ChinaSolved’s Least Wanted List #5: Training Your Own Competition
It may be true that Chinese businessmen are long-term planners, but that doesn’t mean that they intend to work with you forever. You may be a bit player in their grand epic story – and your role could be to supply them with technology, new products or business methodology. Know who your potential competitors are, and don’t treat them like partners.
Negotiating in China is as much about managing relationships as constructing business plans. Plenty of Western entrepreneurs and managers have had solid ideas that failed because they lacked suitable local partners – or had the wrong partner. You also have to remember that in China, the practical definition of “partnership” is much broader than it is in the West. You may run a WFOE or department of a western MNC that doesn’t have any Chinese equity partners, but from a practical operating perspective you can still be locked into a variety of exclusive partnerships or critical supply relationships. This discussion isn’t about legal details – it’s about negotiating with Chinese counterparts.
Five issues for negotiating effectively with Chinese partners:
- Be the right partner to get a good partner. In order to get a good partner, you have to be a good partner. My book, The Fragile Bridge – Managing Business Conflict in China described the challenges of building a sustainable business relationship in China – and managing potentially-destructive conflict. Chinese will often try to develop a win-win partnership at the beginning, but once they feel you aren’t on board they will switch to more aggressive business tactics that can often include IP theft and setting up competing operations.
- Take the temperature of the relationship often. Westerners are notorious for being completely oblivious to their Chinese partner’s true feelings. Chinese will rarely start a dialogue by saying, “I’m upset about the way you are treating me” – for them that’s a blunt and final goodbye (if they say anything at all). Chinese often feel that they are already doing the heavy lifting in the partnership BEFORE conflict & frayed nerves begin. Chinese partners often complain (in private) that the Western side is being inflexible, insensitive or dishonest. By the time you know there’s a problem, he has already decided that it’s a lost cause.
- Check your goals – and his. Open-ended 50-50 partnerships are extremely unstable relationships. This is a time for you to be honest with yourself and put yourself in his shoes. Do you plan on calling the shots once you understand the Chinese market? Do you feel that as the brand-owner and creator of IP that you deserve all the power and most of the money? Or do you plan on returning home to your main market once you have set up the China operation – while your local partner follows your instructions and sends wires profits back to you? Some Chinese managers will be happy to play second fiddle to a foreign boss – absentee or expat – but it’s a dangerous assumption to make. The attributes many western bosses look for in a Chinese partner – effectiveness, authority, ability to make things happen – are indicators that he probably has no interest in playing the role of loyal lieutenant for the rest of his career.
- What’s the worst that can happen? Really. Do a risk analysis. What will you do if you go the office or factory one morning and the lights are out and no one is there? Of if you see your product on the shelves of a department store that you aren’t doing business with? Or your best technology gets patented by a competitor with powerful contacts? Start managing risk and controlling damage BEFORE you start negotiating. There are things you can do to protect your assets and brand before you partner with a local Chinese counterpart – but your options drop considerably once he knows your methods and technology.
- Don’t propose when all you really want dinner and a movie. Westerners know how difficult it is to do business in China, and we sometimes compensate by latching onto the first English-speaker who knows about our industry. Experienced ex-pats know how to “chunk” their business so that operational partners only see part of the picture and can’t reproduce the entire product or business. Others specify that the business relationship has specific, time-bound targets and goals. Chinese negotiators will start talking about exclusivity early and persistently. You have to deal with this politely but head-on to make sure they don’t make assumptions. Let them know you plan on working with others or that you already have existing relationships. Never give up exclusivity without getting something in return and having some kind of workable exit strategy.
Conflict Management Note: The Chinese side not only needs to earn more than you do from a deal– but more than he could without you. That may be a tall order — and if you can’t envision a situation where the Chinese side is getting a rising payout then you had best forgo the partnership idea and hire short term consultants or service providers who can’t piece together your entire business model.
One last caveat – if you are in the wrong partnership, then do whatever it takes to get out early. In the US or Europe, there are plenty of examples of partners who don’t like one another but still find a way to do good business together. In Western-Chinese JVs, that’s just not the case. Every minute you are sharing info with a bad partner you are training your competition. No good will come of it.
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