Negotiating in China: Chinese Math

I finally gave my International Negotiating class some numbers to play with. For the last few weeks, I’ve given business undergrads case studies that didn’t include specific figures for profit, loss, cost, price, valuation etc. Drove them nuts. They came in looking for the math. Instead they had to figure out strategies and goal systems. They were NOT amused. But when forced to consider goals, methods and contingency plans, they did great. Of course, the moment they had numbers to manipulate they turned negotiating into an arithmetic exercise. Sound like anyone you know?

Westerners coming to China have a habit of seeing numbers as an international language that can paper over cultural and linguistic differences. Those of us from the US are particularly susceptible to this misconception. Mainland Chinese negotiators used to consider this ‘show me the money’ attitude rude and abrupt – but now I think they find it funny. They’ve certainly learned to use it to their advantage in business.

Negotiating with Mainland Chinese counter-parties about numbers before you have reached a big-picture meeting of the minds is simply suicidal. Westerners whose deals run aground in China usually find their real troubles start AFTER the contract is signed. The biggest problems aren’t about quality, delivery or costs (those are common problems – but really are just symptoms). The REAL problem is when you can’t get your Chinese counter-party on the phone to try fixing the problem. While you were doing complex calculations about profit margins and non-compliance penalties, the Chinese counter-party was doing a much simpler kind of math – ‘Is this going to be a one-time deal or is there a real opportunity for a long-term relationship?’

3 Kinds of China Deals

    One-time deals (or ‘one-offs’). Pay money, get something in return. If the numbers work then there’s absolutely nothing wrong with one-off deals. We do them all the time. They are simple, clean and can be mutually beneficial. The only problem here is that you may think you are starting a long-term relationship – so you don’t take the trouble to find alternative sources or counter-parties. Remember – building trust through successful transactions is a Western notion. Chinese negotiators prefer to build a trusting relationship FIRST, and then start doing transactions.

    Long-term business. If you take the time to build a relationship first, you’ll find that the numbers part of the conversation with your Mainland Chinese counter-party go a little smoother – and can carry more weight in the event of problems (though there are no guarantees). A long-term partnership in China is a possibility – but it’s certainly not easy or convenient for those of you based in the US. The process of building a real relationship with a Chinese counter-party can be long, time-consuming and tends to focus on non-business issues. In other words, by NY standards it’s a huge waste of time. It’s supposed to be. Relationship-building is the Chinese version of due diligence. They are trying to gain insights into your character. If you roll into Shanghai or Beijing and immediately start asking indiscreet questions about earnings and profit margins and prices, then you are giving your counter-parties a great deal of information about who you really are. Their verdict may be that you are an astute business-person – but a shallow and untrustworthy human being. They’ll sell you stuff and take your money, but you don’t have a real relationship.

    Many one-off deals. I often hear Americans say something like, “but Mr. Chen and I have had a relationship for years”… and then tell how badly things suddenly went on the last deal. There was never any long-term relationship – there was a long string of one-off deals. The Chinese side of the arrangement was happy enough to keep doing business when it was advantageous to them, but when the situation changed then their choice of counter-party changed as well. Many westerners think that because they have been doing business for a long time that they “have guanxi” with their partner, supplier or client. It doesn’t necessarily work that way.

Westerners who come to China with a ‘numbers only’ approach will do OK if they are buying materials from a source with a good track record and relevant references. But if you want to sell into the China market or form any kind of long-term relationship with a Mainland counter-party, then you should worry more about relationships – and less about the math.

Next: Calendars first, calculators last.

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