Negotiate Lower Risk in China

Western negotiators in China can lower their risk with smarter negotiation techniques.

Negotiating in China used to be about reducing costs, but since the crash of 2008 it has been about accessing the market and integrating supply chain.  Since both of these goals require substantial and long-term commitments, the job of negotiators in China has fundamentally changed.  Nowadays, negotiating in China is about reducing risk.

Rule Number 1: business intelligence is your responsibility.  Not your counter-party, supplier, partner or even key staff.  You don’t have to have all the answers, but you do have to know the right questions — and have some way of assessing the answers you are getting.  That is not something you’ll grow into or pick up over time.  If you are too busy to learn about China and develop your own channels of business intelligence and market information, then you are simply too busy to succeed in China.  It IS that simple.

Lower your China risk in these key areas:

Strategic Planning.  This is an outgrowth the discussion on business intelligence.  You are responsible for you own plan.  Expats used to tell funny stories about figuring out China after they had been there for 2 years — or having their 20 year-old receptionist negotiate key contracts.  Not any more.  You are responsible – in a legally binding and actionable manner — for the actions you and your staff take in China.  Strategic planning can’t be delegated completely. Sure, you’ll use your key staff and hired consultants to develop market and operating plans, but you have to be aware of two potential potholes along the road to riches.  First – beware of mission creep.  Make sure that your actual market practices don’t stray too far from your initial plans without your knowledge or approval.  Second – don’t delegate the planning process. Your China plans have to integrate with your global strategy on same level, and that is your responsibility.  It’s up to you to put your stamp on the China operation is a way that doesn’t inhibit performance but keeps you in control.

Counter-party network — In China, negotiating power is directly tied to your network — and for expats that means quantity as well as quality.   You want a range of motion.  Yeah– it’s great to have a princeling or high-powered bureaucrat on your side, but the risks of close ties to influential third parties is starting to outweigh the potential benefits.  Every corruption scandal or graft conviction involved a foreigner started with a high-powered guy saying “trust me”.    At the end of the day, your power at the negotiating table grows from your ability  to say, “thanks but no thanks – I’m going with a different buyer/seller/partner…”

Partnering.  JVs and partnerships were out of favor – at least among Americans- for a long time, but they are worth a second look for 3 reasons.  First, as we shift focus to selling rather than manufacturing, local partners bring more to the table.   Second, the overseas SME or entrepreneur is hotter in China than he’s been in years — now that Chinese are looking to sell more at home.  Third — a lot of Americans are partnering up without knowing it.  If you have a strategic partner, and exclusive distributor or a single-source manufacturer then you are engaged in an operational partnership — whether you want to or not.  It’s the common law marriage dilemma.  You have all the practical restrictions and commitment of a real marriage without any of the benefits or rights.  Do a quick BATNA analysis to determine what your real options are.  If you don’t have any decent options, then you’ve got a partner.  Don’t be that guy who is the last to know he’s in a committed relationship.

Relationship building.  We talked a lot of about the internal relationship build in a recent HR post, and we’ll go into more detail later in the month.  But let’s make something clear — relationship building and risk management are the same thing in China.  It’s a strategic function.  You can’t delegate it completely, and shouldn’t try.  Yes, your middle managers and front line negotiators need healthy network — and you should do everything possible to facilitate that.  But in China, successful managers build and nurture a broad network of connections and relationships.    If you aren’t managing a network then you aren’t managing your China operation.

Next:  Relationships in China.

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