Government owned companies: what we should know

In the November-December issue of ItaliaImballaggio we anticipated the characteristics of the state-owned Chinese company and the differences compared to the private ones, with the consequences at the negotiations table for the European supplier. Now we tackle the subject of negotiations, illustrating a typical situation, the misunderstandings that can arise and the approaches one needs to take.

Different styles of management. The managers of an SOE or state owned enterprise may have reached their position not or not only because of their technical knowhow or experience built up in the sector, but aboveall because they enjoy the trust of the principal state shareholder: a trust obtained both due to managerial merits as well as a consequence of political and institutional contacts.

Used to dealing with highly knowledgeable figures professionally speaking, the European manager may find himself in the embarrassing situation of, for example, having to deal with a purchasing head who have little knowledge of his company’s products. The consequences may be two: he may underestimate the Chinese side or may think that for them the technical aspects of the negotiations are not very important.

At this point, one has to add another consideration. In the SOEs there is a fairly common style of management that can be translated by the formula “manage the people instead of the projects”: it is hence very frequent that executives at all levels deal more with human resource management (appointments, managing the team, transfers to other sections, etc.) than the single projects.

This managerial approach, combined with a possibly scant knowledge of the products, can in this case too induce the European manager to believe that the section head of a Chinese SOE has got the job thanks to his (or her) connections, without suitable qualifications.

Don’t underrate the other side. Watch out though, don’t be deceived. Indeed, it may well be that the head of a department has just been transferred from another SOE or from another branch in a job rotation program, very common within state companies, and is hence not familiar with the new products. But you can be sure, he will always have a highly prepared team behind him. Consequently, the simple fact that the purchasing head, during the meetings attended personally, does not show great interest and/or delve into technical or commercial details of the project, should not bring the European supplier to underestimate the situation and prepare the meeting not as thoroughly as usual.

Watch out for misunderstandings. Direct consequence of both the style of management as well as the somewhat scant familiarity with the product is the fact the managers of SOEs prefer to organize work meetings and the inevitably associated dinners much more around strategic long term issues rather than project specific, tactical aspects. Instead of discussing the technical or commercial details of the projects, the Chinese side might prefer to discuss for example the positive economic effects on the area where the factory is located, or present future expansion plans to the European supplier delegation.

Needless to say these discussions are very often considered a waste of time by the European managers, who travel to China in the hope of closing negotiations or, at least, of clearing up technical or commercial aspects that still need to be resolved.
But then, rather, they find themselves listening to speeches full of political jargon made by Chinese managers, more interested in boasting about the virtues of the project and the advantages for the local economy that derive by, for example, building one of the world’s largest plants in that specific industrial sector.

At this point one needs to mention that the Chinese side are perfectly aware of the need to tackle and clarify specific problems during the visit of a potential supplier, and that they will do everything to find the time needed to carry on an in-depth discussion on technical and commercial aspects that are still open. This will happen, for example, in a moment in which the Chinese executive is absent, and his managers can hence tackle more specific issues without letting their boss lose face. If this is not the case, and all the meetings planned are carried out with a “political” slant as mentioned above, this would be a clear sign that the Chinese side is not really interested in clinching any deal.

Take the situation in your hands. Certainly one can - rather one must - tackle the problem proactively. This means managing the meetings in a resolute fashion, so as to find a compromise between the needs of the Chinese side to make extensive strategic speeches and the needs of the European supplier to tackle details more closely associated with the project.

One should start to tackle all this before setting out on ones journey, skilfully organizing the time to be spent with the potential clients. In other words, the time planning of the visit should not be entrusted to the Chinese side, and neither to any co-workers resident in China: in most cases, due to deference and in order not to contradict the customer, this would give the SOE management an opportunity to arrange meeting at own will.

Memorandum. The articles of Alessandro Zaccarini published in ItaliaImballaggio starting from june 2013, can be consulted on our website www.dativoweb.net. A reminder of the titles: “Planet China”, “The right contact”, “Doing and undoing... to get to ones goal”, “Smooth relations”, “When the customer is public”.

The “Planet China” column is by Alessandro Zaccarini, manager and consultant on the subject of work relations and company management. With a degree in mechanical engineering from the Milan Polytechnic, with specialisation in automotive engineering from the University of Stuttgart, he has studied the history of the Chinese economy at the universities of Cambridge (UK) and Peking (where he has been living and working since 2003).
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