Negotiating to Win in China – The Curse of Strength

Part 1:  Analysis and Adjustment.

I’ve been going back and forth between Shanghai and NY for 10 years helping companies develop negotiating strategies for dealing with China and other Asian counter-parties.  In that time China has gone from being considered a mystery to myth to mirage – and now

The Fragile Bridge
The Fragile Bridge: Conflict Management in Chinese Business

menace. American decision-makers feel caught between two conflicting impulses.  On the one hand, China is simply too big and important an economic force to ignore – but on the other hand they are reluctant to engage unless they have no other option.

American negotiators have come to see China as the counter-party of last resort.  China issimply not perceives as a source of opportunity any more – regardless of what statistics or numbers indicate.  Negotiators in America have become convinced that business in China isn’t a fair game – that they can’t trust the partner – that there is too much too lose.  But Americans also fear that the Chinese can’t be avoided – that somehow, some way, they will be engaging with a Chinese entity as a supplier, customer, competitor or partner in the near future.

That makes the Americans nervous – and a little suspicious.

Strength is not strategy

When Americans are nervous, they get tense.  A tense American wants to look strong – he wants to win and then disengage from the Chinese side of the negotiation and go back to “normal” – life before the Chinese side appeared.  Unfortunately, this is a losing strategy for the Americans.

It’s possible to negotiate effectively with Chinese but it’s not a simple matter of posturing, opening with an aggressive offer and then compromising in the middle.  Learning to negotiate with a Chinese counterparty is a two part process – and most Americans only want to learn the first step.

First you have to analyze the negotiating landscape and understand your  Chinese counterparty’s position — but then you have to make adjustments.

Unfortunately, when I tell American negotiators about the adjustment process, they assume I mean that they have to persuade the Chinese side to adjust its goals, positions and methods.  Nope.  That’s simply not the way it works.  When Americans are negotiating with Chinese counterparties, it’s the American side that has to adjust its approach if they want to be successful.  Sorry guys.

 Americans must Analyze and Adjust

 Step 1:  Analysis.  First you have to understand the other side enough to be able to analyze their strategies, methods and goals.  I can show the American side what they need to know about their Chinese counter-party and to analyze their negotiation patterns and tactics.  But the ability to know your opponent is not enough.  Analysis is good, but is nothing without the second step in the process: adjustment.

American managers consider strong personalities and direct action to be virtues and professional assets, but they have a flaw that undermines Americans in negotiations with China. Many Western negotiators feel that once they understand the motives and strategy of their Chinese counterparty that the next step is to attack their logic and change the Chinese side’s way of thinking.  The American impulse is to explain the weaknesses in their opponent’s line of thought and persuade or pressure them into changing their position. While this may have some success with other Western counter-parties, it tends to be counterproductive with Chinese negotiators who are accustomed to meeting direct strength with redirection, delays, and claims that higher authorities are preventing them from making concessions.

Step 2:   Adjustment.    Analysis is a function of knowledge, but adjustment is a skill you need to prevail – either as a partner or a successful competitor.  Put simply, you are not going to change the Chinese side’s behavior simply by understanding their thought process or bargaining tactics.  If you want to prevail, you have to be willing and able to change you own approach to the negotiation.

Understanding what how the Chinese side operates doesn’t really move you any closer to success – in many cases a little knowledge merely puts you on the express route to conflict.  Instead you have to develop different attitudes and approaches.  To succeed in a negotiation with a Chinese counterparty, you have to do things differently.

  • Planning.  Americans tend to walk into negotiations with little planning or a very limited range of possible outcomes in mind.  Many American dealmakers are convinced that they have to wait for the other side of the table to make the first offer – usually because that will reveal their strategy.  This isn’t an effective tactic with Chinese counterparties, since one of their key goals is to learn about your technology or business process.  The more time you spend in wide-ranging, big-picture discussion, the more you are revealing.  They are already executing on their goals while you haven’t even started.  You need to develop your goal system before you start talking.  If you don’t know what you want from your Chinese counterparty then you are starting the negotiation at a disadvantage.
  • Research.  Preparation and research is the second Achilles heel for American negotiators – particularly when the Chinese counterparty is a partner, colleague or supplier.  Americans tend to rely on the Chinese side to provide them with basic data about Chinese markets, economic environment and regulatory structure.  I realize that they are more familiar with the situation than you are – but that’s the point. They walk into the negotiation with a built-in advantage, and it’s your job to neutralize it.  You can’t assume that they will know the right answers – and you certainly can’t believe that they will share unbiased information that will help you.  You must develop independent sources of market intelligence before you start negotiating.
  • Listening.  All negotiators know the value of listening, but often this gets forgotten when the counterparty is Chinese.  Even when their English is excellent, Chinese and Americans do not share common speech patterns, and Chinese tend to preface their remarks with lots of background and explanation.  This can obscure their main idea and make American negotiators impatient.  But listening does not mean waiting for them to stop talking.  Don’t get worn down.  If they are talking, you are learning.  You’ll notice that a good Chinese negotiator doesn’t respond to what you say right away – it’s common for him to confer with his team before crafting a response that doesn’t necessarily address your points.  It’s a good tactic that you should consider incorporating into your negotiating practice.
  • Deal structure.  Americans tend to structure all their deals to insulate them from the fallout of worst-case scenarios.  There’s nothing wrong with having your bases covered, but you should also prepare for what happens if the deal is a success.  Failed deals are bad because you can lose your investment and opportunity cost – but successful deals put your IP, technology, patents and client lists at risk.  Be proactive about structuring smarter China deals in advance.  
  • Persuasion.  Chinese negotiators aren’t susceptible to logic or pressure – since most of the time they start off believing (correctly or not) that their position is stronger than yours.  When you are dealing with a Chinese counterparty, the only options you have are to stay at the table or walk away.  If you are going to convince them that your threats of withdrawal are credible, then you have to have a realistic, plausible option at your disposal.  The only way to be convincing – and persuasive – is to have a Plan B ready before you sit down.

You’ll notice that none of these adjustments requires you to change the way the Chinese side operates in the negotiation until the last step – where you have given yourself the choice between staying at the table and walking away.  Most of the steps we’re discussing in this series of posts are preparatory steps – not unlike the ones you should be doing before all your negotiation.  But when your counterparty is from China, you have to adjust so that you have the knowledge and flexibility to know when to fold your hand and walk away.

Next: 

Part 1:  Analysis and Adjustment
Part 2:  The Pendulum Swings
Part 3:  Sources of Power – What Scares the Chinese

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