If Your Chinese Partners are Not (already) With You, They are Against You.

Negotiating with a tougher China

American professionals take pride in being able to do business with anyone – to find common ground and forge win-win deals no matter what the odds. This used to be

fat sheep
This is how you look to some Chinese negotiators.

challenging in China – but commonly accepted wisdom held that if you put in the time, built the relationship and kept your cool that doing business in China was a possibility – albeit an exhausting one. In the last few years, however, the success or failure of your China deal has depended almost entirely on your choice of partner. If you are working with an SOE or politically connected company, the chances are good that you are facing a predatory, highly aggressive partner. Your IP and technology are almost certainly compromised. You are considered, in the words of one experienced China-watcher, a “fat sheep” whose only purpose in life is to be slaughtered.  Even the pro-china camp is talking about a tougher environment. News of the new administration and its approach to reforms isn’t promising.

On the other hand, if you are negotiating with a private company or an entrepreneur that doesn’t have special connections with the government, then you have more leverage and potential deal points than any Western negotiator has had in 100 years.  As more and more “regular” Chinese are seeing the curtain draw closed on the inclusive part of China’s economic reform, your home-country knowledge, contacts and brand strength are commanding new respect. Westerners partnering with the increasingly mobile Chinese middle class have more power than they may realize.

Stop look for an even break.

Every time I meet an American manager who is considering doing his first China deal, he seems to have some angle figured for ensuring compliance from the Chinese side. Whether it’s a withholding payment, success bonuses, rising payouts, or some mysterious “godfather” type in Singapore or Taiwan, every technique has the same purpose – forcing the Chinese side to play by his rules. This isn’t merely wrong – it’s counterproductive.  When you give the Chinese side a set of instructions, their first task is figuring out how to game the system. If you are dealing with an SOE or connected private, that may include the brute force power of the entire PRC regulatory structure. Forget about turning them, outsmarting them, outwitting them or trying to craft a win-win outcome based on mutual benefit.

There is one simple but powerful formula for forging a successful partnership in China – find a local counterparty who is as afraid of government interference as you are. Not only will that even the odds in China, but it probably means that he wants to start doing business overseas. The Chinese news services and social media are so full of accounts of China-bashing and trade-war fears that you look like a potential white knight who can help them gain a foothold in the US, Europe or Australia.

Five lessons for dealing with a tougher China business environment:

1. Bide your time until the bounce. The good news is that we know the bad news – this is probably the most hostile deal environment for MNCs and tech-rich companies in a generation. A new administration in Beijing and a known quantity in Washington probably mean that the mood will warm up towards foreigners in China – at least a bit. Proper partner selection is still vital, however.

2. Westerners in China are getting scarcer – and local Chinese are heading for the exits. This scarcity value may make you a hot commodity in a few months – so keep lines of communication open.  It may be the wrong time to jump into China with both feet, but remember the ChinaSolved ABCs of success: Always Be Connecting. Build your network, and keep your eyes peeled for entrepreneurs and owners who want to expand in your home ground.

3. Stop looking for an even break. Since I’ve returned to NY every other person I talk to about China has some plan for withholding payment or offering back-end incentives to ensure compliance. Forget it.

4. If you are already in a deal that smells funny, find a new counterparty. Nationalism is high and the official sector is spoiling of for a fight with Westerners.  Remember the Chinese BoPS tactics – Balance of Power Shift.  One of the main themes of my book The Fragile Bridge  is that Chinese partners use conflict to terminate partnerships that feel have already paid off.  Once they understand your methods and technology, then you have already served your purpose.

5. If you are in a deal that feels right, find out if your partner wants out – of China. The Chinese commercial horizon may have become more ominous for the foreign community, but it is looking downright apocalyptic for local Chinese who have more assets than political pull

Nowadays Chinese counterparties fall into two categories – for you and against you. If your guy is for you then you have leverage. If he isn’t for you then he sees you as a “fat sheep” victim that he has to slaughter before quicker Chinese blade gets to you first.

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