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.
The Chinese are coming…to spend, partner and raise their kids in your neighborhood. Be ready.
Whenever I step foot out of the NYC area, I get questions about how American sellers should approach mainland Chinese buyers. New Yorkers think they’ve got it all figured out (though I’m not sure mainland visitors agree). That may just be part of the jaded NY passive-aggressive, semi-hostile attitude of “if you can make it here” that we show towards everyone – local and tourist alike. Mainland Chinese buyers and counter-parties, however, are becoming significant players in the mainstream US economy. The first place we’ll see them is as spendy-vacationers and real estate buyers, but expect to negotiate with more Chinese who are buying companies, forming US-based partnership, being head-hunted by HR departments, and setting up stand-alone commercial ventures. Just because you aren’t going to China doesn’t mean you won’t be negotiating with a mainland Chinese counter-party in the future.
Chinese negotiators can be chess-match slow, or lightning fast. The pace of your Chinese counter-party says a lot about your deal and relationship.
A Chinese negotiator approaches each deal with two options in mind. His Plan A is a long-term relationship that will bring him many profitable transactions over a long time. He knows that this will require a lot of time and effort, but this is the Chinese recipe for success, and he considers the investment of time, effort and patience to be standard operating procedure. Plan B is a one-off, win-lose transaction. One-time deals may not be the cornerstone of his strategy, but normal business operations require plenty of non-strategic transactions. Since he doesn’t plan on seeing the counter-party again, he should maximize profit immediately. Often that means lower quality production, inferior materials and little or no service.
Mapping your internal China negotiating stakeholders
I was recently working with a US purchasing team of a European MNC buying from China. Their brief was all about reducing costs and turn-around time, and I expected them to ask me about tactics and strategies for influencing their Chinese counterparts at factories and distributors. But instead, they wanted to know about how to clear bottlenecks and accelerate processing time – within their own organization.
Their frustrations were not with the Chinese suppliers (who they were learning to deal with) or with their direct reporting line (who felt they were in the same boat). They were being slowed down by departments not directly affected by supply chain process – like finance, legal and sometimes even HR. It seemed that every time there was a change in personnel or a new internal procedure, someone somewhere in the company had to learn about China for the first time. The bottlenecks weren’t killing them, but it was a delaying the supply chain process by a day here and half a day there – which really added up. When the purchasing managers had to go back to their Chinese counterparts with adjustments to deal terms or requests for information, it weakened their position and made them look disorganized – especially when the front-line negotiators didn’t know the people within their own company or why they needed to make changes or get new data.
Your strategy becomes my tactics – but you have to stay in control of HOW and WHEN
We’ve been talking about the importance of developing good strategies and understanding where strategy ends and tactics begin. I’m using a simple but workable set of definitions — strategies deal with goals, asset development & allocation, and longer time frames. Tactics are methods for reaching goals, deal with spending or earning, and usually take place within a shorter time horizon.
Strategies should be developed at the Board or CEO level, and integrate on a global level. Tactics must support and address your global strategy, but have to be adjusted for local business envirnoments and current economic realities.
Adjusting your negotiating strategy too much for China is bad, but surrendering the agenda is even worse.
You have to adjust your business plan to reflect the realities of the Chinese business environment. If you change your negotiating strategy and business plan too much then you aren’t expanding your business to China — you’re creating a new operation that doesn’t integrate with your global operation. Change your business model too little, and your business doesn’t stand a chance in the hyper-competitive China market.
Your best course of action is to develop a plan that makes sense BEFORE you start negotiating. Good negotiators don’t talk and think at the same time. (In case you’re wondering, think first – then talk.) In the language of negotiation, you’ll create a new goal system, identify an ideal counter-party profile, and set a sensible bottom line or BATNA . You’ll consult with experts and knowledgeable advisors – WHO ARE NOT YOUR COUNTER-PARTIES IN AN ONGOING NEGOTIATION – and do the groundwork that will give you some good insight into the Chinese business, legal and market environments. You’re entire universe of internal stakeholders will get input and buy into the new plan. Most important, you will have a roadmap of how the China business will integrate with your global operation.
Western negotiators in China shouldn’t try to decide on tactical issues before they develop workable strategies.
Western negotiators in China are more successful when they fully grasp the difference between tactics and strategy – and understand how to develop and implement them in their new business environment. Unfortunately, many foreign negotiators and managers in China spend so much time thrashing out tactical details and trying to clear operational bottlenecks that thought of constructing a practical, coherent China strategy is a fantasy. Chinese counter-parties benefit from the Westerners perma-fluster, and happily add fuel to the fire in the form of new crises, obstacles, and opportunities. Western managers complain of starting hundreds of projects but completing few and accomplishing even less.
Once you have some idea about their real goals and agenda, then you have to revisit your initial deal proposal and re-evaluate based on the new information. Do you still want to be in business with these guys?
American negotiators like to start out tough and aloof – gradually getting more cooperative as they get to know a potential partner. Chinese take the opposite approach – opening with a friendly and harmonious attitude, but getting more demanding at the end. Once you are successful at digging beneath the surface and learning more about your Chinese counter-party’s true motivations and goals, you are in a position to perform two crucial analyses.