Negotiating in China – Western vs. Chinese Attitudes towards Risk & Uncertainty

Yesterday I asked my undergrads a question that they had never heard before.

Which is better – a bad decision or no decision?

Every single western student said, “Bad decision”.
Every single student who grew up in a Chinese household (in US or Mainland) said, “No decision”.

This is an old Harvard Business School koan that has achieved the status of proverb in the US –and the orthodox answer is “a bad decision is better – because it leads to more information and progress”. It reinforces an American notion that inertia and indecision lead to failure.

Chinese households teach their kids a different lesson. When confronted with a confusing, dangerous array of options, the best course is to delay action until the situation becomes clearer.

Which is better? Well, that depends on which side of the table you’re seated at – and what the environment is like. But the real point is that Americans and Chinese are walking into negotiating situations with VERY different assumptions about risk and decision-making. This particular cultural disconnect is very dangerous because both sides have internalized their behavior and don’t even consider that their counter-party may see the world differently.

Attitude towards risk: Chinese vs. Western traditions

    Risk vs. Uncertainty
    When Americans use the word ‘risk’ they are combining two concepts. First is the possibility of negative outcome – the chance of loss. The second is the degree of uncertainty – how much do we know about the possible outcome? Americans tend to treat them as opposite sides of the same coin. Chinese decision-makers have no problem with risk as ‘chance of loss’, but they are seriously bothered by uncertainty. We see the manifestation of this in negotiations all the time. When your Chinese counter-party asks for more and more information – or wants to review the same facts many times it may indicate that they still feel unclear about some basic point. (It may be a delaying tactic as well – more on that another time).

    American negotiators tend to dive in to deal discussions and try to get at the “real meat” of the discussion – numbers, projections and deal points. This is sometimes off-putting to Chinese negotiators, who like to spend more time on background and big-picture issues. If you find your discussions hitting a snag on a very basic point – or your Chinese counter-parties ‘just don’t seem to get it’ – then the problem may be that they are uncomfortable with environmental factors. It’s important not to tense-up or get hostile here. Back off a bit, and lighten the conversation. If your Chinese counter-party drifts the conversation back to some big-picture market or operational issue, you may have an indication of what the blockage is about. They may want more information – or may have already made their decision. Either way, it is worth exploring.

    Failure vs. non-success
    To a western manager losing and not-winning are pretty much the same thing. If you didn’t get the deal, then it is your shame and disgrace. It doesn’t matter if you tried your hardest or missed the lead completely. Chinese organizations don’t have the same orientation. If you stick your head up and accept responsibility for something, then you now own that problem. Remember – commissions and bonuses and profit sharing are all relatively new in China. The Chinese worker who had to stamp his name on the bricks used to build the Great Wall didn’t get a bonus for the section that stayed up – but he was sure going to have a bad day if his name was on the brick that crumbled.

    This is one of the many reasons why it’s so important to make sure your counter-party actually has the organizational buy-in or personal authority to execute the deals you are discussing. When dealing with Chinese organizations, don’t look for champions who are going to fight to get your deals approved. You are better off with a counter-party who will introduce you to the next level of the decision making unit. If you are having repeated meetings with a Chinese manager who is clearly taking orders from someone you still haven’t met, then you may want to investigate. You may simply be furnishing your guy with market and product information.

    Opportunity costs
    Chinese deal-makers tend to assume that there is always another opportunity coming down the road. Many western negotiators have been surprised to find that their ‘take it or leave it’ offers get left – often with no further discussion or bargaining. Taking a bad deal is illogical when it’s likely a better deal is about to walk through the door. Even when business is slow, Chinese negotiators tend to be more passive and reactive than their western counterparts. When facing an uncertain or dangerous situation, they will delay and wait for clarity.

    If your counter-party is convinced that there is a better offer waiting in the wings, then you are going to have a hard time gaining concessions or controlling the pace of that deal. Your best option here is to maintain simultaneous discussions with multiple counter-parties and play one off against another. The same Chinese negotiator who is happy to see you slink away in defeat will be significantly less happy if one of his competitor’s ends up taking your money.

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