The Golden Rule of Chinese Negotiation, Part II: Walking Away

When to walk away, how to say goodbye – and where to go next.

If the golden rule of Chinese negotiation is to set good goals, then the main corollary is to set up your deal options in advance. When I was teaching international negotiation in Shanghai, my main text

In China it’s not enough to know when to walk away. You have to know where you are going next.

was the brilliant 3-d Negotiation: Powerful Tools to Change the Game in Your Most Important Deals by Lax and Sebinius. The book doesn’t even mention China – but it does explain in meticulous detail how to go about preparing alternatives and contingency plans – BEFORE YOU SIT DOWN AT THE DEAL TABLE.  It is tragic that so many American negotiators in China engage exclusively with a single Chinese counterparty and have absolutely no idea what they’ll do if things don’t work out perfectly with him. Good Chinese negotiators encourage this de-facto exclusivity, and will maneuver Westerners into a position where not only are they the foreigner’s sole source of materials or products – but also of information, market intelligence and access to service providers.

If you give up exclusivity in China too soon – and too cheaply – then you are putting yourself in an extremely weak position.

Source of power:   Walk Away – and Go To another Chinese Partner

Western negotiations are trained that the strongest negotiator is the one who can walk away. In most negotiations, that is the main source of bargaining power. In China, however, it’s not so simple. A Chinese partner isn’t afraid of you going off on your own – particularly if he already has your technology, IP and product design. In fact, you going away might be his idea – since now he doesn’t have to pay you or put up with your silly instructions.

In China the real source of power is your ability to team up with another Chinese counterparty – which your existing partner sees as a true threat. (Read more about Negotiating to Win in China.)
When looking for new actors to counter the position of your existing Chinese partner, make sure you are not shooting yourself in the foot by negotiating with someone he already knows. And forget about doing business with one of his competitors. Nothing brings Chinese people together like the opportunity to make money off a foreigner.

You are best off shopping for new partners outside of the guanxi sphere of influence of your existing partners – and that often means going to another city. The shortest distance between you and success in China may be a side trip to Hangzhou or Chongqing. Remember – a Chinese partner isn’t afraid of you going out on your own, but is very bothered about the idea of you leaving him for a Chinese competitor.

Patience is a virtue – and a competitive advantage if you have arranged it in advance.

Chinese are very hospitable hosts, and when you come to visit they’ll go out of their way to make sure your trip is as pleasant as possible. That often means picking you up at the airport when you arrive – and arranging for their driver to take you to the airport when it’s time to go home. Experienced negotiators will tell you that the drive to the airport is an expensive one – because once the Chinese side knows when you are leaving they use your de-facto deadline to apply pressure. They know you are expected to return home with a signed deal, and they strategically delay all substantive conversations until the last minute – when you are pre-occupied with making your flight home.

There are a lot of counter-tactics to this ploy, but they all revolve around two basic moves that you have to prepare in advance.

First – Be completely ready to go home without a signed agreement. You can turn deadlines into lifelines by arranging with your own bosses and partners back at home that you will not be pressured into signing a bad deal. Stay calm, stop looking at your watch, and simply tell them that if you have to finish negotiating over the phone from the US that is what you’ll do. (This is where you can let it slip that you have several deals pending right now, and they are progressing just fine.) Put them in a position where they have to report to their own bosses that you are leaving things up in the air and the balance of power shifts in your favor.

Second – Don’t ever negotiate with your luggage in the trunk of their car. Arrange your own transport home and make sure that you going directly from your hotel to the airport. I try to make plans that involve me going to another Chinese city after an important negotiation – sending the signal that I am capable of functioning in China without them.

The Fallacy of Fidelity

Monogamy is a Western concept. Traditional Chinese tales of wealthy & powerful men involve an endless line of consorts and partners. Until very recently, it was common for Chinese businessmen to exclaim that the prescription for happiness was to have many girlfriends and no wife – and they were as likely to be talking about business relations as sexual ones. Americans often assume from all the talk of guanxi and face that loyalty is a respected and expected part of Chinese negotiation. It isn’t. Chinese partners will always demand exclusivity from Western businesses, but the fact is they don’t really expect it and don’t know what to do with it when they get it. It’s simply a competitive ploy – they want to prevent you from applying pressure. When Chinese partners ask for exclusivity, the best course is to laugh as though they have delivered a good punch-line, and then feign embarrassment.

When it comes to handling exclusivity requests, you have 3 options. The simplest and most effective is to tell your counterparty from the very outset that you expect to have 1 major supplier, distributor or partner and 2 minor ones. You can say that is your company policy or standard operating procedure if you like – but you are better off just saying that this is your business philosophy from hard-won experience. If you counterparty still insists on exclusivity, then you have to either find someone else or listen to his justification.

Another possibility is to allow him to believe he is your only partner and learn the business from him while you either quietly search for an alternative or remain open to new offers once you are more established and knowledgeable about the business. While this sounds pragmatic, it is a strategy that is almost certain to result in conflict and bad feelings. If you tell him that you are planning to have multiple partners, he has a strong incentive to perform well. If he discovers that you are looking for new partners late in your relationship, he will feel that you are not reliable – and that his time is limited. He will attempt to maximize his profit  in the time he has – often by employing aggressive tactics like stealing IP or using low quality material.

The final option is the weakest – and unfortunately the most common. That is to give up exclusivity to the first partner you meet and allow him to represent your interests in China. He becomes your presence in China – your single source of not only products and/or services – but also information, connections, staffing, and market data. This is like proposing on a first date – it may work out, but the odds are it will end badly. Chinese partners want exclusivity not because they think they can grow the business best, but because they will be able to operate without competition or oversight.

The best negotiators walk into every meeting knowing exactly what they will ask for, what they will settle for, and when they will walk away. In China, you also have to know where you will go once you start walking. You have to set that up in advance and make sure your existing counter-party knows that you have options.

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