Managing Chinese Negotiating Soft Power

When the Chinese side is using soft negotiating power – that’s when you have to be firm.

One of the biggest negotiating blunders you can make in China is to agree to an exclusive partnership or distribution deal that is not in your favor.  Chinese negotiators have had great success pressuring Western businesses into accepting exclusive arrangements that are binding on the foreigner without delivering any benefits – or restricting the Chinese side in any meaningful way.

Learn to negotiate in China - online (from CTI and ChinaSolved)
Learn to negotiate in China – online (from CTI and ChinaSolved)

If your partner is offering you “best effort” sales or marketing (he is essentially promising to try his best, but not offering anything binding like minimum revenue or penalties for missed targets), then he has no real basis for talking about exclusive territories or nationwide distribution. Western businessmen are so eager to finalize agreements that they often agree to adverse terms – erroneously believing that the terms are unenforceable and therefore won’t have any impact on the business. They are right that vague promises of exclusivity won’t stand up in court – but they are wrong that there isn’t any downside for them. These broken promises are a huge source of conflict between Western and Chinese partners – and they usually surface immediately after the Chinese side has mastered the foreigner’s technology, IP, business methodology or other assets.

When the Chinese side is using soft negotiating power – that’s when you have to be firm.

Do’s and Do not’s of meeting and deflecting Chinese soft negotiating power:

Do not:

Don’t think you can control the situation. Strength and weakness don’t mean the same thing in a Chinese negotiation as they do in the West.  Western contract law and logic don’t work to your benefit in China – particularly after you return home.

Don’t show any technology, IP or process that you don’t intend to put in play. Westerners tend to think that technological superiority translates into negotiation power, but in fact just the opposite is true. The better your IP, the more of a target you are.

Don’t talk about exclusivity or technology transfers if you aren’t 100% serious. The casual “sure, we’ll see what happens” response to a request of exclusivity is usually all that’s needed for the Chinese side to assume that you will never talk to another Chinese counterparty. Is it a binding agreement? No. Will it alter your relationship and ultimately cause destructive conflict with that partner? Yes it will.

Don’t rely on your counterparty, partner or even key staff for all of your information and business intelligence. If you don’t have the time, manpower or ability to develop your own source of information about the business climate in China, then you have to reconsider your ability to successfully run a business in China.

Don’t assume that hiring some ethnic Chinese kid from Flushing or San Francisco is going to take care of all of your Chinese business needs. There’s nothing wrong with hiring American Chinese candidates – if the guy has the right skills and abilities, then it could be a great hire. But American businesses are famous for assuming that anyone with a Chinese ancestry can cut through PRC red tape and negotiate successfully in China. Just doesn’t happen.

Do:

Analyze and adjust — you have to change, because they won’t. Understanding what is happening in China – and what your Chinese partner is talking about – is only half the battle. You have to adjust YOUR planning, behavior and standard operating procedures, because he won’t change his.

Network with as many potential contacts and counterparties possible. Remember the ABC of China – Always Be Connecting. The more potential partners you have and the larger your network in China, the more powerful you are. This is so basic and logical that Westerners don’t notice how narrow their own networks in China really are. If you are only meeting people within your existing partner’s network, then you essentially have a single counter-party. Network with other expats and potential Chinese partners in other cities to make sure you are truly expanding your connections.

Structure deals for success — not failure. When you are spending money and the business isn’t earning yet, it’s easy to hold on to your friends and partners. The problems start when the manufacturing process is streamlined and the product is selling. Then there are assets worth going after – and that’s when the conflicts and problems start. Americans tend to negotiate to limit their downside risk when something goes wrong – but they neglect to plan for what happens when things go right. How will your partners and counterparties behave when there is a proven asset in front of them – and you are far away? Make sure your payouts, commissions and expansion plans are self-reinforcing when things are going well.

In China, you always want to be a more valuable partner tomorrow than you were yesterday.

===========
Stay Connected to ChinaSolved / ChineseNegotiation.com:

ChineseNegotiation.com and ChinaSolved.com invite you to participate the ChinaSolved linkedin group.

Twitter: @chinasolved VPN required in China.
Email at chinasolved@gmail.com

Leave a Reply

Your email address will not be published. Required fields are marked *