Fisher & Patton, 1991).

Therefore negotiation can be subdivided or segmented in different ways in order to get simple and basic principles to understanding each other as seen in this particular case. As stated by Requejo &Graham (2008) some of the basic elements that have been applied over long period of time are: process, behavior and substance of negotiation.

The process involved how parties lay down their negotiation, that involve the context, the team to be involved on negotiation, the tactics that the parties use in approaching the negotiation, and finally the process, stages and sequence of negotiation that the parties come up with (Fisher & Patton, 1991). The behavior implies how the parties relate, how they communicate and the styles of approach day by day, while substance on the other hand indicates the actual issue to be negotiated on that comprised the agenda, positions and interest of each party, the options and the actual agreement at the end of negotiation (Hall, 1981).

In other a different concept, one may view negotiations in terms of strategy that entails main goals and the expected outcome, process and tools that involve the steps taken as well as role of each party in the negotiation process (Hall, 1981). Finally, the tactics of each party that they apply to their advantage, involving actions and response to the actions of the opposite party (Butt, Choi & Jaeger, 2005)

Volkswagen team member in the negotiation Heinz Bendlin observes in his own words the experience he got when negotiating with Chinese that, “ I learnt in China that Foreigners tend to have a typical mode of behavior. They want to achieve result quickly, get answers to all their queries, and immediately come up with solutions to problems. But in China one has to be patient and be prepared to spend considerable time solving problems step by step.

Setting deadlines or showing impatience leads to disadvantages in negotiations” (March, 200)). This statement exposes one element of negotiation, time, that is a very important aspect during negotiation. If well planned and used effectively, can generate positive result in any negotiation process. Aspect of time is viewed differently across culture as manifested in negotiating with the Chinese government negotiators (Forgas, 1998).

Another example is the Americans approach. As Hall (1981) puts it, the American are ever impatient in making business deals, that “they keep on looking at their wrist watches” when things slow down unexpectedly, hence the “just make them wait” strategy used by many nations and large corporations in the past to win business deals against Americans. So the point is to make the deal delay in order to get more concessions from other negotiating partner as applied by the Chinese, since research has also found that Germans too express impatience just like American, and thus once they (Chinese) know that the other partner is impatient, they would surely pull that to their favor (Maiese, 2005).

Another of Bendlin’s statement that concerns the negotiation team when he says, “The Chinese like to negotiate in large groups. Fairly frequently, three or four VW people negotiated with ten to twenty Chinese. However, typically only one would speak while the others took notes. They were all disciplined.” In this aspect, it is clear to note that Chinese like diversity in terms of idea generation, a feat that is achieved by bringing all types of expertise on board during negotiations (March, 200).

Butt, Choi & Jaeger (2005) advises that diverse groups that comprise different gender groups, extroverts and introverts, different specialists and experts, and many more is the source of goldmine creativity in any negotiation process. Chinese used this effectively and to avoid mixed-up, they approached through delegating duty to one of them to do the talk while others listened and took note (March, 200).

The approach of bringing different people from different diverse background of specialization is a clear way of avoiding resentment after the deal has been made as observed by many experts. The issue of consistency also appears in the negotiating team. According to Graham, Alma, Wimsatt & Rodgers (1994), a team that keep on changing the personalities can hardly reach any consensus as each new member would strive seek recognition and thus bring the team back to more repetitive explanations. It is therefore logical to maintain the same term that began the process throughout as Volkswagen advises.

The other way of manipulating situations in the negotiation is to asking questions more frequently or repeatedly by the Chinese people. It was found out that 70% of all statements Chinese make during negotiation are repetitive in nature and in a more confusing and friendly manner (Barry, Fulmer & Kleef, 2004), thus justifying Bendlin’s statement that, “there were times when they would cultivate friendship, seemingly to manipulate situations. Our Chinese partners also frequently ask us to explain matters several times. This was not a sign of insufficient professional knowledge on their part, but just a tactic…” ( March, 200).

In this approach, the Chinese cultivated the culture of questioning repeatedly to confirm weather the other party (Volkswagen) was consistent with their proposals and ideas. This is in line with the principle of polite coercion as explained by Hall (1981), that if the other party who answers the questions are never consistent with their answers, then they are likely to be pinned down and concede further, to the advantage of the frequently questioning party.

The process of negotiation can comprise the elements of influence as seen with Chinese. Volkswagen implies that Chinese, like many other countries, normally use mass media to influence the process of negotiation to their advantage and that “it’s not all about winning at all cost in the negotiation but t recognize that whether one is the buyer or the seller, both parties must align their reachable goals in a more practical way” (Requejo &. Graham, 2008)

As seen in this deal, it is also important to understand that the idea of emotions is very important in the analysis of negotiation process. The advise by Volkswagen not “become nervous” when dealing with Chinese even when they use mass media to influence their position is a clear indicator on how emotions can play important role in negotiation process (March, 200). Even though discovered recently, emotions have proved to be a very important aspect in negotiation process.

