Senior managers from western companies love boarding the plane from China back to HQ with a signed contract in their pocket. They talk about strategic alliances, about win-win joint ventures and capturing the enormous Chinese middle class market. It makes for a great press release.
But in more and more cases it’s the Chinese side that has the last word. It used to be that Mainland negotiators were confused and intimidated by binding contracts – now the tables have turned and the Chinese are exploiting Western assumptions about legal agreements. The Chinese are more than happy to sign on the dotted line, knowing that they can use their Western partner to climb the technology ladder and acquire the know-how to develop marketable products on their own. Once the Chinese side has gotten what it needs from the partnership, it is a simple matter to drive the foreigner out with front-line tactics that play out on the factory floor and the distribution network. Chinese dealmakers have learned to honor the letter of the contract while shredding the spirit of the agreement.
It is easy to blame the Chinese side – there’s plenty there to criticize. They play fast and loose with the truth, they exploit the home-court advantage and outmaneuver western partners with government & bureaucratic connections. What they don’t do is mix up their tactics. Chinese negotiators tend to be consistent and predictable. When they find something that works they keep doing it – over and over.
Western management has often been its own worst enemy in China. HQ managers view contracts as set-in-stone blueprints, and they are quick to see any variance between the document and the real world as the fault of their own front line managers – be they purchasing, sales, HR or operations.
Western negotiators need to stop negotiating the contract and start negotiating the business. China business is not won with boardroom masterstrokes – it’s a battle of inches slugged out on the front lines.
Here are the rules for building a China-ready negotiating team:
- Plan for two sets of negotiations
Senior managers tend to talk with one another about collaborative, win-win deals, but the real negotiation is the one that plays out on the front line – and that one is cut-throat and competitive. HQ managers have to budget the time, resources and bandwidth for an ongoing negotiation, and stop living in a fantasy world where contracts are binding and win-win is the norm. TIC – This Is China.
- Get more feedback from your own front lines.
Purchasers, salesmen, HR and engineers should by your first source of business intelligence. Large western organizations tend to be poor at internal negotiation, and favor top-down information flows. That usually means that the people who know the least about China are making all of the decisions. Develop open-ended procedures for getting feedback – not annual company meetings or boilerplate status updates.
Adjust corporate culture if necessary. Senior managers must be more tolerant of failure, delays & disconnects. “No-nonsense tough-guys” who bully underlings to get the job done at any cost are suppressing the only reliable flow of information that the company has – honest assessments from the front-line staff that is dealing with purchasing, selling, hiring and producing.
- No more one-size-fits-all solutions.
Multinationals that have spent time, money and effort to build global systems try to apply them to China, and the results are often mixed at best. Companies that negotiate effectively in China use flexible systems that are specific to their Mainland business. Chinese don’t care how you do it in America, England, Italy or India.
- Know their weaknesses, know your weaknesses.
They steal IP. They may not consider it theft or wrong, but you probably do. Westerners are lousy at relationship-building and time management – at least by Chinese standards. Don’t paper over the big issues. Make your weaknesses and differences the core of your relationship building – not a forbidden secret that no one can talk about.
- Constructive engagement means many small conflicts – not fake smiles and pretty lies.
Your counterparties are tough-as-nails Chinese business professionals, not fragile China dolls. As long as business disputes are not personally embarrassing or political in nature, then a very wide range of topics are ‘in bounds’. Westerners have bought into the propaganda that Chinese are all delicate flowers who will wither and faint if confronted. Lots of small, manageable confrontations is a relationship. One big confrontation is a failure.
- It takes a team.
Americans all want to be cowboys and Europeans still love their aristocrats, but China is about the team. Don’t show up alone. Negotiating teams should be multilevel and cross-departmental. Chinese like authority, so senior management has got to be involved in a committed and serious way. Purchasers and engineers who get “abandoned” by an HQ that doesn’t engage frequently with their Chinese counter-parts are easy targets for competitive negotiating tactics.
- Always be looking for new counter-parties and new opportunities.
Expanding your network in China means constantly searching for new stakeholders and counter-parties – both within you existing partner’s operation and from new (external) potential partners. This may be your only long-term source of leverage. If you have a single counterparty in China then you are perceived as weak and vulnerable. This is another area where your front-line people can provide valuable input and feedback.
- Empower your front line.
Your front line staff needs the ability to build and block. They must have the power to build relationships and block potentially problematic transactions. “Divide and conquer” is a favorite technique of Chinese negotiators, and they are quick spot a purchasing manager or salesman who is not getting enough support from the home office. Your people need the range of motion to build relationships (which may mean breaking from standard operating procedures) and to hit the panic button if they spot a problem that threatens the bottom line.
- In China, failed negotiations end – successful ones never do.
Renegotiations are par for course here, and your Chinese counterparties consider it normal. You have to as well. You should treat ongoing renegotiations as an opportunity to build and expand relationships – not as an attempt to rip you off. This is where real guanxi comes from – the give and take that arises from a shifting business environment. Chinese feel that source of long-term stability in business is strong relationships – not thick contracts and rigid adherence to out-dated agreements.
- For the Chinese side technology is the goal, time is the weapon.
Chinese negotiators often assess the success or failure of a deal by the technology and IP they acquire. They don’t really care how they get it. One of the most successful tactics is to manipulate western negotiators with time tactics. They rush to sign and drag their feet when executing. The hope is that you will over-deliver IP to win what you think is a valuable contract, and then throw up so many roadblocks while executing the actual business that you will go away – or go broke- before they have to deliver.