Western negotiators values forward progress and definitive action – and hate inertia. Chinese business punishes mistakes and rejects boldness.
We recently discussed the China’s OTHER Soft Power: Manipulation and Pressure Tactics in Chinese Negotiation. Why does it seem to so effective against Western negotiators?
Westerners are susceptible to “soft negotiating power” when doing business with Chinese counter-parties. Even when we think we feel our negotiating position is stronger, we often lose out to a Chinese counter-party due to informal, interpersonal, or behavioral causes. Traditional Western business procedures dealing with due diligence and risk management don’t work well in China. Unfortunately, this results in American and European negotiators engaging in MORE risky, rash decision-making — not less.
Americans in particular have a mindset of powering through and maintaining a steady course in the face of adversity and lack of information. When faced with the unknown or intensifying risk, Europeans slow down, Chinese freeze up — but Americans plunge in. Even our attempts at damage control tend to be headlong and rash — witness the massive bailouts in the wake of the 2008 financial crisis, where lapses of judgement and prudence were justified by arguments of “imminent systemic collapse”.
Chinese counter-parties and institutions are set up to benefit from your rash decisions and unsteady moves. The Chinese system rewards patience, incremental steps and staged implementation.
I remember when I was teaching International Negotiation at NYU in Shanghai to a class evenly split between Westerners and Chinese students. I posed the old HBS koan – “Which is better – a bad decision or no decision?” to the group. Without exception, every Chinese student said, “no decision” and every Westerner said, “bad decision”.
Western business values progress and definitive action and hates inertia. Chinese business punishes mistakes and rejects boldness. This is one of those cultural differences that negotiators don’t truly comprehend until after it is already too late.
Five reasons Western negotiators are susceptible to soft negotiating power:
- Knowledge & business intelligence imbalance
- China is a soft environment – Everything is Possible, Nothing is Easy.
- Poor deal structure & bad partnering
- Fear of institutional guanxi — lost opportunity paralysis syndrome
- Hubris. Americans think that they can control any situation – right up until the crash.
Let’s look at each of these in a little detail:
Lack of business intelligence
- Western negotiators in China don’t have a clear roadmap for where they want to be and when to walk away. Westerners tend to come to China with either incomplete goals, or are committed to inappropriate models that have worked for them in other places. In many cases, this leads Western negotiators to make the worst possible decision — to rely on their negotiating counterparty for basic business intelligence and strategic goals. This will save some time and make you feel better about your China business plans at the beginning – but in the end you are simply sowing the seeds of your own destruction. No one ever loses money to strangers in China — it’s always an inside job. There are few worse negotiating blunders than letting the other side set the agenda. Whether it is a supplier, a JV partner or even a key employee, everyone you negotiate with in China should be considered a temporary ally but a potential competitor.
- Develop your own sources of business intelligence. (2 places to start: ChinaSolved linked group, and the Chinasolved Pinterest board ). You don’t have to know every answer — but you have to know the right questions and have some means of judging the right answers.
A soft business environment favors soft negotiating power.
- Where “anything is possible but nothing is easy,” Western negotiators accustomed to iron-clad contracts and the recourse of impartial courts are simply at a disadvantage in China. Even when they know the law, it rarely works to Westerners’ favor. (It is rumored that in a recent high-stakes legal dispute, the Americian side’s case was found to be without merit because the contract signed by both parties neglected to lay out specific penalties for one side’s theft of the other’s intellectual property.)
- The China business environment is still very network-oriented, and China’s system of guanxi and insider connections puts outsiders at a permanent disadvantage.
Poor deal structure & inappropriate partnering
- American lawyers are great at structuring deals to protect against the risk of loss — but in China your real risks comes from success. Chinese bureaucrats and partners are generally more relaxed when Westerners are spending and investing money — and a little more agitated when they are making money. In China, your risks multiply with your revenue. That’s when newly nationalistic staffers get poached, partners turn into competitors, and regulators start getting more diligent.
- Guanxi and informal networks play a much larger role in Chinese business than in America or Europe. Unfortunately, Westerners often respond to this reality by hastily rushing into alliances – or trying to buy access – with suspect or mercenary guanxi guides. As in the case of bad goal setting, bad guanxi partnering saves a little at first, but costs a lot later.
Fear that this is their one and only chance.
- Westerners can get so dazzled by the raw size of the Chinese market that they overestimate the opportunity cost of losing a deal. For some players, China isn’t A market, it is THE market. They have also drink the Kool-Aid of guanxi and face — and believe that if the fragile spiderweb of personal connections is disturbed, their whole China business will tangle and collapse. They may be right — but the only thing worse than NO connections is the WRONG connection.
- Western negotiators who stay with the wrong partners because they hope that their Chinese counterpart will become more honest, more competent or more “Western” are taking the express route to disaster.
Completely misplaced and unjustified overconfidence.
- Hubris, pure and simple. This one is for the Americans and the Brits. Sometimes Western negotiators are so confident in their own abilities — either because we believe ourselves to be so nimble and quick, or because the counter-parties are all dolts — that we blind ourselves to the risks and inequities all around us.
- Westerners tend to judge every situation by their own standards. Even though most would tell you that the regulatory and legal system in China is not favorable to them, they still tend to operate under the mindset that rules back home will somehow protect them.
- Americans are so convinced that they are negotiating from a position of strength that they become susceptible to passive aggressive tactics . Chinese accusations of bullying and hurt feelings are surprisingly effective.
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