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Chinese Negotiators Must Know the Enemies (and Procrastinators) Within

Mapping your internal China negotiating stakeholders

I was recently working with a US purchasing team of a European MNC buying from China. Their Learn to negotiate in China with China Solvedbrief 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.

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ChinaSolved International Negotiators’ Guide to China 2014.

The trade relationship will grow incrementally more challenging and MNCs may finally air their grievances in public.

2014 will be challenging for international negotiators in China, but not particularly unstable or erratic. An unsettled economy in China will bring out protectionist impulses in Beijing Sign up for the ChinaSolved newsletterbureaucrats, who will be increasingly defensive and conservative about what happens within their borders while at the same time becoming more ambitious and assertive in their dealings abroad.

Access to the the Chinese market will become a touchier issue for deep-pocketed MNCs, who will exhibit a greater willingness to go public with their complaints about market access to China — and may even mobilize connections at home to limit Chinese access to western markets. China in 2014 will continue its trend of greater nationalism, protectionism and defensiveness, but shouldn’t hold too many surprises for experienced international businesses. Savvy negotiators will find ways to turn bureaucratic heavy-handedness to their own advantage by offering Chinese partners help moving offshore to more attractive, less restricted markets.

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5 Shades of Gray – Managing Graft Levels in your China Business

How far is too far when it comes to graft and corruption in China?

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Last week’s post on MNC bribery scandals in China sparked a bit of indignation and claims that “red envelops” were the only way to do business in China. Several members of the China Solved LinkedIn group challenged me to provide alternatives to paying bribes.

5 Shades of Gray

Borrowing a page from a wildly popular best seller, ChinaSolved offers up 5 Shades of Gray – a very sexy guide to MNC corporate governance in China.

  1. The Missionary Position.  Straight and narrow. Follow the rules, do your own paperwork, wait on long lines, and pick non-sensitive service industries. Avoid the spotlight. This is the slow and infuriating route to growth, and it will always look like the locals and savvy expats are eating your lunch. For the multitude of start-ups, entrepreneurs and boot-strappers who can’t afford to pay bribes, this has always been the path of choice.
  2. Make them say your name. Build end-user support through advertising, branding or promotion using traditional pull marketing techniques. Focus on branding and name recognition. Use bribes and pay-offs as needed to secure permits, approvals and to clear set-up bottlenecks, but not for regular marketing. The downfall of the Euro drug and formula makers was that they relied on a complex, permanent structure of pay-offs that left an indelible trail For small businesses, building a positive reputation in China has never been easy – and with more and more high quality locals scrambling for mindshare and shelf space, it’s getting even tougher. Focus on niche markets and specialized products or services. Successful models include Apple and Android.
  3. Flog it yourself.  Sell your goods directly to consumers by building your own distribution channels.  Some western brands have been successful in building their own retail infrastructure. IKEA. GM. And super-luxe brands like Hermes have used this model successfully. While this is another option that seems like it’s only for the giant MNCs – smaller, nimbler actors can make this work in the 3rd and 4th tier cities. Building your own distribution channels in China is extremely difficult and cumbersome – but it gives foreign brands greater control over their sales and marketing.
  4. Find your sugar-daddy. Partner with the influential and connected — and pay dearly for it. Find distributors and partners who already have channels and pay them for access. A lot. Years of bribery and relationship-building should be priced in to the deal terms, so be prepared to spend. The bad news is that this usually means working with an SOE. The worse news is that they may not want to work with you. If you are in sensitive industry like education, media or transport, there probably isn’t any other option. NYU and Disney followed this path with great success.
  5. Who’s a dirty boy? Pay bribes and take your chances. This used to be the smart money, but it is looking increasingly dumb. Your Chinese consultant and head of marketing has been pushing this forever. Maybe it’s time to push back.

The Writing on the Wall

Anti-graft campaign against foreigners has been tremendously successful for Xi and the Beijing bureaucracy – you will see more and more of it in the future. The first wave of prosecutions has focused on European companies with the muscle to dominate markets – to the detriment of local Chinese consumers. Look for autos, F&B, premium liquor and maybe even hotels to start getting more unwanted attention.

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How to Make a ChinApology

Here are some tips for Western managers making their first ChinApology:

ChinaSolved logoDanone’s Dumex baby forumula division is the latest MNC to get caught in Beijing’s ever-widening anti-corruption net. Last week was Bayer, and before that Sanofi. The Euros are certainly attracting all the wrong sorts of attention in China these days, but it’s just a matter of time before the Americans start showing up in the headlines. We’ve discussed how to reduce risk through smarter relationship-building and why it’s important to audit your China operation – but for some of you that ship has already sailed.

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Risk Reduction in Chinese Business: Relationships

Western managers who delegated the “guanxi” or relationship-building function need to audit their China operation.

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Ever since I published the  eBook – Guanxi for the Busy American  – I’ve been on the receiving end of an endless stream of jaded Old Hand derision and criticism.  It usually takes the form of a fast-paced 2-Step.  First they declare that they are tired of hearing the overworked and

misused phrase, “guanxi” and they don’t bother with it anymore. The next step is to delegate the entire relationship-building process to a trusted Chinese associate or agent.  (A typical response to any mention of the g-word:  “I don’t bother with guanxi nonsense since it isn’t really necessary and never helps westerners anyway.  Instead I have, over the years, built up a strong relationship with my Chinese partner/lawyer/director/wife/classmate.”)

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Negotiate Lower Risk in China

Western negotiators in China can lower their risk with smarter negotiation techniques.

Negotiating in China used to be about reducing costs, but since the crash of 2008 it has been about accessing the market and integrating supply chain.  Since both of these goals require substantial and long-term commitments, the job of negotiators in China has fundamentally changed.  Nowadays, negotiating in China is about reducing risk.

Rule Number 1: business intelligence is your responsibility.  Not your counter-party, supplier, partner or even key staff.  You don’t have to have all the answers, but you do have to know the right questions — and have some way of assessing the answers you are getting.  That is not something you’ll grow into or pick up over time.  If you are too busy to learn about China and develop your own channels of business intelligence and market information, then you are simply too busy to succeed in China.  It IS that simple.

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China and MNCs: Rough Patch or End of the Marriage?

MNCs in China have always negotiated differently than WFOEs or JVs.

When it comes to negotiating in China SMEs  and entrepreneurs shouldn’t be scared off by the troubles of Glaxo  or Sanofi – necessarily.   The headline problems are more politics than business – and that is a different kind of negotiation.  Whether you are an owner, department head or front-line negotiator – your job is to keep your head down, appear Chinese enough to win market acceptance, and stay in control of quality and HR.   Keeping an eye on the bottom line is much easier, however, when you aren’t looking over your shoulder to see who is coming after you.

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