An older style of Chinese negotiating is returning to dominance after being forced to the sidelines for many years – practiced by ‘Statist’ deal-makers. They are a cross between traditional bureaucrats and private profit-oriented companies. In China they are not new – they fit in between State Owned Enterprises (like China Telecom and the 4 Big Banks) and the pure private enterprises that American dealmakers tend to seek out. The most famous examples are firms like HuaWei and Lenovo – ostensibly private Chinese firms whose corporate goals are interwoven with central government policy initiatives. These are ‘state directed’ companies that work in concert with bureaucrats to implement policy, but are still nominally private companies. (Since President Obama’s administration has taken office in the US, we have seen our own ‘Statist’ entities rise to new prominence: government assisted banks, automakers and labor unions that work hand-in-glove with the Obama administration to execute policy.)
Don’t assume that all Chinese counter-parties negotiate the same way. Americans in China have a tendency to seek out primary decision-makers at private Chinese firms – but current trends favor Chinese entities that are either state owned or heavily influenced by government policy. A Chinese firm’s parentage or ownership structure isn’t as readily apparent as it once was, but if you have reason to believe that your counter-party is following an official state agenda then you have to adjust your negotiating approach.
Americans like contracts. We feel that a well-written, signed contract means that we have built a stable, permanent business arrangement. Chinese negotiators take a somewhat different view. While they feel contracts are an important step towards forming a business arrangement, to most Chinese deal-makers a signed document is more of a statement of mutual understanding of the situation at one specific point in time.
Americans see contracts as independent constructs that put limitations and obligations on both signatories. Chinese negotiators see contracts as snapshots of agreements at a specific moment under specific circumstances. Americans view contracts as a destination, while Chinese view them as milestones.
Americans negotiating deals in China love whipping out their calculators and ‘getting down to business’. Chinese counter-parties, when confronted with Western hard-assitry, have a big problem. They don’t know whether they should pretend to be impressed or pretend to be confused. It’s a safe bet that your Mainland Chinese counterparts aren’t going to let out a sigh of relief or give one another high-fives, but they could. When Westerners get antsy to sign a deal, the Chinese side has generally already won.
I finally gave my International Negotiating class some numbers to play with. For the last few weeks, I’ve given business undergrads case studies that didn’t include specific figures for profit, loss, cost, price, valuation etc. Drove them nuts. They came in looking for the math. Instead they had to figure out strategies and goal systems. They were NOT amused. But when forced to consider goals, methods and contingency plans, they did great. Of course, the moment they had numbers to manipulate they turned negotiating into an arithmetic exercise. Sound like anyone you know?
When negotiating in China, timing and timetables are among the most serious cultural barriers that westerners face. Some things seem to go much faster than they would back home, while other very basic processes seem to take forever.
Managing time across cultures is always challenging, but part of the problem in China is the way business people get to know each other. In the US, you’ll have a few conversations with a potential supplier or client – but usually there is very little real trust until after a few small preliminary orders. Transactions lead to a relationship in the West.
Yesterday I asked my undergrads a question that they had never heard before.
“Which is better – a bad decision or no decision?”
Every single western student said, “Bad decision”.
Every single student who grew up in a Chinese household (in US or Mainland) said, “No decision”.
This is an old Harvard Business School koan that has achieved the status of proverb in the US –and the orthodox answer is “a bad decision is better – because it leads to more information and progress”. It reinforces an American notion that inertia and indecision lead to failure.
When your goals aren’t as crystallized or informed as you would like them to be, you are in danger of “deal drift”. That’s when you go into a negotiation with one set of goals, and over the course of discussing, learning and compromising you end up with a deal that is completely different. There’s nothing necessarily wrong with this – as long as the new deal still makes sense.
Newcomers to China often start out negotiating a specific TRANSACTION and end up with a far-reaching, exclusive RELATIONSHIP that they are ill prepared to manage or develop. There are lots of guanxi and behavioral reasons for this, and I’ll put up some posts in the future. Right now all you care about is that you have to keep on eye on your critical deal points.
One of the things I tell clients early and often is that they need multiple counter-parties every time they start negotiating a deal in China. Yes, I know how time consuming and frustrating it can be – but in the long run there are few negotiating tactics that will serve you better in China.
I recommend that negotiators who are new to an industry, a market or China itself to follow a simple pattern. 1) Open up negotiations with a major supplier or player – preferable one who has dealt with overseas businesses before. Learn about the market, the products and the critical success factors. 2) Based on what you have learned, open up negotiations with at 2 other counter-parties. You’ll now have at least 2 potential deals in discussion at any given time – even if one of them drops out or decides to give you the ‘now or never’ ultimatum.
Due to technical problems, the first attempt at collecting data on the new survey – Sources of Power and Weakness in Mainland China negotiation – wasn’t yielding reliable results. Here is the new link. Please take the survey for the first time or try again if you had trouble before. It’s fast, convenient and anonymous.
Thanks very much.