Balance of Power Shifts. Bops, re-bops – You ain’t gonna like this tune.
Business disagreements in China often follow this pattern:
You meet a charming, friendly, engaged Chinese business-person, and begin to craft your Win-Win deal. Things progress smoothly through the preliminary phases, and both sides are cooperative and cordial enough to come up with a written agreement very quickly. There seems to be a real bond of trust here. The American side agrees to transfer funds and technical specifications immediately, and a date is set for the delivery or completion of the project. This is, in reality, the day that negotiations REALLY begin in earnest – and it’s likely the American will get much less than he bargained for.
This example can be broken down into 3 distinct phases.
Phase 1. Courtship.
The Balance of Power (BOP) favors American side. Chinese side is cordial, flattering, Win-Win, compromising. American side feels confident, in control, optimistic about expanding business ties in China. “Why does everyone say this is so hard?”
Phase 2. Assets transferred.
Moments after the American side transfers an investment, up-front payment, deposit, good-faith money and/or IP & tech specs, the BOP suddenly shifts to the Chinese side. Their need for the American side has dropped SIGNIFICANTLY now that the money and technology is in China– and the foreigners have already gone back to their oversized American homes and giant gas-guzzling SUVs. The Chinese side starts dealing with the American side on a more even, informal basis (a good thing) but may become less responsive and communicative (a bad thing). The American side may not sense that a shift in the power balance has already taken place. These relationships are still intact – but will vary in terms of productivity.
Phase 3. Deal concluded.
The Chinese side has delivered, and the deal is done. “Xie Xie ni, wai pengyou – don’t let the door hit your butt. Here’s the container, the building, the project — or the story. We’re all done now.” For many Americans in China, this is when the REAL negotiation begins. It’s only after the deal is supposed to be completed that the American side finds how little communication/compliance there actually was. The American side wants to re-engage and persuade the Chinese side to execute the agreement the way they said they would. But now something strange happens. The Chinese side may simply ignore their former partners. This ‘avoider’ strategy is very well respected among China’s commercial set, and if you are unlucky you will find out just how good they can be at it. The power shift is complete, and you no longer have access to the decision-makers that you need to negotiate a settlement.
Three vital lessons for Americans doing deals in China:
1. Watch the timing of the negotiation, because the Chinese side is much, much more patient than you are.
2. Structure your deals so that funding and asset transfers reinforce your position — not undermine it.
3. Face time is vital. You have to be in it to win it? Maybe. But how about a more China-oriented version: You have to show up to follow up. If you – or someone who represents you (and your counter-party is NOT that guy) isn’t around to make sure that the spirit of your agreement is respected, then you will certainly end up with less than you thought you bargained for.
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