Watch out for these shady counter-parties in a China Recession

One technique that many negotiators use to raise their BATNA (Best Alternative to No Agreement) is to find a broad range of counter-parties to deal with.  If there is another candidate waiting in the wings, your ‘no-deal option’ becomes much stronger.  You can always walk across the street to your new potential counter-party.

This is a great idea, but in China you have a few extra concerns.  

1)  Vanishing counter-parties.  Small businesses – particularly if they are service providers – tend to vanish quickly and quietly in China.  Onerous bankruptcy procedures and red tape make it easier to simply walk away.  This isn’t too big a problem if it occurs early in the negotiation process — but can be disastrous if you are in the final stages and have already turned down other proposals.  

2)  Creepers.  Small Chinese businesses are more comfortable exploiting niches than waiting out a slow market.  Whether or not they actually know how to provide the niche product or service is a secondary concern.  Be on the lookout for Chinese negotiators who are subtly expanding the scope of their business to accommodate your needs.  A computer programmer who suddenly starts promoting a web design service or an accountant who offers to broker an M&A deal are examples of this kind of “creeping business scope”. There’s absolutely nothing wrong with a business expanding into related fields — unless they are making the decision at the negotiating table.  Check references for specific jobs and tasks — not just general industry competence. 

3)  Jacks of all trades and posers.  Similar to #2, but lacking deep specialized skills in ANY field.  These are the guys who will do anything and try everything.  From the bicycle mechanic who takes a shot at refrigerator repair to the recent grad who feels qualified to handle your WOFE (wholly owned foreign enterprise) registration — these guys are cheap, cheerful and deadly.  The good news is that they will try just about anything for very little money.  The bad news is that the professional you have to hire to fix the mess will charge you double.  

 Due diligence is crucial in China during the best of times.  It will suicidal to sign deals with untested counter-parties if there is a recession in China

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