US Secretary of State Rex Tillerson made his first official visit to China last weekend, and the White House probably sees it as one of the bright spots in a rocky transition. His Beijing hosts, however, will view the meet as a major step towards their goal of regional hegemony and global respect. Like many western execs before him, Sec. Tillerson doesn’t seem to understand what the Chinese believe he’s agreed to.
This was how the new Sec of State described the US China relationship in January:
Some westerners are pushing back against the idea that we are facing the risk of rising trade barriers or a breakdown in orderly trade regimes. Their logic is that, “The US has a lot of levers, and we can assert our rights without necessarily sparking a trade war that the Trump Administration doesn’t want.” Not wrong, but it makes the dangerous assumption that trade relations are going to be something Washington stays in control of.
Trade frictions almost always take on a life of their own due to a single inconvenient point: Both sides in a dispute get an opinion. If you don’t know the other guy’s point of view (POV) then you have absolutely no control over the final result.
Chinese negotiators tend to shift from guanxi-seeking partner to cut-throat competitor mode when confronted with an unpredictable counter-party.
Chinese negotiations usually follow one of two paths – towards long-term partnership or one-off competition. What’s the difference? You are. If a Chinese counter-party feels that he can do better as a long-term partner, that’s what he’ll go after. If he feels that you won’t honor the terms and obligations of a durable & profitable relationship, he’ll go for your throat.
Chinese institutions are known for their long memories, and well after members of the new administration have forgotten their twitter tirades and decided to “move on and get on with business,” American firms will still face increased scrutiny, hostility, and non-economic barriers.
China’s treatment of the U.S. delegation as President Obama arrived at the G20 conference sparked controversy and a firestorm of international criticism. There are some great lessons here for front-line negotiators involved in cross-border deals.
The conflict may or may not have been serious – but it was real. It says a lot about both the US and Chinese cultures. The Chinese infuriated the world with their hostile behavior. (Don’t be politically correct and insist on saying “perceived hostility”. Many people were angered by the way national security adviser Susan Rice was treated on that airport tarmac, and you may have been one of them. Own it.) We infuriate the Chinese by talking about it publicly.
In Chinese negotiation, don’t confuse polite rhetoric with concerted strategy.
American and European negotiators treat their Chinese counterparties’ “general principles” discussion like the “terms and conditions” screen – we just check the box and look for the real content. Big mistake.
General Principles Discussion can come back to haunt careless negotiators
Westerners in China often make important concessions without even knowing it. It’s common for Chinese negotiators to frame their position with a discussion of “general principles”. Westerners tend to shrug them off with vague agreement – particularly since these conversations tend to be phrased in vague, wooden rhetoric like “harmony and shared responsibility”. It all sounds like meaningless propaganda to us, and it mixes easily with the toasts, proverbs, unfamiliar historic references and folksy anecdotes that characterize a boozy banquet night in Shanghai or Beijing. Western negotiators tend to focus on transactions, and aggressive negotiators will make every effort to control the negotiating agenda and nail down concrete deal points – but the Chinese side never gives up on their deal points or general goals, regardless of the appearance of compromise or concession.
Relationship Building Not a One-Off Activity in China
In ChinaSolved’s latest book, “10 Common China Negotiating Mistakes”, 3 on the least wanted is “coasting on good starts and early successes”. While this is one of the biggest dangers that deep-pocketed MNCs (and their representatives” face in a long-term China business, it can be very hard to anticipate. Fortunately for us (but unfortunately for them), Microsoft provides a telling case study of how the best efforts don’t always yield successful outcomes.
Negotiating in China means talking about the relationship. (Sorry guys.)
Western businesspeople already know that to do business in China you have to have a relationship. This is the whole basis of guanxi and harmony. The problem is the way Americans and Chinese view relationship. To us Westerners, “relationships” are emotional – they are a matter of personal chemistry. We hear the word relationship and we think of family, romance, marriage, and friendship. In China relationships are regarded differently. They are more like a due diligence investigation – and you definitely have to negotiate for access and openness.
Experienced China negotiators know why China doesn’t want the title: World’s Biggest Economy.
China is trying its best to avoid the glare of international scrutiny again – but this time it’s not about censorship, corruption, or human rights. The World Bank is trying to hang the mantle of “world’s largest economy” on China’s brawny shoulders – and Beijing is having none of it.
Regular readers of ChinaSolved are familiar with the successful Chinese negotiating tactic of BoPS – or Balance of Power Shift. Chinese negotiators frequently enter a deal situation by purposely placing themselves in a subordinate position. They are known for their humility, cordiality, and polite flattery – “your company is so accomplished, your technology so advanced, your brand so famous.” You aren’t treated as an equal partner — you are “LaoShi”, the honored teacher who leads and offers guidance. Before you know it, you have guided your polite new junior partners right to your best technology, your proprietary business methods, and maybe even your customer lists. That’s when the balance of power shifts and suddenly your humble Chinese counterpart becomes a good deal more assertive. Once a Western negotiator has outlived his usefulness, the partnership either dissolves completely or becomes much more competitive in nature.
If you are going to China to negotiate a deal, then you occupy three distinct roles.
First, you are the point man on the field that must represent the home office and execute in its best interests.
Second, you are responsible for gathering pertinent information and moving it through your organization to maximum advantage. This involves a great deal of internal negotiation, which must be done well before you start negotiating in China. If you try to start changing your firm’s global policy, or acting on emerging opportunities (or newly discovered dangers) without first doing the necessary groundwork, you are going to face bottlenecks, conflicts, and unpredictable outcomes.
Third, you are the relationship builder. This is a delicate role under the best of circumstances and it is particularly challenging if someone back in HQ thinks that he has already established all the key personal relationships when he banqueted his way through Shanghai 18 months ago. If you are running point, you have to make sure everyone on your team—from the big bosses back home to the local staff supporting you—are all working off the same playbook.
HQ Bosses — Same Goals, Different Methods
If, on the other hand, you’re a top-down senior strategist based in HQ then you have to understand the mechanics of business in China. China deals terms are never “set and forget”—you cannot use US or European operating systems as a template for a new China business. We admire those senior managers who set bold strategies for entering the China market, just so long as they remember that for every self-congratulatory press release there will be 10,000 ground-level micro-decisions that must be executed properly. If you aren’t actively supporting your own people in the field then you are undermining them, and yourself.