Butt, Choi &Jaeger (2005) observed that emotions are able to either generate positive or negative outcome of the negotiation as and that the decision to settle and rest is partly due to emotions of the negotiating parties. He states that when people are on the negotiation table, it is possible to generate negative emotional behavior or irrational conducts can scuttle your chances of getting a better deal or even breaking the process in general, while positive or rational emotions can easily facilitate positive and more acceptable deal and even fasten the relationship (Butt, Choi &Jaeger 2005).

In their study, Butt, Choi &Jaeger (2005), found out that people with positive emotions or moods have more confidence and even a higher tendency to collaborate with the other party. During the negotiation, best results are achieved through more enjoyable interactions between the positive people who will tend to use less aggressive tactics and behaviors and instead stress on more cooperative behavior (Maiese, 2007).

This will consequently increase the probability of the parties reaching their ultimate goal and drive the accruing benefits of the sealed deal due to the fact that they tend to honor the agreed deal to the latter without fail as compared to negative thinking people (Butt, Choi &Jaeger 2005). It is explained that this is because they are likely to follow the right decision making process because of their flexible nature, creativity in solving problems, more respect for the new and opposing ideas, and readiness to in risk taking (Barry et al. 2004).

On the other hand, negative emotions have been proved to have detrimental impact on the negotiation process. As Forges (1998) puts it, indifferent or angry team of negotiators affect the negotiation process negatively because they tend to use more competitive tactics and show less commitment even before the negotiation starts, that is, they are less cooperative in their arguments, hence reducing the chance of analyzing the joint outcome of the negotiation process. In the process, if any team appears angry, they evoke anger in the other team hence the elements of mistrust evolves which consequently leads to shifting of goal post every now and again in an attempt to retaliate (Maiese, 2005).

However, Maiese (2005) further acknowledges that legitimate expression of anger can mean the party’s commitment and sincerity to the process. This fact is supported by Forgas (1998) whose research findings found out that negative emotions tend to cause “the arousal mechanism” effect through the devaluation of the other team especially if they are from different ethnic background thus making the opposing party move to submission.

Butt, Choi & Jaeger (2005) even goes further to explain how most people react to another partner’s emotions in a reciprocal manner in his study of “multiple-phase negotiations and emotions” by highlighting some of the specific emotions and their effect on the opponent’s feelings and the strategies to counteract the feelings.

He states that anger led to the opposite side conceding more, less favorable evaluation of the whole process, and more importantly provoked the opponent’s dominating and the yielding behavior, while pride yielded to opposing partner’s integration and compromising strategies application, while on the other hand, guilt on one party led to the opposing party demanding more and expression of satisfaction, and a show of disappointment created bad impression of the opponent (Butt, Choi & Jaeger, 2005)

There is also the aspect of group emotions in negotiation. Scholars have studied group emotions and concluded that what one party feel as a group is very important in the negotiation process as it determines whether the process will proceed or not. One party’s positive emotion will determine and signal the response from another party since this will give the opposite party no chance to engage in negative approaches and irrational behaviors, thus influencing progress (Maiese, 2005).

These two emotional effects (positive and negative) were well expressed in the negotiation between Volkswagen and Chinese. It was clear the Chinese were invoking the Volkswagen team into submission through the use of media. On the negotiation table they stayed clam and disciplined all through according to accounts by Heinz Bendlin, asking numerous questions repeatedly, not as a sign of ignorance but a strategy to get the Volkswagen team to their own submission especially if they (Volkswagen) fumbled in their explanations (March, 200).

Heinz further explains that as a negotiating team, you should all strive to talk in one voice and avoid confrontational arguments amongst yourselves as this would show disharmony and lack of clarity in the negotiating team. Instead, you should strive to solve your problems during breaks or even ask for a break to consult as a way of showing coherency and unity in the whole process (March, 200). According to Butt, Choi & Jaeger’s (2005) analysis, it is good to maintain calmness and regret less even in periods when the opponent seems to not yielding to any conclusion, as the show of otherwise would give them (opponents) an undue advantage and place more demands.

Values of Management

There are values of management or managerial values that have been identified to place international negotiating parties in dilemma depending of the culture placed on them by each country or region. Graham, Alma, Wimsatt, & Rodgers (1994) identifies these values as; competitiveness, objectivity, and equality. In the objectivity perspective, Chinese, just like Americans, make decisions based on pretty hard facts as manifested in this negotiation case study.

