Introduction to China BATNA Analysis

BATNA with Chinese characteristics is much more challenging than western negotiators realize.

BATNA – or Best Alternative to No Agreement — is the bedrock of preparation for a negotiation.  Westerners don’t always do proper analysis of the China operating environment, and the result can be negotiating the wrong deal with inappropriate potential partners. Sign up for the ChinaSolved newsletter

What is BATNA?

BATNA is what you’ve got when your negotiating counterparty gives a final, definitive NO to your proposal or counter-offer.  It’s the state you find yourself in when the negotiation ends without a deal.  The BATNA is not an action plan – it is what you already have.

Improving your BATNA

BATNA starts as an analysis of your existing position.  You can steps to improve your BATNA before you start negotiating, but once you are already in discussions with your counterparty then there isn’t much you can do to improve your BATNA in absolute terms.  You can present your situation to counterparties in advantageous and creative way (i.e.: lying), you can take steps to lower his BATNA (i.e.: using information he discloses against him) – and you can lower your own BATNA (i.e.: revealing information that can be used against you).   You can’t improve your real BATNA in absolute terms in the short term.

You can, however, do a lot to raise your BATNA with proper planning and coordinated action.  You can take steps in advance, conduct simultaneous activities, and even do things after the initial round of negotiations end to improve your negotiating stance.

Your China BATNA

Managing your BATNA in China is more difficult than in your home territory – but even more important for international negotiators looking to enter or expand their position.   What are the special situations affecting BATNA in China?

  1. The China business environment is more dynamic than that of other western economies.
  2. Your worst case scenario in China can be worse than it is at home.
  3. Post-agreement renegotiation is the rule, not the exception.

China is a Moving Target

The rules are constantly changing – and usually not in your favor.  Not only is the China market developing in unpredictable ways, but Chinese regulation is also changing rapidly.  Western managers must not only analyze the dangers of investing in China – but also the dangers of staying on the sidelines.  China’s consumer markets and new product development ecosystem are both advancing quickly.  Markets present unmatched opportunities, but only for firms willing to invest heavily and redesign their operating procedures.  Waiting for the perfect opportunity used to sound like the safest approach – but that is no longer so.  As Chinese competitors get better at developing new products and services, many western brands are finding that there is a significant opportunity and competitive cost to staying out of the fight.

Chinese regulations also make it harder to analyze the business environment.  If it seems to you that the Chinese bureaucracy is intentionally targeting foreigners with restrictive and expensive red tape, you’re not (necessarily) paranoid.  There is definitely a trend to limit foreign access to domestic Chinese markets.  The good news is that the news is just as bad for your competitors – both local and foreign.   The ability to manage the bureaucracy is a powerful competitive advantage for firms that invest in the right partnerships.

The China Worst Case Scenario

What can go wrong in China?   A lot.  In many cases the worst-case scenario in China is far worse than it would be in the US and Europe.  You have to take into account the potential loss of your technology and IP, and damage to your brand from counterfeiting and misrepresentation.  Your firm is also more exposed to adverse regulation and open-ended obligations that are very difficult to unwind if you decide to exit the deal.  China’s free-wheeling days are over – if you hire staff or register a business today, your legal entanglements can continue for a very long time.

Post Agreement Renegotiation

Western negotiators can’t be too quick to declare “mission accomplished” after a deal is signed with a Chinese counter-party.  In China, post-agreement renegotiation is the rule, not the exception.  The Chinese side considers it normal business practice, but western negotiators who consider the deal sealed and the agreements carved in stone are in for a rude awakening.  Experienced negotiators know to plan in advance for a continuous cycle of renegotiation and bargaining about deal points that are already addressed in the signed agreement.  This tendency for never-ending renegotiation makes it very hard to establish your BATNA in China because you are never quite sure which of your previous agreements are still in force.

Next:  3 Phases of Chinese BATNA analysis 

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