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risk and uncertainty

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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Risk and Uncertainty in Chinese-American Negotiation.

American and Chinese negotiators view uncertainty in opposite ways. Chinese negotiators consider uncertainty to be an insurmountable obstacle, and tend to respond defensively by halting all forward progress. American dealmakers often see uncertainty as an opportunity that favors the bold. Risk-taking American entrepreneurs are famous for leaping in with both feet and gaining first-mover advantage in situations where others fear to tread.

The contrast can be brought to light through the use of a technique called the Johari Window (http://en.wikipedia.org/wiki/Johari_window). Johari Window is a framework that researchers use to study the different levels of knowledge that two parties have about a situation. It’s a simple 4 square matrix — across the top are Known to You and Unknown to You. On the vertical axis are Known to Them and Unknown to Them. It yields 4 squares — things that both parties know, things that you know but they don’t, things they know that you don’t, and things neither side know.

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Chinese negotiating counter-parties: Risk vs. Uncertainty

Chinese negotiators have an undeserved reputation for being risk-avoiders.   Books and speakers tend to generalize Chinese businesspeople as being unusually sensitive to risk or loss.  This causes confusion for westerners negotiating in China when they are suddenly confronted by behavior on the part of the Chinese that seems extremely risky.  Chinese, it seems, are sometimes extremely cautious but can also have a penchant for blithely playing long shots.  What is the true picture?

Chinese negotiators are not particularly risk averse.  In some cases, they seem to go out of their way to take risk.   What they hate is uncertainty.  If they don’t see all of the pieces to the puzzle, they hold off.   If all the pieces fit together to show a risky situation, he may take the deal and he may not.  

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