Contracting with a Chinese company

How to make it work

 

FEATURED PAPER

By Thelma Philippe-Gérard

SKEMA Business School

Paris, France

 


 

ABSTRACT

Because Western firms want to implement themselves in the Chinese territory, or simply do business with Chinese companies, they need a different process than solely dealing with someone of the same localization, language and cultural customs.

This paper aims at understanding how contracting with a Chinese company is different from the Western way of doing so. That is why as a Western contractor, one must adapt and search for some potential solutions to what could be become a problem during the management of the project.

In order to identify the causes of such a problem and counter them, we used a qualitative and quantitative analysis that allowed us to rank feasible alternatives on how to avoid contract failure when dealing with a Chinese contractor.

Key words: contract failure, China, Chinese negotiation, Western negotiation

INTRODUCTION

Before the 1980s, China was historically an economically closed country. Different wars and revolutions have put the country into turmoil and did not allow a prosper development within the borders. Society lived based on an agrarian economic model, and the majority of people was poor.

“The China of yesterday exists no more. Following different economic reforms since 1978, it is today the second most important economic power of the planet, overtaking Japan in 2010”[1]. China is clearly the leader of the BRICS, an aggregate of quickly developing countries, composed of Brazil, Russia, India and South Africa as well. One cannot today avoid China as a growing market and a power not to be messed with. Thus, multiple firms, for instance Starbucks, Ikea or H&M[2] have successfully established themselves as new competitors to ancient Chinese firms (Hola, historical main competitor to Ikea, the Hong Kong-based Pacific Coffee) and their installation in the Chinese territory is a proof of contracting done well.

Unfortunately, time has proven that collaboration between Western and Chinese has not gone well in general. An oil company had their sales executive travel to China to complete a deal with a Chinese company[3] on which he had been informed of basic Chinese etiquette, only to urge the Chinese company not to take days to sign the contract. The Chinese company then adjourned the meeting and signed a deal with the competitor. Another company sent a low-level executive to negotiate a contract with a Chinese company: the latter felt insulted by it and refused to sign the contract. These examples are representative of a recurrent issue happening when a contract is dealt between a Chinese and a Western company.

Contract failure between a Western party and a Chinese party thus results more often than not in an impossibility to negotiate the terms, come to an agreement and find a way to properly manage the contract. Why is it, from a Western point of view, that difficult to sign a contract with a Chinese company? What Western companies fail to take into account is that Chinese don’t sign a contract like them. Because of cultural and social differing viewpoints, if a Western firm tries to go into a contract meeting the same way it would go to sign a contract with Apple or Walmart, for instance, it will not go well. The Chinese function vastly differently, and for a partnership to be signed between a contractor and an owner, Western companies must adapt to their rules, follow Chinese principles and have an accordingly behavior. One could say that to manage a contract with a Chinese firm, you must do it the Chinese way.

This leaves us with our main problem: how to avoid contract failure when dealing with a Chinese contractor? There are some processes that can be followed to successfully sign a contract with Chinese. We will also aim to answer the following question: how to prepare best to make the contract management process as successful and smooth as possible? What is really managing a contract the Chinese way?

More…

To read entire paper, click here

 

Editor’s note: This paper was prepared for the course “International Contract Management” facilitated by Dr Paul D. Giammalvo of PT Mitratata Citragraha, Jakarta, Indonesia as an Adjunct Professor under contract to SKEMA Business School for the program Master of Science in Project and Programme Management and Business Development.  http://www.skema.edu/programmes/masters-of-science. For more information on this global program (Lille and Paris in France; Belo Horizonte in Brazil), contact Dr Paul Gardiner, Global Programme Director paul.gardiner@skema.edu.

How to cite this paper: Philippe-Gerard, T. (2019). Contracting with a Chinese company: How to make it work, PM World Journal, Vol. VIII, Issue V, June.  Available online at https://pmworldlibrary.net/wp-content/uploads/2019/06/pmwj82-Jun2019-Philippe-Gerard-contracting-with-a-Chinese-company.pdf

 


 

About the Author


Thelma Philippe-Gérard

Paris, France

 

 

Thelma Philippe-Gérard is a last-year student at SKEMA Business School, campus of Paris, France. She is currently a student of the PPMBD (Project and Program Management & Business Development) master.

This paper was produced during the International Contracts Management course she followed under the guidance of Pr. Paul D. Giammalvo, the Course Director, and Pr. Paul Gardiner, the Program Director. Being deeply interested in Chinese customs and international negotiation for having previously studied in China, she deemed interesting to share an analysis on something she could see with her own eyes.

She wishes to work in the project management field, most likely specialized in communication and digitalization. She is closely following topics related to knowledge management, quality management and open innovation.

Contact info: thelma.philippegerard@skema.edu

 

[1] Liping, H. (2013). CHINA AS THE WORLD’S SECOND LARGEST ECONOMY: QUALIFICATIONS AND IMPLICATIONS. China and East Asia, 35-53.

[2] Deng, L. (2018, January 7). Western Companies in China, what’s their edge? Noteworthy – The Journal Blog

[3] Graham, J. L., & Lam, N. M. (2003). The Chinese negotiation. Harvard Business Review