Americans like contracts. We feel that a well-written, signed contract means that we have built a stable, permanent business arrangement. Chinese negotiators take a somewhat different view. While they feel contracts are an important step towards forming a business arrangement, to most Chinese deal-makers a signed document is more of a statement of mutual understanding of the situation at one specific point in time.
Americans see contracts as independent constructs that put limitations and obligations on both signatories. Chinese negotiators see contracts as snapshots of agreements at a specific moment under specific circumstances. Americans view contracts as a destination, while Chinese view them as milestones.
This isn’t a matter of semantics or rhetoric. It’s a completely different orientation to the deal-making process. The upshot is that many American negotiators get on a plane with a signed contract and a wholly erroneous belief that they are doing business in China. Their Chinese counter-party heads back to his office believing that he has begun a long process of starting to do business with an American. While the situation isn’t necessarily going to end badly, there is certainly a disconnect between the two sides that has the potential for disaster.
Americans doing business in China have to differentiate between doing deals and doing business. Chinese negotiators tend to see business agreements as far more fluid and flexible than Americans. These
Execution: Americans tend to equate a signed contract with deal execution. In China, many agreements simply never progress to the actual business stage. Chinese counter-parties often have to ‘sell’ their deal internally – even after a contract is signed. They expect their new American contact to assist – or at least show flexibility – as Chinese work to secure internal approval and buy-in. When the American side displays impatience at the delay or re-negotiation, deals quickly fall apart. Many American deal-makers find that their hard-won concessions and horse-trading amount to nothing in the end.
Renegotiation: Be prepared for ongoing negotiation and haggling over deal-points you thought were already settled. Experienced expats warn newcomers to China that nothing is really settled until the money is in the bank. Negotiation never really ends in China – and waving a piece of paper in front of your Chinese counter-party accomplishes very little. Make sure to build sufficient slack into your timetables to allow for re-renegotiation.
Conflict resolution: Lawsuits are rarely a viable solution in China. Even arbitration is a long-shot. It’s ok to point out to your Chinese counter-party that the matters in question are explicitly covered in the contract – but this works much better as a starting point than as a final argument.
Exit strategies: It’s a very good idea to discuss how and when your deal will end – unless you want it to end badly. Even if you don’t plan on including this in the contract document, you should at least broach the subject of how the relationship will end early in the negotiation process. Americans assume that one successful deal will automatically lead to subsequent deals with the same terms and conditions. Your Chinese counter-party may not object to more business – but he may want to change the deal.