Avoiding Conflict in Chinese Business Negotiation

The best way to deal with business conflict in China would seem to be avoiding it completely —  but as usual things are not always as simple as they seem in China.


Relationship-building and Conflict in China    

Conflict avoidance is the other side of the coin from relationship building.  Those that take the time to build substantial and mutually beneficial networks and relationships find that they have serious conflict less often.  Those who cut corners on the relationship building—working with paid consultants to make introductions or jumping into exclusive relationships too fast – are the ones that never seem to get clear of damaging, expensive business disputes.

The relationship-building phase of the negotiation is when Chinese parties emerge the issues that they feel are important,  even if they don’t come right out with a list of demands.  Whether its technology, IP, control, cash or other assets, the earlier you can bring up the issues that you care about, the better.  You may not decide on anything definitive for a while, but the idea is to find out how the Chinese side measures success and failure.   Ask a potential JV partner to describe what your successful business will look like in 5 years, and you might be surprised to learn that you don’t play a big part in his plans.  It’s important to make sure that you are all on the same page as far as a definition of success, because that can be the most stressful situation facing a Western-Chinese partnership.  Failures can be dealt with amicably, but healthy sales and big profits are worth fighting over.

Goldilocks and the Chinese Partner

During the relationship-building phase, you have to decide how you are going to raise significant issues.  Many Westerners come off as too weak – fearing that any objection or disagreement will make someone lose face and destroy guanxi.  Others become their own worst enemies by making big, open-ended promises that they don’t seriously plan on honoring .

The Goldilocks guide to building conflict-free relationships in China

  • Too soft

–       Don’t accept adverse terms in the relationship-building phase of the negotiation, thinking you’ll correct things later.

–       Be careful not to cede too much operational control too early.

–       Don’t make promises about positions or divisions of responsibility until you are prepared.

  • Too big

–       Be cautious talking about broad expansion plans or ambitious ramp-ups.

–       Don’t offer exclusivity, technology, co-branding or market access unless you are serious about it.

–       Don’t get lured into businesses, industries or services that you don’t understand.

  • Too hard

–       Thick contracts with penalty clauses tend to undermine trust.

–       Find a diplomatic way to say, “we’ll see how the first transaction turns out”.  You are better off talking about most-likely estimates for the first year (or several years), “assuming we can align our systems”.

  • Just right

–       You are friendly, open and forward-looking.  You are speaking in terms of mid-term or long-term success.

–       You are raising your significant issues in a non-confrontational but serious way.

–       There is an exchange of optimism and a frank discussion of concerns.

Don’t Send Mixed Messages

Your last trip to Shanghai or Shenzhen was a huge success.  You made some great contacts, had week full of meetings, lunches, dinners, and a few nights of drinking.  You were a big hit with the local management team, and they seemed to really like and trust you.  A brotherhood was forged, a deal was signed, and you reluctantly parted at the airport.

But now it’s just a few months later, and they never hear from you unless you are complaining about quality or deadlines.

You may not feel you are doing anything wrong, but they may think you are showing bad faith.   You promised an equal partnership – a relationship – and now you are treating them as though they are hired hands.  This kind of situation that can rapidly lead to destructive conflict.  The Chinese side cares about the relationship, and expect you to as well.   That means putting in routine maintenance and communicating on a regular basis.

Align Goals Early

One of the surest ways of avoiding destructive conflict is to make sure that you and your Chinese partners have similar or complementary goals for your new venture.  Do they plan on running the operation after you go home (which they expect to happen soon)?  Did you know that they plan on you going home and leaving them to run the operation?  Do they plan on being your exclusive agent, manufacturer or partner in China?  Does that fit in with your plans?

A key question to start asking is if they have plans for selling to your clients in your home market?  They may not tell you if they do, but it’s never too early to start gauging their intentions.   Having your former partner go after your customers with your technology and design is one conflict that you certainly want to avoid at all costs.


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