Chinese Negotiation Training: Sources of Power in Chinese Business Negotiation

From the online professional training course:
Negotiate Successfully in China

When Westerners negotiate business in China, they have to be aware of their four major sources of power and start developing and leveraging on them right away.

The four sources of power in a Chinese business negotiation are:

1) Business intelligence
2) HR and personnel management
3) Alternate counterparties
4) Business structure

Business Intelligence.  Anywhere you are, knowledge is power – but in China knowledge is a super-power. I’m always surprised and concerned when I hear that a Western negotiator is relying on his Chinese partner for 100% of his basic business intel and market data. This puts you in an incredibly weak bargaining position – yet many American negotiators seem blind to the dangers of allowing the Chinese side to set the agenda and control the flow of information. If you can’t monitor the environment and develop independent channels of news, data and information about your China business, then you have to reconsider your future plans in China. Relying on your counter-parties for business intelligence is like giving them the keys to your business, the password to your computer and access to your bank accounts.

HR and personnel management. This is another source of power in a Chinese business negotiation, simply because it is such a huge challenge for both locals and Western managers. Western companies have two (potential) built-in advantages when it comes to managing HR – superior training and an international career path. HR training and development is one area where Western managers consistently drop the ball. Chinese employees report frustration that they don’t see a clear career path at Western organizations. Foreign managements say that they can’t retain top staff. HR management is a huge problem – and a power competitive advantage. Your job is to make sure it is your advantage and the other guy’s problem.

Alternative counterparties. Every Western manager I speak to acknowledges that having more partnership and counter-party options would enhance their negotiating position, but… Many Western negotiators admit to either being locked into exclusive contracts or JVs – or they simply fail to develop the network of contacts needed to give them a steady supply of high-quality alternative partners. Remember that a local partner isn’t afraid of you walking away from him – unless you are walking to a new Chinese partner that is outside of his network of connections. They think they can out-compete you if you are on your own.

Business structure. You simply have more options than a local when it comes to structuring your business – but there are limits. You can go WFOE (wholly owned foreign enterprise), JV, or stay offshore and negotiate specific contacts (OEM production, distribution, purchasing, sales, etc.) as needed. The good news is that you have more potential choices – the bad news is that once you decide to open a WFOE or sign a JV, your range of options is severely limited. This is a powerful card to play when you are negotiating – but you only get to use it one time.

Next: The double edged sword of technology and IP when negotiating in China.
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