China Negotiating Training Part 1– Budget for the Negotiation Process

Each Chinese Negotiation is a Marathon – not a Sprint

In our recent video Building a China Negotiating Team one of the points that several people had questions about was the notion of “budgeting for the negotiation process as well as the business”.

Deadlines are Dead Ends in Chinese Negotiation

Negotiation in China requires you to assess and allocate resources as though the deal-making signupprocess was a discrete business.  Chinese negotiators use time and contracts as strategic variables in contract to Americans who treat them as execution issues.  In other words, American negotiators usually view the negotiation process and contract signing as operational details that take place before the real business starts, and end when the contract is signed.  Chinese consider negotiation to be an ongoing process that doesn’t end as long as the two sides still have a relationship.  The upshot is that the Chinese are much slower to sign contracts and will continue negotiating well after the western side feels the terms are set.

This leads to problems for negotiating teams that travel to China from the US or Europe, since they usually plan on finishing the negotiation by a certain date – and then returning to HQ with a binding signed agreement.  The Chinese side knows that you take this approach, and they use your internal deadlines and expectations against you.

Treat the Negotiation Process like a Separate Business

Western negotiators can manage this potential weakness by treating each negotiation in China as though it were a mini-business, complete with a budget, manpower plan and timetable.  If you plan on sending one person to China one time and expect him to return with a signed contract, there’s a very good chance he will succeed in his short-term mission of getting that piece of paper –but the agreement will usually be worthless.  Your side will be able to start investing, injecting assets, transferring technology and spending money – so it will look like you have a viable business, but the problems will start when it’s time for your Chinese counterparty to start performing their end of the agreement.  Only then will you learn that a signed contract doesn’t carry much weight in China – and you must renegotiate every deal point from a much weaker position.

Successful negotiators come to China with a team of experts from different departments – including engineers, finance experts and legal people who can protect your side’s assets and further your interests.  It’s not enough to have expertise and a thorough list of discussion points and deal variables – you have to look like you are serious about the China business.

Settle in for a Long Campaign

You show you are serious about your China business in two ways.

  1.  Demonstrate that you are willing to spend as much time as necessary to get the deal – and do the business.
  2. Make it clear you have other options in China and Asia, just in case things don’t work out with this counter-party.

That means having the financial and human resources to ride out a long deal-making process.  If the Chinese side knows that your bosses back in HQ expect you to return with a signed deal, they will agree to big-picture promises but kill you with details like quality, timetable and technology transfers.  But if they feel that you have the resources to build your own Chinese networks and gather business intelligence effectively, it strengthens your position and gives them a strong incentive to get you to commit to a more equitable deal.  The tricky part is knowing what to ask for, and we’ll discuss the art of “agenda-setting” in subsequent posts.

The keys to building and effective negotiating team in China is having the resources to stay engaged on the ground for the long haul, and giving your front-line negotiators the power and authority to build & strengthen relationships when things are going well – and to walk away to alternative counterparts when things are going poorly.

 

NEXT: Setting Agendas and Variables in Chinese Negotiation

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