Chinese SOE Negotiating Behavior

Don’t assume that all Chinese counter-parties negotiate the same way. Americans in China have a tendency to seek out primary decision-makers at private Chinese firms – but current trends favor Chinese entities that are either state owned or heavily influenced by government policy. A Chinese firm’s parentage or ownership structure isn’t as readily apparent as it once was, but if you have reason to believe that your counter-party is following an official state agenda then you have to adjust your negotiating approach.

What is the profile of a bureaucrat-negotiator in China?

    Adversarial, Win-Lose & Competitive
    Bureaucratic negotiators in China take their cues from pre-reform managers who operated in an environment of shortage and opacity. Expect your official relationship to be a bit more adversarial and competitive than your dealings with pure-private Chinese firms. These are zero-sum-gamers – any gain of yours is perceived as a loss to them. They tend to be more suspicious and nationalistic than sole-owners, and will end up following the official agenda very closely. These negotiators firmly believe that the balance of power favors them – so don’t be surprised if they negotiate “down” to you. No matter what the title on their business-card, you can expect SOE or bureaucratic Chinese negotiators to behave like executives at a monopoly – representatives of a powerful firm who are carrying out the goals and strategies of a committee.

    Adjust your variables
    Time has less value to Chinese bureaucrats than it does to private negotiators. Information has more – and they will tend to play their cards very close to their vest. Chinese bureaucratic negotiators view ‘relationship’ as both a negotiating tool and a bargaining point. This is the kind of counter-party that expects to be banqueted and entertained. The key here is that he believes you are scoring points when he agrees to your invitations, so behave accordingly. His attitude is that by allowing you to develop a relationship he is making a concession.

    Goals are not flexible
    Their goals have been developed somewhere higher up the ladder, so you are best off determining their true objectives early and then making a decision about whether or not it is worthwhile to continue. You are not going to get them to change their goals at the table – even if they lead you to believe that it is possible. This kind of Chinese negotiator is difficult – but surprisingly honest. They will stay true to their initial position – even if during your discussions they suggest options or lead you to believe that they have the power to change deal fundamentals. The only real negotiation about goals is INTERNAL – and it won’t involve you. If you can’t live with their initial statement of goals, then consider breaking off discussions early.

    Negotiating styles – Avoidance and Competitiveness
    They tend to believe that they are the only game in town – which is their main weakness. You may not be able to directly force or pressure these guys to do anything, but you can win major concessions by playing off their fear of loss RELATIVE TO OTHER SOEs or Chinese bureaucracies. This type of negotiator doesn’t want to see you win – but he lives in mortal terror that another Chinese competitor (from a different bureaucracy or network) will gain an advantage. Don’t overplay a weak hand, though. Chinese bureaucrats have incredibly long memories.

    Tactics and counter-tactics.
    Bureaucrats will attempt to intimidate with the brute force of their organization and wear you down using ‘broken record’ techniques. (For those of you who don’t know what a vinyl record is, the expression “broken record” means to keep saying the same thing over and over). They will frequently appeal to a higher authority – but you will never meet the real decision-maker or even know who it is.

    There are a few effective counter-tactics that you may employ. The first is to make your initial negotiation about information – not the final deal terms. Learn as much as you can about market conditions, pricing, organizational structure, competitors (both yours and theirs) and what they consider to be key variables. Once you have learned a bit more about the lay of the land, try your best to develop a second (or even third) counter-party. If you can play one side off the other, then a viable counter-tactic is the ‘take-away’ where you apply pressure by subtly threatening to take your deal elsewhere.

Remember to be subtle and polite, even as you are trying to stick a knife between one another’s ribs. This type of negotiator sometimes considers Americans to be impatient and brutish, and if your behavior bears this out you will find that many doors are closed to you in the future.

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