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:
We’ve seen this before. A new CEO with limited China experience introduces himself to the international business community with tough
talk and big promises about China and the rest of Asia. Then reality rears its ugly head.
The new US administration is doing what new US senior managers in China do best – sending conflicting messages, missing opportunities, and making sweeping pronouncements that are just about impossible to implement.
What can we expect moving forward?
Expect to watch the needle swing back and forth between Partner and Competitor pretty sharply for a while yet as the new trade bosses find their footing. Here are the potential flashpoints you should be watching.
Intellectual property protection
Tariffs or “border adjustments”
Christianity in China
Yes, the Taiwan card has been played, but you can expect to see it massively overplayed at least once again in the near future. The present administration has probably forgotten the Taiwan call & tweet , and is hoping that the tough talk on North Korea will amount to little more than a photo-op. And that’s your problem(s).
The Chinese bureaucracy is much more tolerant of overseas companies that spend than of overseas companies that earn in China. That means integrated MNCs must adjust their business models – and their approach to regulators – when they are selling.
Western negotiators in China are finally coming to accept
that no matter what the deal on the table may be, their most significant counterparty is the Chinese government bureaucracy. The Chinese government has a much different attitude towards international businesses coming to China to buy or manufacture as opposed to those coming to China to sell and market. International managers are still coming to grips with this dichotomy, and it is causing problems and costing money.
Ask not what China can do for you – ask what China wants from you.
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.
Miscrosoft 8 Banned from Government Computers in a Surprise Announcement
According to every Yiddish speaking grandmother in the world, there are two kinds of fools – schlemiels and schlimazels The schlemiel walks into a busy restaurant and bangs smack into a waiter carrying a tray of hot soup, dumping it all onto a customer sitting nearby. The schlimazel is the guy that gets dumped on.
How to do business with Chinese managers who are still in denial about their changing role in the world.
Forget the Financial Timesheadlines 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.
Lack of basic business intelligence is the #1 risk facing Western negotiators in China.
Alibaba is grabbing headlines again for breaking new ground – again. This week it’s a record setting IPO in NY (bigger than Facebook) — though it’s newly announced deal with ShopRunner may turn out to be even more significant in the medium-term.
Just to restate the obvious, Alibaba is already involved in a very large equity cross-holding deal with Yahoo and one of their major investors is Softbank. The company has been around for 15 years, and for most of that time their iconic founder Jack Ma has been shuttling around the world, raising funds, making deals, and speaking at international A-list conferences. Alibaba started out as an international B2B platform whose raison d’etre was to match Chinese sellers with international buyers. Nowadays it is China’s most distinctive brand, responsible for selling or moving roughly half of every online transaction in China (which the World Bank just ranked as the world’s largest economy).
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.
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.
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.