I’ll be speaking at Lohaus’ cross-culture series this coming Tues, April 7 in Shanghai. Here are the details:
Tuesday, April 7, 2015
50 Yongjia Road
China is a unique place with a culture, especially its business culture, that continues to confound western business people no end, and not just in obvious ways. There is nuance too.
Whatever ethical norms you’ve come to expect, they don’t apply in China. Why should they?
This is a truly different place. The more opportunity there is to profit personally from your operations through fraud, the greater temptation there will be to take advantage of you and your company – and in ways you would never suspect. Think unbridled Wild West.
Will weaker Chinese growth strengthen your negotiating position?
The Chinese economy has been slowing for the last few quarters, and whether it is a controlled application of bureaucratic brakes or the start of a skid into a recessionary ditch, some international business people see China’s deceleration as an opportunity. International negotiators who believe that a slowing Chinese economy gives foreigners more leverage are, however, over-optimistic at best. There may be isolated cases were individual private Chinese businesses will be motivated to sweeten their offers in the face of a domestic slowdown, but it would be unwise to assume that Chinese counterparties are all feeling desperate. Westerners who calculate that the bureaucracy is going to become more welcoming to foreign businesses need to realize that a couple of years of slower growth will probably make their challenges in Beijing more severe.
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.
How to do business with Chinese managers who are still in denial about their changing role in the world.
Forget the Financial Times headlines about China’s rising international clout, and super-lux marketing campaigns targeting elite buyers in Beijing and Shanghai. Chinese media is still carrying the Party line about China as the struggling developing market – and your Chinese negotiating counterparty believes it to some degree. When approaching a Chinese negotiation, you have to take into account the conflicting roles that Chinese managers are grappling with. On the one hand they are brought up to see the Chinese Nation as perennial victim of foreign aggression, but they are also confident about their growing economic power.
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.
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.
Using Trial Balloons in a Chinese Negotiation setting
We have been discussing ways of surfacing a Chinese negotiator’s actual agenda for the deal you are working on. We’ve looked at the direct method of asking open-ended questions, and a less direct method of trying to read the truth behind their misdirection and obfuscation. The last technique we’ll talk about here is the trial balloon.
A trial balloon is an idea you float to test the other side’s reaction. It is somewhere between a direct question and passive listening for information. A typical trial balloon might be, “We’re considering setting up a WFOE (Wholly Foreign Owned Enterprise) in Pudong…” and then you stop talking. That’s important. Now you gauge his reaction – what he says and the non-verbal cues. He will probably be either positive and encouraging or skeptical and cautious. Follow up with an open-ended question that gets him talking – in broad terms at first – about what his thoughts are.
Uncovering the Chinese side’s true agenda. Method 2: Learn to the Lies
Some readers responded to our suggestion that western negotiators should ask direct questions to uncover their Chinese counter-party’s real agendas with skepticism. Won’t aggressive and competitive negotiators simply lie? Yes, some certainly will (and as some people pointed out, that is by no means a purely Chinese phenomenon – but since we are concerned with Chinese negotiation tactics, that’s where we will focus).
If you feel your Chinese counter-party is deceiving you, your next task is to answer these questions:
Uncovering the Chinese side’s true agenda. Method 1: Ask Them.
Chinese negotiators pride themselves on being subtle and cunning. Military and business traditions in China extoll the virtue of misdirection and multi-faceted strategies that obscure one’s true motives. Unfortunately for western negotiators, this makes it very difficult to craft effective deal proposals. It’s hard to be win-win with a counter-party who won’t reveal what a win looks like.
Westerners, however, must shoulder part of the blame for the communications-gap that plagues cross-border communication. Sometimes we don’t do the homework, our language skills are famously bad, and we have a bad habit of trying to shoehorn western business models into a Chinese business environment.