Self-Interest Won’t Keep Chinese Partners Honest.

Chinese negotiators have a different definition of selfishness, and you have to know it.

See saw - not balanced
Finding balance is harder than you think it should be

A recent post on ChinaSolved asked Western managers in China to answer a simple question – What is your Chinese Partner’s Plan B?  What are his alternatives to doing business without you? This is a key question for Western negotiators doing business in China, because there’s a good chance you are operating under a dangerous misconception.

Mutually Assured Business Destruction?
Many Westerners negotiating business deals in China erroneously believe that self-interest and that most blessed of all instincts – greed – will keep their Chinese partners engaged and relatively honest. After all, without me and my technology, assets, designs, marketing, brand…. (fill in unique competitive advantage here) the Chinese side would earn much less. “They need me at least as much as I need them…” are the famous last words in many US-China failures. The Chinese side may be working under a completely different set of assumptions, and what you consider to be universal values may in fact be quite variable. Case in point: They may consider getting rid of you to be an extremely important and valuable business objective – one that they are willing to pay a high price to realize.

Understand Chinese Negotiators’ Differences:
Forget the myth of common ground  . Smart negotiators in China focus on differences, and accept that their local counterparty’s values, orientations and priorities have very little in common with their own. Don’t assume that they will be satisfied with the same deal terms that would make you happy. Westerners sometimes think that they can secure cooperation and loyalty with carrot & stick tactics – enforcing contract terms with the promise of big rewards later. Back ended payouts don’t always work in China. The Chinese side has a different definition of self- interest and different priorities. They don’t necessarily care about cash – they may want something different, like technology, branding, product, or customer lists.

Different Destinations
You are all about the cash. They may not be. What are Chinese partners after?

  • Technology & IP
  • Product designs
  • Production process
  • Marketing techniques.
  • Overseas markets & clients

The problem is that you would be happy to share much of that in the normal course of business, and if they just cooperate as good, honest partners, they will meet their goals. But they see it differently. Why wait around and put up with you for 2 years (and bear the cost of lost opportunity) when it is much easier to drive you out of the market and still have 70% of your IP right away. Never estimate a Chinese partners’ self-confidence to backwards engineer and patch together work-arounds.

Different Routes
As far as they are concerned, the China market belongs to them. You think you are hiring them to manufacture, and you’re splitting profits on a distribution deal in the mainland market. They don’t see it that way. They helped you develop the product, and now you should go away and leave the local market to them. Government bureaucracy, corruption, convoluted distribution, regulations, insider advertising deals and distribution bottlenecks all support their efforts to get rid of you. You see these diseconomies as wasteful, unnecessary taxes on your resources. They see them as viable and sustainable competitive advantages.

Different Values
Getting rid of you may be a top priority and they may be willing to pay a high cost. There may be many complex cultural and sociological reasons for this – but you don’t care about any of them. The only thing that matters to you is the extent to which YOUR China business may be jeopardized by partners, staff, suppliers and distributors, and what you can do to safeguard your interests.

In our next post, we’ll talk about how to assess the situation, what you can do to align your Chinese partners’ interests with yours – and what to do if you can’t.

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