For example, Volkswagen advises that when negotiating with Chinese people, “explain facts and figures and your ideas as often as you are asked to do so” (March, 200). According to Fisher, Roger & Patton (1991), Americans too make decisions based on hard facts and they know how “separating the people from the problem” is important in the negotiation process. That is to say, they know the value of substance and personal relationship but at the same time they do not mix the two when it comes to business negotiation, a trait shared by the Germans (Churchman, 1993).

Perhaps this is what the Chinese understood from the Germans during the negotiation and played it safely to the success of the deal. Similarly, experts advise that when dealing with high cultured communities like the Chinese, it is very important not to separate the two aspects, personalities and substance, since this would adversely affect the whole perception due to the fact that these communities hold personality’s impact on businesses dearly (Graham, Alma, Wimsatt, & Rodgers, 1994).

It would therefore be prudent to assume that the Volkswagen team had this in mind when dealing with Chinese, considering the fact that Volkswagen’s team tried to display patience and calmness, even with persistent explanations of facts to them.

The other aspect of negotiation that came into play is the competitiveness and equality in the negotiation table. Graham (1994) displays competitiveness in a simpler manner in his study, Exploration of Negotiation behaviors in Ten Foreign Countries, saying that in the study, Chinese demonstrated both competitive and cooperative behaviors in commercial negotiations, while Germans behaved more competitively. This study may explain the Volkswagens success in taking slightly bigger pie in the deal, ending up with 53% of the total shares of all the sales (March, 200)

The Culture variance and negotiations

In more complex scenarios in negotiations, Chinese, unlike Americans and other western countries, prefer giving a holistic approach to negotiation where all issues are discussed and concluded at once with no order or sequence, and concessions occur on all issues at the end of the discussion (Graham, Alma, Wimsatt, & Rodgers, 1994). On the other hand, while the western countries like giving the whole discussion a procedural approach by discussing issues one at a time, and finally coming to a conclusive summary at the end of all smaller agreements (Graham, Alma, Wimsatt, & Rodgers, 1994).

Who knows whether the Volkswagen team knew this negotiation style of the Chinese? Or the Chinese had known the German’s (Volkswagen’s) approach? May be it would be in order to assume that the two teams had known each other as they approached the negotiation process. As Maiese, (2007) states, “to a Chinese negotiator, the process of negotiating a business deal is a prime time to develop long tern business relationship with a sole and major purpose, economic prosperity, and not the process or the content of the talk, while a westerner will look at it in a problem solving opportunity, where the eventual outcome is the solution that benefits both parties in a way.”

Churchman (1993) thus states that the fundamental difference in self image and expression of culture will in total influence the behavioral predispositions in the international business negotiation setting. It would therefore be right to assume the Germans used the objective approach as a guiding principle in the whole negotiation process to fill the gap of cultural divergence that existed between the two teams and to help them focus in the common principles of the particular negotiation.

Responses to negotiation

In general, Shell (2006) identifies different types of responses as manifested in the negotiation process. The responses will come to play depending on the cultural believes of the parties, the context on which the negotiation is based, and most importantly the interests of each party at display. Shell (2006) therefore sums the traits as; accommodating, avoiding, collaborating, competing, and compromising. He states that accommodating aspect in an individual will make the individual have fun in solving the problems of the other party and strive in the preservation of their relationship as partners.

Shell (2006) states that accommodative people are sensitive to the other party’s emotional reactions as reflected in the body language, and both in verbal and non-verbal signal as expressed by the other party. The avoiding characters do not enjoy negotiation and mostly do it under pressure, when every situation is at stake and they usually defer issues to avoid confrontations, and ironically, the other party may perceive that this is just a tactic or diplomatic style to get the deal on track (Shell, 2006).

He states that the collaborating group as those who find negotiation entertaining and enjoy the process especially if a tough and complex issue is to be solved and that they would use negotiation process to listen to the concerns of the other party, but unfortunately can make the whole process complex through their critical analysis (Shell, 2006). The competing lot on the other hand enjoy negotiation simply because it present an opportunity to win a particular deal thus the strong instinct in their strategic approach to negotiation. This however, makes them cross swords with the other parties because they tend to neglect the long time relationship implication in any deal making process (Shell, 2006)

Lessons learnt

In the Volkswagen and Chinese deal, it is clear to understand why there is interesting aspects in the process of negotiation. There are common principles of negotiations that emerged out to be outstanding. That in any form of negotiation, there is the need to collaborate in order to strike a workable deal with long term goals of closer partnership for mutual benefits. This was seen in the way Chinese handled the whole situation, probing the Volkswagen team in order to get a workable solution to puzzle of mixing their different cultural aspect for a successful business deal (VW…..).

