Western negotiators in China must conduct 3 BATNA analyses over the life-cycle of their deal.
China negotiators who are conducting a BATNA analysis have their work cut out for them. Best Alternative to No Agreement scans are more complicated and unstable than in the West. In our last post we looked at the factors that make BATNA analysis more complicated in China than in the West. Now we will look at the broad categories of issues that negotiators must anticipate during 3 phases of a Chinese deal – the pre-bargaining preparation stage, the negotiating period, and the post-agreement renegotiation.
3 Phases of BATNA analysis.
Pre-deal / pre-negotiation.
Before you start negotiating in China, you have to get all of your internal stakeholders focused on goals, opportunities, and risk. China used to be a cheap place to operate, but now it is very expensive both in terms of money and risk. In 2004 it was perfectly reasonable (and very common) for companies to take 6 months settling on a China business plan and operating strategy. Nowadays that would be suicide. Before you even start talking to a potential partner or supplier, you have to be clear about your goals and how much you are willing to put at risk.
Key factors to a pre-deal BATNA analysis: Risk assessment, business plan feasibility, and partner selection. If you are not already involved in the China business then you and your team have to weigh 2 simple questions: Is it worth it to enter or expand in China now? Will it be necessary later? Sometimes the cost of doing business is high, but the risk of not entering is even higher. eBay had to pull out of China in 2006 after what many consider a half-hearted, ill-advised effort to challenge Taobao – but now the Chinese rival may prove to become a powerful international competitor.
In the early stages of your BATNA analysis you must: make decisions about partnership strategy (trust is risky but necessary to succeed in China), adjust your business plan, and begin a serious risk analysis.
Monitoring, managing, and adjusting BATNA during the negotiation.
The Chinese version of Prisoner’s Dilemma is whether you should trust a single partner, or try to play several suitors off one another. Trusting a single partner is great if it is the right partner – but if you put all of your eggs in one basket is more dangerous in China than in other places. On the other hand, building a broad network of competing players will make you stronger in each negotiation – but will sap your resources, budget, and health as you flit from banquet to KTV to corporate event. You will also be sharing your plans with a wider range of strangers.
During the active negotiation period, you also have to revisit that risk analysis you began back at HQ. When a China negotiator asks, “What’s the worst that can happen?” it has a completely different meaning than it does in the US or Europe. If you trust the wrong person or make the wrong deal, you can put your entire organization at risk. Your IP & technology, business methods, and brand are at risk. Today’s partner can be tomorrow’s competitor—both in China and in global markets.
Relationship management will impact on you BATNA analysis in other ways. You have to manage your relationship with your direct counterparty in order to develop China opportunities, and that means sharing information. Chinese negotiators, however, are famous for their opaque decision-making structures and hidden decision-makers. To preserve and enhance your BATNA position, it will be necessary to understand THEIR decision-making chain, and at the same time mobilize your own internal stakeholders to take part in the negotiation process. Many western negotiators end up receiving messages from Chinese bosses who they never meet or speak with. You are almost certain to hear some version of the line, “I’m sorry, but the big boss says the agreement we just made needs to be adjusted.” Prepare you response well in advance, or you’ll spend the rest of your career explaining how the China deal went so very wrong.
Post Negotiation BATNA
The most significant thing about the post-agreement negotiation is that it exists at all. For many American and Europeans new to Chinese business, the post-deal negotiation comes as an unpleasant surprise. Let’s be clear – there is likely to be a continual cycle of renegotiation, and each carries its own risk and opportunity. The post-negotiation BATNA analysis should start on the way to the airport after signing an agreement. What will they change, delay, fail to execute, expand or forget by the time they are supposed to perform?
Don’t make the mistake of making the post-agreement negotiation a purely defensive battle. You know it’s going to happen, so prepare well in advance. Decide on what your own wish-list will look like – or on what deal-terms you will get from the new partner. Your learning curve and range of contacts have hopefully gone up considerably since the start of your first negotiation – and once they open the door to renegotiation there’s no reason you can’t use it to your advantage.
If 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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