China’s OTHER Soft Power: Manipulation and Pressure Tactics in Chinese Negotiation

Chinese negotiators use their own version of soft power that is much more effective than the official government version.

Everyone knows about China’s efforts to project its soft power  around the world. It’s an ongoing, coordinated, peaceful campaign to promote “Brand China” – winning the hearts and minds of global citizens and promoting the benefits of Chinese culture and lifestyle. It’s had some successes, (Africa, Confucius Institute ), but also its share of failures . Most Westerners doing business in China tend to shrug off Beijing’s soft power campaign as a clumsy propaganda effort more appropriate for school children in Africa than urban sophisticates in NY or London.
There is, however, another type of Chinese soft power to be concerned with – and it is far more effective. Chinese negotiator’s soft power is their ability to manipulate pressure and wheedle commitments out of unsuspecting counterparties. Countless American and European businesspeople have seen high-potential deals go off the rails because of what they considered to be a polite but vague agreement to some general promise or banquet toast. If you raise a toast to “your successful partnership in China” or give what you think is a non-committal, polite brush-off to his suggestion for an exclusive relationship, you might live to regret it. Chinese partners have been known to hear what they want to hear – and that usually involves an intensification of your business relationship in ways that help him, and have the potential to hinder your efforts.

China’s OTHER Soft Power

The OTHER soft power is a combination of non-contractual agreements, informal division of responsibility and fast & loose access to technology and IP. In short, the Chinese side will be quick to make a grab for soft assets and tie you down to agreements that greatly benefit them. The good news is that most of these agreements are neither binding nor contractual, so you can walk away. The bad news? You will usually undermine the relationship when you extricate yourself from what you consider to be unfair agreements  – and the damage you’ll suffer in the meantime is both real and permanent.
Examples of bad Chinese soft power:

  • Exclusivity – Chinese distributors and service providers like to lock up a foreign partner into exclusive relationships. They will tell you that the service will be better and the relationship will be stronger. In fact, it usually undermines your negotiating position while making your Chinese partner appear more credible and impressive – to other potential partners.
  • Unequal terms and timing differences. Every JV or partnership involves an exchange of good or services, and valuing the relative value of each party’s contributions can be tricky. One oft-overlooked aspect of the exchange is the timing element. Westerners often find that they are required to contribute cash, proprietary information or hard assets NOW, while the Chinese side will contribute valuable knowledge, service or performances LATER. This arrangement makes business sense, but it can set up a shift in your relative balance of power.  that weakens your negotiating position.

  • Inappropriate levels of trust. TIC – This is China. Westerners hear that all that time when Chinese partners, consultants and staff are explaining how things work in China – and why you should follow their advice. There’s nothing wrong with local partners bringing their local knowledge, experience and resources to bear on your business problems – in fact, it’s one of the main reasons you’ve chosen to do business with them. But TIC reasoning can quickly lead you down the slippery-slope of blind trust and inappropriate levels of control. The most famous example is the “case of the hidden chops”: A set of American and Chinese partners are negotiating about who will run their Beijing JV. The American wants to be President and to appoint the Chief Operating Officer. “That’s fine,” says the Chinese partner. “I’ll be the head of marketing, and my auntie will be the company clerk and accountant.” While the American side has all the power on paper, the Chinese side has real control in the form of the corporate and banking seals locked in Auntie’s safe. TIC – This is China, and in China whoever holds the physical seals is considered the legal representative of the company.
  • Best efforts distribution. The Chinese market is hot – but also very hard to access. Americans and Europeans have had good experience working with distributors in their home markets, and they apply the same business systems in China. After all, salesmen only get paid if they sell – so it’s a zero-risk proposition to sign up distributors and sales reps in China. Well – in fact the Chinese side can derive a lot of non-financial benefits from their association with you. They may be charging you for expenses and fees that aren’t really related to selling your products – or they may be using your product as the overpriced Brand X that makes their real inventory look like a great value. In the worst case scenario, they may use your samples as the model for counterfeits or knock-offs that they sell to your potential clients.
  • Stealing IP or technology. One of the most damaging types of soft-power is the theft of IP or technology. In spite of all the talk about shadowy ghost-net rings of insidious hackers, the real tools of choice for Chinese IP theft are the overhead projector and whiteboard. When your Chinese partners acquire your trade secrets, it will be in a board room or auditorium – and your engineers and designers are standing at the front giving a detailed presentation. Maybe you thought the IP was protected, or that you had a deal nailed down with your partners. Unfortunately for you, there is a world of difference between having a documented agreement and effective protection.  That’s what makes soft power so effective…

Next – Why do soft-power negotiating techniques work so well against western negotiators in China?

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