A Stakeholder Analysis of Chinese Negotiation

Americans of a certain age still default to a negotiating model based on shareholder analysis. We like to know who the owner is. For us, the power structure of our counter-party is defined with a simple phrase: “Follow the money”.

Younger MBAs, Europeans and Asians prefer a stakeholder perspective. Stakeholders include everyone and anyone who can affect a decision – or be affected by it. It’s softer, messier, and much, much more complex.

In Chinese deal-making following the money just won’t work. Too much is hidden, unspoken, contextual and driven by non-economic factors. In many cases, you’ll never see the money trail because it may be irrelevant, hidden, non-existent – or may start AFTER you have transferred your funds. If you plan on negotiating successfully in China, you’d best start mastering the messy art of stakeholder analysis.

A stakeholder model is more applicable in China than in the US, but some American’s are still blundering around vainly searching for the key decision maker. In China dense, opaque organizational structures have evolved to make sure that this kind of tactic is unsuccessful. Overly aggressive Americans often find themselves negotiating with people claiming to be the true decision-maker – while the real power is hidden far away.

Mapping Chinese Stakeholders
A simple but powerful mapping technique for understanding stakeholder influence in Chinese negotiation is to set POWER along a horizontal X axis and ENGAGEMENT along the vertical Y axis. This is particularly useful in China, where your counter-parties may intentionally obscure or misrepresent the decision-making process.

Power is simple enough. In a deal-making context, half the ‘power’ story can be understood as the ability to make things happen. In a highly bureaucratic environment like China, regulatory approval often translates into power. The central bureaucracy is the stakeholder of last resort, and very little of significance can occur without the government’s knowledge and approval.

The power of negative thinking.
In China, the other side of the coin is Negative Power – the ability to STOP things from happening. Often the most potent negotiators are the ones that have the power to block, slow or alter the course of regulatory approval. Chinese negotiations are characterized by AVOIDANCE tactics to a degree unmatched in the US. Saying YES is often far more politically sensitive and riskier than saying NOT At This Time. The more frustrated you become with the delays, the more reluctant the counter-party is to take on the risk of approving your request.

Engagement is a big deal in China.
Often overlooked by American negotiators in China, discovering the true decision makers – and then getting them to participate in the process – is a huge challenge. If you are dealing with a purely commercial counter-party and negotiating about standard deal-terms like price, timetables and quality, you may find that you are only addressing half of the real issue. American negotiators in China have to devote time, energy and bandwidth to uncover the entire deal-making process and identify all of the stakeholders who need to buy in. If you are ignoring the bureaucracy until the last minute, you will find that your position is incredibly weak in the second, REAL negotiation.

3 Classes of Stakeholders in China.

Government bureaucracy.
This is the stakeholder of last resort. They are always there but rarely visible.

In general, the bureaucracy occupies the High-Power, Low-Engagement quadrant. Chinese bureaucrats are Avoiders
simply because so much of the power structure is stacked in their favor that they have very little to gain from direct involvement. One of the toughest negotiations in China is just identifying who the real decision makers are and how you can exert influence.

Bureaucratic avoidance is as potent as it is unfamiliar to most Americans who are accustomed to head-on horse-trade type negotiations. Pressure tactics are almost always counter-productive with Chinese bureaucrats. This is why so many Americans end up with signed contracts that can’t be executed – or worse, are executed poorly or partially.

Bureaucrats tend to avoid direct negotiation with foreigners. You’ll see these guys in their office or ministry, and the conversation is largely confined to paperwork and red tape. All of the high level wheeling-dealing takes place somewhere else – with someone else. Unless your Mandarin is excellent and you have already built up a great deal of credibility with the government, you probably won’t ever meet with one of these people on your own. You may however find yourself in a banquet or board room situation, but all of the serious stuff will happen in much more discreet settings. To negotiate with the Chinese bureaucracy, you will need someone with the right connections.

The second class of Chinese stakeholder includes consultants, partners, suppliers or service providers who negotiate on your behalf with the bureaucracy. Sometimes you hire these people directly and sometimes they are your counter-party who is responsible for regulatory approval.

These guys are highly engaged — in many cases they are actively looking for you. What you have to determine is A) their true level of power and B) whether they are a positive or negative force for you.

Connectors manage the relationship with the bureaucracy — and they almost always do a much better job than you could. The good news is that the right partner or agent can easily accomplish things that you never could. The bad news is that they’ve attained and maintained these relationships due to their utility to bureaucrats — not to the client. Often their real negotiation centers on strengthening their relationship with important officials – using your resources as currency.

Remember – in China many officials are given quotas and policy goals that run counter to your own. Many of those Westerner’s who lost their shirts in China due to misunderstandings, regulatory delays or failed approvals were really just cases of unsuspecting westerners trusting the wrong partner and ending up someone else’s guanxi payment.

Foreigners, technical experts and multinationals make up this group. Highly engaged but usually fairly low power. The good news is that they can’t make bad things happen. The bad news is that they can’t make good things happen — except for special situations. Those situations include goal-setting, research, knowledge, staffing and due diligence — so this crew has definite uses. These guys are reliable in terms of safeguarding your IP and will have the most usable analysis of Chinese economic & market conditions. Their utility is that the bureaucracy has relatively little influence over them, so they will be loyal to your interests. Good for knowledge, niches and specific transactions, these outsiders rarely have the ability to complete a deal cycle.

Outside experts are most useful early in the process before you have made the catastrophic mistakes that are so common to this region.

Know what you need and who can deliver.
You’ll probably have to deal with all three in one form or another. Just makes sure that you know who is who. The bureaucrats are easiest to spot — they are unambiguously official. Connectors bridge the divide between you and the bureaucracy – but you have to have very clear goals and understand the lay of the land to make the right choices and ask for the right variables at the right price. Your process should begin with honest, competent research, planning and selection of the right connectors & counter-parties – which almost always requires a reliable outsider.

The danger for Westerners is in trusting a connector who is working against your interests. This is a leading cause of problems in China – and the best preventative is to locate loyal outsiders who can help you set appropriate goals and know how to perform due-diligence on the agents and counter-parties you will need to be successful in China. Many Americans in China end up relying on their highly competitive supplier or partner to negotiate on their behalf with the bureaucracy. It’s a huge mistake.

Outside consultants first, then motivated connectors and finally the bureaucrats. If you can find the right people in the right sequence, then you might stand a chance of negotiating successful in China.


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