Americans like to call the deal early. In our sales meetings, managers like to ask the front line guys – ‘which prospects are going to sign?’ Then we start asking when. This is SOP in every sales organization in the US. We like to CLOSE. It’s how we define the sale process.
Chinese don’t operate that way. They circle. They like to know the lay of the land. They don’t do due diligence on deals — they develop relationships. If a Chinese sales guy tells his boss that he’s meeting a prospect for coffee or tea, it’s considered a great sign. Transactions are fluid, transitory and insubstantial. A long-term understanding is one that can survive the vicissitudes and ups & downs of short term transactional and environmental shifts. Good deals don’t close – just bad ones.
Time after time, I hear Westerners complain that Chinese are saying ‘yes’ but then ‘backing out’ or asking for new terms. Americans keep trying to close — and they offer concessions or get aggressive and offer ‘take it or leave it’ final concessions. Discussions get emotional and hostile – and potentially profitable deals are scuttled.
Successful Chinese negotiators break a deal down into 3 potentially long term, overlapping phases. Counter-party selection, negotiating initial terms, — and the crucial phase of negotiating the actual operational aspects of the deal. Americans score points early in the relationship — especially around phase 2. But they tend to get slaughtered in phase 3 — the never-ending story of post contract renegotiations and goalpost shifting.
China Deal Anatomy 101
Westerners generally report that once they’ve been on the ground in China long enough to build up a rudimentary network of contacts that it’s relatively easy to find suitable counter-parties to negotiate with. Agreeing to deal terms and finalizing the contract are also relatively straight-forward. The real problems start AFTER the contract is signed.
Rule 1) Nothing moves forward without a ‘meeting of the minds’.
Understanding is a two way street. Americans still have the bad habit of confusing opposition with misapprehension. We tend to assume that if a Chinese counter-party disagrees with us that the root cause is his inability to understand reality (i.e.: our position) sufficiently. We will hammer him with facts and details – and sure enough we will elicit a dim nod and a “yes, I see”. But that is not a meeting of the minds – it’s the last ditch effort to preserve harmony (or sometimes its sheer exhaustion). Furthermore, when we are negotiating in English with a Chinese counter-party, 100% comprehension is rare. That’s one reason Chinese negotiators will often revisit a particular point over and over – they may not know what you’re talking about. American deal-makers – fearing that the Chinese side is trying to back-track – may turn hostile (or –‘tough’, as we are likely to see it) and resist brining up that point again. A Chinese negotiator is likely to delay the deal-making process if he isn’t comfortable with a specific point – or a specific counter-party. In a perfect world, he would tell you exactly where the trouble lies and the two of you could work out the problem and build a closer, more transparent world. In a slight imperfect world, you would have the sense and experience to pick up on your Chinese counter-parties confusion – which is not always easy. In most cases, both sides seem to move past the bump in the road – Americans in a steamroller and the Chinese with their eyes tastefully averted – and pretend that there is no problem. It’s only later – when progress grinds to a halt – that the truth becomes clear. The deal isn’t closing because there was never a meeting of the minds.
Rule 2) Contracts and agreements mean different things to different people.
To Americans, a contract signing represents a watershed in the sales relationship. They let out a big sigh of relief, shake each other’s hands and start thinking about how to implement the deal (or spend the commission check). But for the Chinese, it’s just another in a long series of milestones — which may still be a long way from doing business.
Rule 3) Patience is profitable.
Experienced western dealmakers will tell you that the most valuable asset in Chinese negotiation is patience. This may very well require internal negotiation with your boss or operations people. If you expect to land in Shanghai on Monday and fly out on Thursday with a signed contract, then you are likely to be disappointed. If you are lucky, you’ll get no deal whatsoever. But if you are very, very unfortunate you may end up with a signed contract that isn’t worth the paper it’s printed on – only your side won’t know it for months.
In China – as in most places – a bad deal is far worse than no deal. Too many Americans inadvertently bully their Chinese counter-parties into signing worthless pieces of paper that will never lead to a realistic deal. The bottom line is that Americans like to close deals – once and for all, with indelible ink on a written contract. The Chinese notion of closing is much softer and malleable, and tends to center around people rather than papers. American dealmakers can still be very successful in China, but they need to adjust their views on when a deal is finished. Take the time to negotiate WITHIN YOUR OWN ORGANIZAITON first to make sure you have the resources and time horizon you’ll need to be successful in China.