Negotiation Simulation: China-deal approval process is not the same for all parties.

A new semester of International Negotiation is starting in Shanghai next week, and I am fine-tuning the 10 week simulation I run.

The Simulation
Teams are selected representing an American MNC trying to enter the China market, a Chinese-Western JV offering advice, and a Chinese SOE acting as either competitor or partner to one or both. The class meets once a week for three hours – and about 1 hour is devoted to in-class ‘meeting-room’ discussion. The scenario starts with the early stages of negotiation (counter-parties have met but not made initial proposals)

I try to keep the deals simple and pay a lot of attention to the process and setting a realistic environment. That’s why I always build in bureaucracy and red tape to my undergrad negotiating simulations.

Bureaucracy and Reaction Time
All agreements must pass through an approval process – with a time delay representing the amount of red tape and the opacity of the process.

    Entrepreneurs can make an agreement any time. They are required to make full reports of their decisions immediately – but they can pretty much run & gun as far as their freedom to make agreements and proposals. These teams are always shocked at the amount of paperwork they accumulate in a short period of time. Just writing up summaries of 3 or 4 new proposals a week is time-consuming – and then they have to juggle the revisions and compromises from existing (previous-week) deals. The time and expense of compliance and reporting is often overlooked by negotiators – but this is often what makes business deals sink or float.

    Multinational Corporations (MNCs) must make a written proposal, and if it is approved they will get permission to start the deal 2 hours after submission. I they come to class with proposals, they can sign an agreement in the last hour of class. Since they are allowed to meet informally with potential counter-parties between classes, this is a powerful tool for those who are willing to meet outside of the ‘boardroom’ sessions. MNC negotiators are always shocked when the official channels respond with a NO. Later, they learn that a NO is not nearly as bad as a “Conditional approval, with changes to your timetable, staff, goal and product or service”.

    Chinese State Owned Enterprises (SOEs) must wait 5 days. If they submit a deal in class, they will get a response 2 days before the next class. This tends to encourage the more bureaucratic negotiators to take their time with details – and make promises first and seek approval later. Whether this makes SOEs a stronger counter-party or a weaker one depends on the personalities involved – and on the market environment.

Does this sound reasonable? It has worked fairly well in the past, but this time I’m working with a larger group. Input or suggestions are always welcomed.

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