Dealing with the new Chinese negotiator.
If you’ve been making deals in China for a year or so, you may feel that the mood is getting frosty and a bit tense. Those that have been in the game a little longer should be familiar with the attitude since it is a return to the ‘old days’ of the mid-90s when international business in China was more exception than rule. Beijing was extremely accommodating to both domestic entrepreneurs and foreign friends for most of the last decade, but now the policy people seem to have declared victory and moved on.
China Inc is maturing and the time has come to put away childish things and start getting down to real business of wielding the Mandate of Heaven. It is time for the foreign friends to either play quietly or go home.
Negotiation in China has always been adversarial – but now at least we can stop pretending in all that ‘everybody love everybody’ nonsense. Here are 10 rules for doing deals in New China.
1. This may not get better soon.
Cordial relations between China and the West is a fairly recent construct. Many tried to convince themselves that friendly cooperation & win-win business was the status quo for China deal-making, but it is simply not historically accurate. You may want to get along with everyone but US-China rivalry is written in the DNA of both governments. Look for both sides to slide into old patterns of zero-sum competition.
2. Know your counter-party.
The guy your are dealing with either represents the bureaucracy, an SOE or a private business – but they are all working off the same playbook. Every local is following both the stated and unstated policy directed by Beijing. This is trickle-down cuthroat competition, and you should beware of ‘good-cop’ partners who offer to manage the pesky bureaucrats for you.
Most negotiating problems of the past were a result of misunderstanding, incompetence or flat-out dishonesty. Those are walks in the park compared to ideological disputes. If you have been working with a local partner, agent or service provider who has been talking up his powerful connections and guanxi with officialdom, you have to understand that those are the relationships he will work to preserve– not the short-term commercial relationship he has with you.
3. Every Chinese deal has 2 negotiations.
You negotiate twice in China – once to get the deal and once to do the business. If you are not budgeting time and resources for the second negotiation, then you are committing a serious tactical blunder.
4. Double standards and unequal treatment are institutionalized.
Obama sees Dolly – and suddenly your regulatory and bureaucratic procedures become more of a hassle. The rule of law never really caught on in China, and we may have already passed the high-water mark for equitable treatment of WOFEs and FIEs. Compliance with regulations and loose timetables aren’t just best practice in China anymore – they are immutable laws of nature. Plan on competing with locals who have much lower hurdles to cross.
5. Staff up and pay up.
Buy friends to influence people. That means having a lawyer, an accountant, and access to knowledgeable consultants who are answerable to you and you alone. I love “Mr. China” type stories about smart guys learning the hard way, but they are anachronisms. The cost of failure is rising rapidly. I know that no one likes to pay for professional advice, but the ground is shifting. Local counter-parties and suppliers are no longer valid sources of information (if they ever were). Make sure you have access to reliable, timely information. If that means spending money, time or bandwidth, then budget for it.
Oh yeah — more bad news. Paying for expert advice is only the beginning. Then you have to actually follow it.
6. Lock in gains.
The relationships you have are the relationships you want to keep. The Chinese are serious about the value of relationships – but that cuts both ways. Yes, the people you’ve known and worked with for years will be loyal to you (maybe). Building new relationships, however, will be much harder in this environment. Vet new partners and suppliers carefully, and make sure that you are worthy of any trust and loyalty you’ve built up with locals over the last few years.
7. Have a plan B
You need an alternative course of action that doesn’t have the same risk profile as your main game. That might mean structuring your China operation differently — or maybe creating a scenario that doesn’t include China at all. Ask yourself a simple question – what if you and/or your key people can’t get a visa to enter China? Is it an inconvenience or a train wreck?
8. How much China do you want?
We used to ask, “How much do you need to be in China?” Now we’ll be asking, “How much China do you need to be in?” The days of growing an “organic” (i.e.: unplanned, seat-of-your-pants) China organization are over. China is now too expensive, competitive and risky to fly blind. How much money, personnel and bandwidth do you plan on investing, and what do you plan on getting in return? If you can’t answer those questions then you haven’t planned enough.
9. Stop reinventing the wheel.
Look for people you know who have already done this (i.e.: other expats) to partner with or hire as management consultants. An ideal partner is someone with a good reputation, a similar or complementary business, and has been through all the regulatory and licensing procedures. This can be a great way for newcomers and expanders to get exposure to China without taking on too much risk.
10. You only get to play hardball once in China.
Chinese negotiators tend to be passive-aggressive and are highly sensitive to perceived slights and insults. Two Americans can curse each others’ mothers in the heat of negotiations and still end up lifelong buddies and partners. This isn’t going to happen in China. If you feel that you have no choice but to issue an ultimatum or lay down the law, make sure it’s worth it. You may just trash your relationship – even if you were right about the facts.
China is becoming less cheap, more risky and decidedly less friendly. That’s not to say that business can’t be done or that you can’t make friends and have a wonderful life in China. But if the US and China slide into a trade war there is no neutrality.
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