Chinese Negotiating Best Practices: The Chinese BATNA

BATNA Basics:  You’ve always got alternatives, even if they are unattractive.

BATNA is your Best Alternative to No Agreement.  It’s your condition when the counter-party you are negotiating with gives you a final and definitive NO.  If you have a mediocre job and are talking with a new firm about a better position, your BATNA is to keep your old job.  If you don’t have a job now, then your BATNA is significantly lower – continue your job search while living off unemployment insurance, savings, part-time work and the generosity of others.  Clearly the person with the better Plan B has a stronger negotiating position.

Chinese BATNA:  There’s always another counter-party coming ‘round the bend.

Chinese negotiators generally consider their BATNA to be fairly strong because they operate under the assumption that there is always another available counter-party.  China has a large population, and the international commercial centers (Shenzhen, Shanghai, Beijing, etc) are packed with potential deal-makers.  Since Deng Xiaoping kicked off China’s economic reforms 30 years ago, there has been a steady stream of foreign counter-parties banging down the doors to get access to Chinese suppliers, markets and partners.  Chinese managers and entrepreneurs have faced their share of shortages and bottlenecks – but overseas negotiating counter-parties have never been scarce.

Does this put westerners in a weak position when they are negotiating in China?  Yes and no.  Obviously you will have a hard time if you position yourself as a rare and valuable commodity, but there are many ways to turn this high-velocity trading environment to your advantage.  Many westerners confuse ‘guanxi relationship’ with ‘lifelong monogamy’.  Chinese deal-making tends to be more fluid and dynamic than those in other environments.  It’s more like a raucous dance club than a small-town wedding.  Western negotiators who settle down with a single partner too soon often find that they have squandered their most powerful deal-point.

Turn China’s Negotiating Environment to Your Advantage:

1)      Don’t try to beat them – join them.  China’s high velocity deal-making environment can work for you as well.  Always have 3 counter-parties for any significant deal or business goal.   At any given time, you should have a primary partner or supplier, a back-up who can step in quickly, and a special situation that will take a longer to develop but meets specific needs.

2)      Don’t give away exclusivity.  Chinese deal-makers like to joke that in business it is best to have many girlfriends but no wife.  Westerners should take this hard-hearted advice to heart!  Many international JVs founder because the Chinese partner was a bad fit – or treated the exclusive partnership as an excuse to sit back and collect rents.  Offer exclusivity only when it serves your interests – and then make it conditional on objective benchmarks.  Also consider using limited exclusivity, based on region, product, time and/or performance.

3)      Consider diversifying your activities geographically.  If you are building a factory then you are clearly rooted to a specific place.  But if you are involved in services, sourcing, web-based businesses or other intangibles, keep your geographic options open.  China is a huge place, and the regulations, customs and enforcement of policy can vary significantly from one city or province to the next.  Check with a competent international lawyer or consultant first, since registration requirements may restrict certain activities.  Shanghai and Beijing are getting prohibitively expensive, however, and it’s wise to shop around.

4)      To tell or not to tell…   Do you let supplier A know that you are also talking to prospective suppliers B, C and D?   In China a little truth goes a long way, but dishonesty can land you in the ditch.  The best strategy is to begin your relationship by making it clear that you have a range of counter-parties but remain vague about their identity.  Don’t worry if your new Chinese associate feigns hurt feelings or outrage – they do the same thing when they negotiate.   Problems occur when you promise exclusivity – OR ALLOW THEM TO BELIEVE THAT YOU HAVE AGREED TO AN EXCLUSIVE ARRANGEMENT – and then look for new partners.

5)      Benchmark. A tried & true practice for successful Westerners in China is to play one partner off another.  It helps if they don’t know each other (this is where geographic diversification is helpful) – and if you have been above board from the start.  Remember that relationships count for more in China than in the US, so don’t make this mean-spirited or insulting.  The more matter-of-fact you are about your business methods and other relationships, the better your results will be.  Be wary of suppliers or distributors who get offended by a little competition – they may not be appropriate counter-parties.

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