STEEPLE Analysis for Chinese Negotiation – a 360 Degree Scan (Part 2)

STEEPLE analysis is a simple framework for conducting 360 degree analysis of a business environment that is essential for China negotiators.

In our last post we introduced the idea of using a STEEPLE analysis to analyze the Chinese Sign up for the ChinaSolved newsletterbusiness environment and prepare for negotiation.  STEEPLE (alternately treated as a PEST or PESTLE framework) is a systematic approach to scanning a market or business environment – and it is a crucial step for western negotiators working in China.  Last time we focused on CSF – Critical Success Factors – which are the key variables that will impact on your effectiveness in China.   If you are having trouble identifying the CSFs that you should be focusing on, perform a thorough STEEPLE analysis, making note of the areas where you have the most questions, obstacles, and problems.   More likely than not, those trouble areas are your CSFs.

How to research the China business environment using the STEEPLE framework:

 Society – In China you can take this to mean two things – Culture and Market.  Chinese society is fragmented, dynamic, and highly segmented across generations, geography, and social class.  While that makes for exciting travel & lifestyle choices, it can be a headache for marketers and negotiators.   Getting a handle on China’s society is tough, and your Chinese partners and staff may give you an inaccurate or incomplete picture due to their own biases and preconceptions.  (Think about how a Midwesterner would describe New York City – or what a New Yorker might say about the South.)  When scanning for cultural matters, be on the lookout for issues that might cause conflict.  I remember Nike ran an ad where LeBron James defeated a basketball-playing dragon, and touched off a firestorm of controversy.   The ad agency thought they were being sensitive and engaging; Chinese netizens found it offensive.   The second valuable function of the society scan is to start your investigation the Chinese market.  You’ll see a lot of western brands and symbols when you get to China, and it’s easy to assume that everything that works back home will also work in China.  Not so.

Technology – Pay particular attention to issues pertaining to the internet, censorship, and online commerce.  Technology is a mixed bag in China – in some areas, they are more advanced and innovative than we are in the US.  In other ways, they lag far behind.  Pay particular attention to mobile and ecommerce technologies.  This is also a good time to investigate how China censorship will impact on you marketing plans.  Google, Facebook, YouTube and Twitter are out – WeChat, Weibo, Tencent are all the rage.

Economy – The economy is one of the most studied but least understood aspects of China.  Prepare to drill down and look beyond the headline national numbers.  If all you care about is Beijing and Shanghai, then you are missing much of the China story.  Understand how the operating environment shifts as you move from 1st Tier cities down to 4th Tier villages.   The more granular you can get the more accurate picture you’ll have of your risks and opportunities.  If you are selling into the Chinese markets, take extra care to examine what is happening in the interior, and what is happening in the 3rd and 4th Tier town.  Local Chinese companies have long used smaller cities as test markets, and you should consider it as well.

Environmental – Environmental challenges have taken center stage in China.  Air, water, soil, and food have all been the subjects of ongoing health concerns and controversy, and the situation doesn’t seem likely to improve in the near future.  This will be an HR issue if you plan on hiring – and for many firms the environment will provide marketing opportunities.  It is a much more pressing issue in China than in the US or Europe.  In the US, environmental issues have become politicized ideological battlegrounds.  In China it’s a much more immediate concern.  It affects where you should set up your operation, how you’ll retain your best people, and how you’ll produce & market products.

Political – When it comes to the actual negotiation or management phases, the rule is that the less you say about politics, the better.  The problem, however, is that in China the government is the usually the single most important stakeholder and decision-maker.  So does that mean you should be devoting most of your time and energy to researching and analyzing Chinese politics?  Possibly, but not necessarily.  If you are in high level finance or working directly with government officials, then it makes sense to understand the inner working of Chinese party and politics.   Many banks and financial services firm found that they spent so much time securing government approvals that were better off setting up their China HQ in Beijing (to be close to bureaucratic decision-makers) than in Shanghai (the reputed financial capitol).  But for most western negotiators in China, it is a waste of time to delve too deeply into Chinese politics.  It is fascinating, and some Westerners get really involved in tracking the latest machination of Party power politics.  The reality, however, is that Chinese politics moves at a glacial pace, and the things that happen at the party or national level rarely play a direct role in your negotiations until years after the decisions are made.  Focus on Social (as it pertains to marketing and consumer behavior) and Legal trends – these are the areas where Chinese politics filter through into your business.  Locals have an expression about politics in China:  “The mountain is high and Beijing is far”.  It means that the further you get from the capital, the less impact sweeping policy pronouncements have on your life.

Get the big-picture analysis out of the way early, and then drill down to the details of where you will be operating, hiring, selling, or buying.  Laws and regulations vary significantly from one jurisdiction to another, and you should walk into every negotiation a good understanding of how things work in the relevant municipality or province.  Assume nothing.

Legal – this is one of the most important areas you can research.  Don’t make the mistake of relying on your partner or counterparty to supply you with current or accurate legal information.  Know everything you can about the Foreign Corrupt Practices Act, or FCPA  ( ) Take the time and effort to understand how Chinese laws affect your business in your jurisdiction.  Be aware that there are usually more than one set of laws – the national law, the local provincial regulations and municipal rules.   Also, know the relevant US laws that affect you – because you are still responsible for certain codes and regulations even if you are not in the US (the IRS and Justice Department’s jurisdiction doesn’t stop at the border).  Legal codes are another HR issue, as the body of laws that govern hiring and compensation is important.  Do not rely on your counterparties, partners, suppliers, clients, or staff to deliver accurate legal information.   When it comes to bribery, graft, and corruption — be aware that NOT everyone does it, it is NOT expected, and the government does NOT always turn a blind eye.

Educational – if you are in the education business, then you should get up to speed on the legal issues.  As for the rest of you, all that really counts is understanding how the local workforce can integrate with your operation.  Don’t believe the hype about the excellence of Chinese schools – they are the best in the world at test-prep, but not as good at problem-solving and innovation as you might hope.   Chinese people hold the US school system in very high regard, and savvy negotiators have used this to their advantage.  If you are negotiating or hiring, make a point of finding out where your counter-parties plan on sending their child to school.  You may be surprised how much leverage your alumni association ties might give you.


read here-smallIf you haven’t already read the report “10 Common China Negotiating Mistakes”, please download it.  We are in the process of developing an interactive online course based on the report, and are looking for 10 beta testers.  If you are interested, please get in touch.

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