Last week we introduced the notion of a Chinese PPP – Perfect Partner Profile.
While the idea of knowing what you seek before you go out and start looking makes sense anywhere, many western owners & managers who come to China don’t have clear enough goals and expectations. Instead of doing the legwork to clarify their requirements, they have a tendency to ‘dive in’ and hope that the process of searching for an appropriate supplier, buyer or partner doubles as basic business research. It usually does – but not in the way the western dealmaker expects. He often finds that bitter experience is the best – but most expensive – teacher.
I’m still looking for a snappy mnemonic, but the key today is GVB:
Analyzing your Chinese PPP – the Perfect Partner Profile – using the GVB framework.
All managers know about SMART goals and systematic planning. The problem is that when negotiators come to China, they tend to have less clearly formed goals — if they are lucky — or counterproductive goals if they are not. The goal setting problem has three main sources:
• Lack of knowledge and experience concerning the new environment. Goals for new ventures are often set by people who simply don’t know much about China. This can be on-the ground hands-on negotiators who simply walk in with the wrong assumptions or a lack of experience. This is not too bad a situation, because they will have a steep learning curve and will quickly figure out what the reality on the ground is. But when goals are being set by senior managers in NY or Boston — negotiators have a very big challenge. Hint — spend your time on internal negotiations in the early stages and make sure that your own organization has reasonable expectations.
• Opacity and a dearth of good sources.
• Manipulation & duplicity on the part of counter-parties and stakeholders, such as bureaucrats, consultants, etc.
Sophisticated negotiators know how important it is to try to anticipate the goals of their counter parties, which is particularly difficult in China. Sometimes this is due to cultural difference, but often it is intentional on the part of Chinese counter-party, who consider duplicity and misdirection more common negotiating tools than most Westerners do.
When deciding on your own goal system, pay attention to the scope of the deal. Many westerners find themselves coming to China for a supplier or a distributor and leaving with an equity partner in a far-reaching joint venture. While there’s nothing wrong with ambition, make sure that your core needs are being met. If you need to sell your products into the Shanghai market then you need to make sure your new partnership can take care of that. Many westerners take their eye off the ball, wrongly assuming that their new potential partners have the will and ability to execute on the simple but difficult tasks like selling.
Much of the sub-optimal negotiating in China can be traced to an overly narrow range of variables. The best negotiators in China have the experience and creativity to include a wide range of possible deal points. Westerners who confine their discussion to price and other monetary issues often get blindsided by two other key variables – Time and Knowledge. You may not think that these are key variable – but your counter-party likely does. Remember that VALUE is a matter of opinion and analysis — your counter-party will have a completely different view on how various variables are valued. Trying to anticipate the counter-parties variables is tough. Acknowledging that Chinese counter-parties value variables differently than you do is a great starting point. One of the pitfalls that western negotiators frequently encounter in China is that they have trouble anticipating the priorities and values of their counter-parties.
Time & Money. ‘Time is Money’ is an Americanism. Your Chinese counter-party does not value time the same way you do – either in the time it takes to complete a business deal or in terms of schedules, timetables and due dates. When it comes to money in China, you counter-party tends to feel short term is better than long term. If you are looking for a long term deal, make that central to your negotiation. Westerners tend to expect all of their relationships in China to be very long term, but more often then not it is simply not the case. It’s true that Chinese business-people put a lot of value on relationships – but that doesn’t mean that they are easy to develop. Westerners coming to China have to distinguish between a long term relationship and a series of one-off deals over a long period of time. Be careful about giving up short term benefits for long term gains.
Time: The Achilles heel of western negotiators. Chinese are masters of time management – and it’s YOUR time that they will manage. Chinese negotiators are great at running down the clock when they know about your deadlines and time pressures. Westerners often complain that Chinese dealmakers waste hours on endless meetings and relationship-building socializing. Sometimes this is a genuine effort to get to know more about you and your intentions, but often this is nothing but a pressure tactic to win favorable terms from westerners with plane tickets in their pocket.
Knowledge: Chinese counter-parties have a strange attitude towards knowledge and intellectual property. While they definitely see the value in knowledge, they are loath to pay for it. They prefer to get it for free – often by engaging in lengthy negotiations. This is one reason why protracted discussions with Chinese negotiators will suddenly fall off a cliff. The western side thinks that things are going so well. The Chinese side thinks that things have already gone great – and are satisfied with what they’ve already gotten.
BATNA stands for Best Alternative To No Agreement. It’s what happens when the other side gives you a firm and definitive “NO DEAL”. Negotiators with the highest BATNA have the most power – and those with lower BATNAs are in a position of weakness. Those who don’t know their own no-deal options are in the weakest position of all, because they tend to panic and accept unfavorable terms as the clock ticks down. The best way to raise your BATNA in Chinese negotiations is to have other options – like another counter-party or two. Nothing gives a western negotiation more power than market knowledge and a range of willing potential partners. That’s why advanced planning is so important.
Next: Deal Structure: Contracts, Penalties and Incentives
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