Know Your Chinese Counterparty: Long Term Planners or Short Term Opportunists?

If Chinese deal-makers are such long-term relationship builders, how come I just got dumped? Wham Bam, Thank You American!

A Chinese negotiator approaches each deal with two options in mind. His Plan A is a win-win, long-term relationship that will bring him many profitable transactions over a long time. He knows that this will require a lot of time and effort, but this is the Chinese template for success, and he considers the investment to be standard operating procedure. It is simply the way they roll. Plan B is a one-off, win-lose transaction. While not optimal, normal business operations require plenty of non-strategic transactions. Since he doesn’t plan on seeing the counterparty again, he should maximize profit immediately. Often that means lower quality production, inferior materials and little or no service.

For a Chinese business person, the worst case option is investing lots of time building relations and educating a counterparty only to have the deal fizzle out and go nowhere. This is Plan F – as in failure. An experienced Chinese counterparty is continually assessing the situation, sensitive to any whiff of deal failure. A smart negotiator knows when to shift gears, and he’ll downgrade you from Plan A: Relationship to Plan B: One-Off in a heartbeat, without warning or explanation. In fact, if he’s worth his salt as a dealmaker he’ll disguise his tactic so you continue believe you are involved in a long term negotiation. It’s the best way for him to narrow his losses and recoup a portion of the time, money and opportunity cost he has already invested in this losing venture. He will view the failure to build and maintain a long-term relationship as either a betrayal or a disappointment – but either way it is on you. He just wants to salvage whatever he can and move on to the next opportunity.

What tips the scales to your detriment? It could be a lot of things, but the general idea is that you didn’t live up to your end. There are three general classes of foreign failure:

1. You or your product offering were found wanting from the very first encounter. It was never a long term thing. Foreigners read these books and hire consultants who talk about guanxi and face. They think that all Chinese are master strategists playing a multi-layered, long-term chess game. Sometimes a Chinese guy just wants to buy or sell something. Sometimes they just want free technology or IP. If the western guy wants to believe that there is some kind of eternal bond between him and the Chinese counterparty, that’s his funeral.

2. The Chinese side thought that there was something there, but it just isn’t working out. The westerner may not have the right temperament or character. He may be too crude, too aggressive, too impatient, too greedy or too stupid. Maybe the technology or product isn’t good enough or doesn’t fit the Chinese side’s business model. Whatever the reason, the relationship isn’t working and the Chinese negotiator needs to cut losses. That may mean a predatory transaction – or it may mean they simply stop returning calls or emails.

3. Some partners outlive their usefulness. A good Chinese business person is always trying to close the gaps in his own knowledge and find ways to drive down costs or expand markets. Westerners who plan on charging perpetual rent for last year’s technology (that the Chinese side has already mastered) are greedy and naïve. Chinese deal-making is all about “what can you do for me tomorrow”. Westerners can get away with demanding the lion’s share of profits when they are providing interesting technology or methods that the Chinese side doesn’t understand – but they had better keep the innovation train rolling. When the new ideas stop, so does the relationship.

To a Chinese manager with a long-term perspective, it doesn’t really matter if your betrayal or disappointment occurs in the first five minutes or after doing business for years. They will downgrade you from value-adding partner to one-off pest as soon as the circumstances require it.
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