5 The expected life span of a strategic alliance will determine the length of the partners’ relationship and set the conditions established by the partners to dissolve it.
Negotiations concerning the foreign firm’s market entry should be
‘co-operative’ in nature rather than ‘competitive’, and the relevant parties should seek common ground that accommodates a win/win solution for each partner. If negotiations are characterized by hard bargaining, they are candidates for failure because the purpose of such negotiations is to benefit all participating parties. The formation of an international strategic alliance is based upon the view that the new international strategic alliance is not a zero-sum game but rather one in which there are synergistic solutions benefiting all participating parties. This includes business norms, underlying motivations, attitudes, expectations and assumptions. The negotiating culture must move all participating partners to positions where benefits to all parties are enhanced rather than resulting in an effort to maximize a partner’s concessions. It must be recognized that this will be difficult for the local Chinese manager as the culture of negotiating in China is more likely to be a win/lose approach. The cultural background and the corresponding contractual resource environment, including the stage of local economic development, the levels of bureaucracy exercised by the relevant partners and local government policies, are believed to exert critical influences on participating partners’ business norms.
On the whole, cultural complications encompass the interpretation of behaviour, language and target expectations from forming an inter- national strategic alliance. When firms negotiate a strategic alliance project, relevant negotiating parties may commit to various exchanges of their resources, knowledge and expertise. These exchange activities lead to different decisions and consequences for the participating firms.
This is especially true where the firms have differing levels of technology, cultures and economic systems. The objectives that each partner will set for the international strategic alliance will initially be based upon the knowledge and resources that each party possesses and the organizational system within which they normally operate. Over time, the resources will grow through various exchange activities facilitated by ownership, corporate governance and information exchange. The negotiation process has to establish a level of synergy between the competing objectives of all the participating parties.
The Chinese negotiation team will tend to seek a gradual solution and refine its strategic goals as the negotiations progress since most
Chinese negotiators believe their strategic goals and scope for establishing a strategic alliance’s investment can be prepared in a deterministic way.
The process of information exchange establishes what each firm’s ownership inputs might be and increases the level of knowledge of all the parties about what is possible. Micro information exchange between participating parties relates to the particular details of the market entry, the management and operating structure, the technologies, expertise of the parties, the local legal framework and so on. The combination of these elements is unique to the parties involved in the negotiations, and thus building a picture of what resources might be available to a strategic alliance in China is different in each negotiation. There is a heavy burden placed on the negotiating teams to optimize resources and the objectives set for the strategic alliance. The cultural background of the relevant parties heavily influences the way that the information is exchanged. Experience indicates that for discussions about critical resources and knowledge, participating parties may have to meet face to face, although it is possible to exchange certain minor information details by telephone, fax and e-mail.
The outcome of an international strategic alliance may be very different from what would happen if each company were to set up a wholly-owned subsidiary. At the initial stage, each party strives to put the other in a position where what they offer is valued highly and what they need is ascribed a low value. The Chinese party needs technology and capital from foreign firms. The foreign firm wants to get into the Chinese market or to expand its business activity. Each side will try to obtain concessions from the other in order to further their own perceived strategic targets. This process of negotiation can last throughout the strategic alliance formation with positions sometimes reversed because of contextual changes (such as market shifts) or if significant changes in laws, rules and regulations occur. There are many objectives or hidden agendas held by the negotiating parties that are likely to appear entirely incompatible or unacceptable to the other. For example, the foreign partners may seek to impose their own technical norms on the whole industrial sector as this will help them to exploit their existing global distribution channels so that at the end of the joint venture term they can set up a wholly-owned subsidiary with the market knowledge they have gained from operating the joint venture. Such objectives would be unacceptable in principle to the local Chinese side. The negotiated outcome is usually a collective reflection that best meets the original objectives of the individual partner firms. Few Chinese managers wish to take responsibility alone for making a decision that may have
important consequences for the international strategic alliance at its formation and will always need to refer any decisions back for consider- ation by all of the senior managers in the local company.