Negotiating in China – New Agendas, New Opportunities
Negotiating Rules in China are about to shift again, and this time American negotiators stand to gain. Don’t blow the chance, because it may not last long.
A negotiating variable is what you actually ask for at the deal table. Variables are what make up the agenda. It’s the thing you need and the price you want. Negotiating strategy is great, but at the end of the day you only get what you ask for. Americans negotiating in China have to start asking for a new deal points and setting their agendas differently- or they will blow the best China opportunity they’ve had in a decade. Hint: The race to the bottom is over, and the manufacturers lost.
In the 90s, the key variable in US-Chinese negotiation was cash. They needed capital, we wanted cheap manufacturing and government assets.
In the 2000s is was about intellectual property. China wanted to climb the technology ladder, and we wanted cheap production.
In the 2010s a new set of negotiating variables is emerging. The Chinese side has split into a lopsided cage-match. The state sector is back – they’re well-funded & pumped up on stimulus money and nationalist fervor. The private sector is looking like a beat-up, slapped around challenger that is out- classed by a bigger opponent. In the Hollywood version of the story, the scrappy underdog fights back to his feet on pure grit and a purer heart. But in China, the state censors don’t like that story. The underdog is gonna bolt, and that’s where you come in.
Negotiating variables for post-crisis China
Know your counterparty.
China Inc. has gone statist. Pres. Obama talks about China gaming the system and not playing fair. This spells opportunity for Americans negotiating in China, because independent businesses and private entrepreneurs have to deal with those unfair practices every day in their own house. Know who you are dealing with:
SOEs want resources. If you own dairies, oil fields or mineral deposits and have the political firepower to get neo-colonial deals approved by your own government, you have a lot to talk about. Otherwise you are negotiating from a position of severe weakness. On their home turf, these people only want to steal your technology, and they aren’t even bothering to dress it up as part of a long-term guanxi thing. Approach at your own peril.
Successful entrepreneurs, real estate investors and private businesses have had a non-stop run of good times, and that absolutely terrifies the Chinese. Forget the “China Century” bluster and nationalistic posturing – Chinese are deeply suspicious of their own institutions. When they were poor and deprived, everyone was a comrade fighting together. Now that they have nice things and bank accounts, the Chinese middle class is nervous and insecure. They are afraid of the poor, afraid of the rich(er), afraid of the government, afraid of the bureaucracy.
Chinese negotiating variables are changing. Here’s how Americans should be setting their negotiating agenda’s for the rest of 2012 – and beyond.
- International partnership is your lead card. You can help them grow internationally, but you want serious access to Chinese markets. Remember that Chinese are terrified of China-bashing and racism – yet they still see the US as their Promised Land. Work that. Fear and fantasy make a great negotiating position. After all, that’s how you ended up in China.
- JVs are back in vogue, but sweat equity is out. The Chinese side has money to invest. Best efforts distribution is over. Cash is no longer your ace in the hole. Chinese partners now have capital, channels and technology. They need to become more competitive in terms of marketing, branding and management. You have to help them get better in exchange for getting serious access to their markets. The days of 60-40 equity splits, Westerners in the C-suite, Chinese on the factory floor are gone.
- We’re all management consultants now. You’ll charge for more – particularly the soft skills. When the China was a factory, it was ok to give away IP like methodology, branding and marketing. Now that they are cash rich and control the basic technology, you have to charge for know-how.
- Technology is a two-way street now. The big boys have moved from OEM to ODM in China, and now it’s your turn. OEM is original equipment manufacture. Your brains, their labor. The new move is original design manufacture. You create, they figure out how to design it. China manufacturing is expensive, but engineering talent is cheap. Stop trying to micro-manage and let Chinese partners do their thing.
Next: The Prada Diaspora. When the Chinese come a’callin.
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