Creativity in setting the engagement rules; for both parties to go a head and get the ultimate benefits of any negotiation, the engagement rules must be set in a more coherent way, that would help in reaching the goals for both parties. This would involve integrating the ideas from different cultural background to enable both team get a more superior result than it would have been in a single cultural approach, as research has proved that ideas from different culture integrated in business always generate better results (Churchman, 1993).

There is also the idea of trust from the beginning to the end of the negotiation. Even though different cultures have different approach to cultivating the idea of trust, it is an integral part of any negotiation process. There are certain techniques to ensure the other party develops the needed trust in any negotiation process. The Chinese appeared cautious in the whole process that meant that the Volkswagen team had to behave in a manner that would ensure their partners trusted them in the whole process and after. This was seen in the way they had a large team in the negotiation and their inquisitive nature in the deal making process, that is, they looked at the whole process in terms of what they would gain in the long term and their partner’s ability to deliver on this on their part.

Diversity appreciation; in any negation, the parties must be willing to accept diversified approach of the other party if the process is to continue harmoniously. The Chinese brought many groups from virtually all sectors that would be affected either directly or indirectly by the deal. Such groups are bound to have diversity in culture, gender, expertise, and many more aspects. The Volkswagen team in this case had a smaller team of negotiators to speed up the deal. They did not bring more people on board to counter the Chinese as some people would have done. This would have been because they (Germans) or Volkswagen in that matter are not used to having such big teams to negotiate out their deals, thus the advice of maintaining a smaller team given by their team after the completion of the negotiation.

Conclusion

Cultivation of friendship and being easy with everything; this would develop a more harmonious way of dealing with issues (Churchman, 1993). As per Heinz’s account, Chinese would develop the friendship approach to manipulate issues or influence the decision process. This would call for creativity in identifying crazy ideas that should not offend anyone (Barry, Fulmer & Kleef, 2004).

It is therefore that process that creates the togetherness rather than dwelling on the whole proposal that would do wonders in the process of negotiation. It is therefore logical to conclude that cross cultural negotiations are complex and thus requires careful, creative and tactful approach that would take into considerations all aspects of relationship and issue or information factors to make a successful and conclusive deal.

It is also logical to conclude that process of business negotiations are diverse in approach and mostly determined by cultural background of the negotiators who would exhibit different cultural behaviors in putting their demand across the negotiation table as seen in the Volkswagen and Chinese deal. It is therefore necessary for researchers to continue with the work of unraveling more into cultural behaviors and business approach of people from different areas.

References

Churchman, David. 1993. Negotiation Tactics. Maryland: University Press of America. Pg 13.

Requejo, William H. &. Graham, John L. (2008). Global negotiation: The new rules, New York: Palgrave Macmillan.

Shell, R.G. (2006). Bargaining for advantage. New York, NY: Penguin Books.

Graham, John L., Alma, Mintu-Wimsatt, & Wayne Rodgers (1994). “Explorations of Negotiation Behaviors in Ten Foreign Cultures Using a Model Developed in the United States,” Management Science, p.72-95.

Fisher, Roger W., & Patton, B., (1991). Getting to Yes: Negotiating Agreement without Giving In, New York: Penguin.

Forgas, J. P. (1998). On Feeling Good and Getting Your Way: Mood Effects on Negotiator Cognition and Behavior. Journal of Personality and Social Psychology, 74, 565–577.

Barry, B., Fulmer, I. S., & Van Kleef, G. A. (2004). I laughed, I cried, I settled: The role of emotion in negotiation. In M. J. Gelfand & J. M. Brett (Eds.), The handbook of negotiation and culture (pp. 71–94). Stanford, CA: Stanford University Press.

Maiese, M. (2005). Emotions: Beyond Intractability. Eds. Guy Burgess and Heidi Burgess. Conflict Research Consortium, University of Colorado, Boulder.

Hall, Edward T. (1981). The Silent Language (New York: Doubleday, 1959), The Hidden Dimension, New York: Doubleday.

Kramer, R. M., Newton, E. & Pommerenke, P. L. (1993). Self-enhancement biases and negotiator judgment: Effects of self-esteem and mood. Organizational Behavior and Human Decision Processes, 56, 110-133.

Butt A.N., Choi J.N., Jaeger A (2005). The Effects of Self-emotion, Counterpart Emotion, and Counterpart Behavior on Negotiator Behavior: a comparison of individual-level and dyad-level dynamics. Journal of Organizational Behavior, 26(6), 681 – 704

March, B. (2009), VW’s Long-Term Negotiation Thinking pays off in China. Web.

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