One of the things I tell clients early and often is that they need multiple counter-parties every time they start negotiating a deal in China. Yes, I know how time consuming and frustrating it can be – but in the long run there are few negotiating tactics that will serve you better in China.
I recommend that negotiators who are new to an industry, a market or China itself to follow a simple pattern. 1) Open up negotiations with a major supplier or player – preferable one who has dealt with overseas businesses before. Learn about the market, the products and the critical success factors. 2) Based on what you have learned, open up negotiations with at 2 other counter-parties. You’ll now have at least 2 potential deals in discussion at any given time – even if one of them drops out or decides to give you the ‘now or never’ ultimatum.
One of the biggest problems I’ve seen with Western-Chinese negotiations is that westerners tend to be negotiating with an inappropriate person or organization – but they don’t find out until it’s too late. The rationale for this highly self-destructive behavior is that it is so hard to get that first negotiation going that the US dealmakers just don’t have the bandwidth or time to start a second one. Chinese negotiators play to this by over-scheduling visiting Americans with unnecessary meetings and visits. Well – it’s time to change your game-plan. Once you have had your initial meetings with an industry leader, you are now much better equipped to open up new fronts and get more players involved.
Setting up additional counter-parties to compete for your business is an underused negotiating tactic that has a very high success rate in China – but it does require some cultural understanding and solid time management. It raises your BATNA assures you better sources of information, and gives you pricing leverage for that crucial last-minute deal-term adjustment.
The only question that remains is – do you tell one counter-party about the existence of others? I have only three answers for you – Yes, No and Maybe.
Yes, tell your Chinese counter-party that you are talking to others.
An unfortunate aspect of negotiating in China is the tendency to be too clever & over-think things. ‘I know that he knows that I know, so I’d better do X.’ Avoid intrigue and subterfuge until you absolutely need it. If your Chinese counter-party is reputable and experienced, then he will expect you to shop your deal around. Competitive pressure may be the only kind of pressure you have at your disposal. Definitely let is be known that you are seeing other potential partners.
No, there are cases when you shouldn’t tell your Chinese counter-party
that you are speaking with others – at least not now. There are 2 broad classes of counter-parties you DON’T want to inform about your plans. First, there are the people you don’t trust. If your first contact in China is a sleazebag, then you want to avoid giving him ANY information about your plans. Knowledge is power, and if you have already determined that you don’t want this guy in your future then don’t build any more bridges. The second category of NO is for the guy you are already working with. Let’s say you’ve got a relationship with a counter-party that started out great but is now entering starting to sour (which is more common in China than in other places), and you are starting to shop around. This is something you should NOT mention to your first counter-party – at least until you have already placed a test order with the new partner. Once you are ready to leave, then you can renegotiate with the original counter-party.
Maybe – telling your original counter-party is a judgment call.
Basically, if you are still in the big-picture, strategic stage of your decision-maker then brining in other counter-parties is less effective. There is still have lots of information to glean from your initial counter-party, and you don’t need to show the whole world precisely how ignorant you are about specifics. If you are relatively weak in terms of Balance of Power than additional counter-parties will only help you if they are viable and well-regarded. Having additional counter-parties is a great tactic as long as it doesn’t cause acrimony or suspicion (directed towards you).
HINT: If your Chinese counter-party seems better at subterfuge and intrigue than he is as delivering on market basics, then you need to find another partner. If YOU are spending more of your time concocting top-secret double-reverse fakes instead of doing serious market analysis or product development, then you need to rethink your priorities.
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