Negotiating in China – Return of the Hydra

Negotiators in China sometimes describe their challenges in mythic terms – and in at least one respect they are right. Just as Hercules had to do battle with the many-headed Hydra, westerners coming to do deals in China often find that they are facing a counter-party that seems to sprout new heads each time it seems that they are making progress.

As China moves away from a privatization model towards a Statist model – characterized by increased regulatory and bureaucratic influence – decision-making within Chinese organizations becomes even more complicated. For a brief time in the earlier part of the decade it seemed that decision-making in China was becoming more streamlined and transparent as private companies emulated their western counter-parts and partners.

Now, however, Chinese corporates seem to be reverting to an hour-glass shaped organization chart that most westerners access just below the thinnest part. Newcomers looking for a standard A-shaped structure only focus on the immediate chain of command and think that they will be successful if they can win over the decision-makers in the room. Unfortunately, there is often a wide range of other decision-makers, stakeholders and veto-powers that have all have to grant explicit or tacit approval. This is particularly problematic since many of these powers have no need, interest or desire to engage in active negotiations. Their power is derived from ambiguity and limited access.

Who are these mysterious powers? In China, there are four general types of power that have veto power over your deal.

    Private – The power structure within your counter-party may have recently grown more diffused and murkier. As Chinese companies shift and react to tougher economic times, they may have sought out new partners, supporters or investors. Everyone has a voice – which means everyone gets a veto. If you are trying to buy something at generous terms, than you probably won’t run into too much resistance. But if you are selling, then expect to face a series of uphill battles. Hint: Don’t even bother trying to sit down and pitch everyone involved. You are best off boiling your main deal-points down to a single simple presentation that YOU have translated into Chinese. Make sure that your supporter on the other team is comfortable working with this presentation and that the Chinese is accurate and appropriate. This guy may be your champion or he may merely be a messenger – but he will not act as your guide. You have to rely on him to act on your behalf – and the more tools and ammunition you can give him the better. Remember – the people who say “no” may not be experts in your field or understand the benefits of your offering, so make things as clear as possible.

    Bureaucratic – Don’t confuse Chinese bureaucracy with the Chinese government. Chinese bureaucrats are about compliance with rules and regulations. Don’t even start looking for approvals until ALL your paperwork is in order. In other words, you have to find out what you need and how to get it. In years past things were relatively more relaxed in Chinese bureaucracy, but now you can expect your entire deal to come to dead stop the moment one stamp looks a bit crooked. These folks can not say “yes” to your deal, but they can certainly say “no” – or worse, they can say “maybe later”.

    Governmental – National, Provincial and Municipal. The key here is to steer as clear of them as possible. Western business is not in favor right now. Even when Chinese officialdom felt that overseas deals were good for China, dealing with the government was difficult and time consuming. Right now the process is opaque and adversarial. The best advice is to avoid trying anything that doesn’t have well-established precedents in the jurisdictions you care about. Be very wary of deals that involve investment or up-front payments before all the approvals are secured. If you build a factory or hire a team first and try to comply with the law later, you will lose. Your private counter-parties may tell you not to worry about dealing with the Chinese government, and I agree. If it isn’t 100% locked down and approved in advance then you don’t have to worry – you have to forget about it completely and finally.

    Party – Dealing directly with the Party may be a formality, or it may be a serious negotiation. If you are holding a banquet or entertaining a group of bureaucrats, then the appearance of a Party representative is not unusual. Be polite, respectful – and maintain a safe distance. Let your Chinese partners or representatives deal with it. If there is any more than casual, pro-forma involvement by the Party then you are probably in over your head. The only good news is that attention by the Party is usually a very clear warning that your deal is problematic, and you know to cut your losses and look for simpler or less sensitive opportunities.

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