We continue with our Chinese Negotiating Styles series by taking a look at a common Chinese negotiating type — the Avoiders. Westerners doing business in China — or negotiating with Chinese counterparties in home markets — have to get used to avoiding behaviors and tactics. Americans tend to view avoiders as weak or ineffective negotiators — but Chinese businessmen are adept at using avoidance to win concessions.
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Are Chinese deal-makers patient & reserved or quick & direct? Yes.
I spoke with two real estate professionals over the weekendin NYC in separate conversations about their recent experiences with mainland Chinese clients (both of whom turned out to be from Shanghai). Their experiences were so different it was hard to believe the men in question came
Does your Chinese client plan on seeing you again?
from the same city. Type 1 was the no-nonsense, bare-knuckled, “what’s your best price right now” street haggler. Type 2 was the patient, reserved, “cards close to the vest” deep thinker. Which one represents the true nature of Chinese negotiators? Unfortunately for you, both do. You may run into either deal-making personality, depending on their intent and situation. The basic question that predicts which set of traits they’ll project: Do they plan on seeing you again or not?
If a Chinese negotiator knows that he won’t ever have business dealings with you or anyone you know again, then he is as direct and mercenary as anyone you’ve ever met (even by NYC standards). Chinese will tell you that this is the “modern, international Chinese”, but it is actually the continuation of the tough mercantile trader persona that has been around since Huangdi bought his first training-sword. Chinese are known as tough, abrupt, no nonsense traders.
If, on the other hand, he thinks there is a good chance that he will be doing business with you again in the future then he will run through his entire relationship-building repertoire, which involves all the cultural touchstones like face, harmony and guanxi.
What about our 2 NYC realtors who had such different experiences with two Mainlanders who, for all we know, were neighbors back home? These variables probably influenced the behavior of the Chinese clients:
1. Buyer or seller. If they are the ones paying, the Chinese tend to be slower and more reserved. They are risk averse — not sensitive to opportunity cost or time. If they are selling it is a different story – then they are much more sensitive to opportunity cost. Remember – Chinese negotiators use relationship-building as a form of due diligence, so it is part of their risk-management strategy.
2. Were you introduced by someone they respect? This immediately bumps you up from the “transaction” category to the “relationship” category. If you know the right people, you are now part of his network.
3. Your perceived social status. Chinese negotiators are very into status, so if you seem wealthy, have a prestigious address, a big office, live in the neighborhood and display other signs of status, you are more likely to get the “relationship” treatment.
4. How useful do they think you are? If they feel you have discretion or power over the deal, then it is worthwhile to build a relationship. If you are simply a glorified salesclerk, then they will treat you as such.
5. Their power within the group. If the Chinese are negotiating in a group, those at the very top and the very bottom are nice, patient and considerate. The ones at the bottom have to be, the ones at the top can afford to be. The ones in the middle are under pressure to show results, and they tend to be tougher and more direct.
Neither role is particular unique to the Chinese, and both have advantages and drawbacks as negotiators. The no-nonsense take-it-or-leave it trader may be abrupt, but you’ll know where you stand and won’t waste time. You just have to size him up and respond appropriately. The slow relationship guy will find direct Q&A jarring, and you may scare him off. You’ll have to invest more time and effort to make him comfortable before he makes a decision.
Accommodating or Yielding is an important Chinese negotiating style.
In China, displays of weakness are not predictors of negotiating failure. Quite the opposite. Americans and other Westerners negotiating business in China must take care when Chinese counter-parties seem to place themselves in subordinate positions. In China, weakness and vulnerability are not the same thing.
Their learning curve is much steeper than yours. They have been figuring out how to operate without you since the first meeting. Your priority during that time has been figuring out how to get them to do more. They can run your China operation better than you can. You still can’t tell a cab driver the address of your factory in Songjiang District of Shanghai.
Hold On to that Partner – China Style
What can an MNC or foreign partner do to keep the Chinese side loyal, engaged and pulling in the same direction? These ideas are all simple – but if you try putting them in place AFTER your existing partner or counterparty has peaked behind the curtain and seen that you are a mere mortal they won’t work.
1. Have more to offer. The Chinese side wants bigger, better and richer – and if you can’t offer it he’ll try for it on his own. Always have an option for making the Chinese partnership bigger. Expansion is a good place to start – domestic growth is OK, overseas is better. Better deal structures that see his payout rising as a percentage of revenue – not squeezing his margins just as the business grows. New markets, new technologies, new opportunities – you’ve got to make yourself look more valuable tomorrow than you were yesterday.
2. Do something they can’t do. Leverage your strengths where they are weak. Branding, new product development, and frequent product rollouts work. Look at successful brands like Apple, Burberry and GM. Their business model is based on a series of regular, highly anticipated new product developments – and they all have to work beautifully the first time. Chinese can be efficient or innovative – they have trouble doing both at the same time.
3. Ditch them first. Nothing makes a partner sexier than the threat of them leaving first. Start making plans to go WFOE as soon as you can. For most Western firms, this requires 2 ½ competencies: Distribution and HR are definite gets. Regulatory and bureaucratic facility might be required, depending on your situation. The less needy you seem, the hotter a partner you make.
4. Have multiple partners from day 1. Access your inner slut and put it out on the street early. Once you have a successful JV or WFOE, you start giving off Chinese pheromones that everyone wants to get with. Having 5 partners only seems like it would be 5 times the work. In fact, it’s only 4.5x as much work. But still. Play one off the other.
5. Do a PacMan. He’ll try to poach your best assets – technology, brand and business process. Identify and pursue his best assets – probably senior managers and connected networkers. Build up the HR and external network you need to work on your own. http://www.chinasolved.com/2013/02/11/china-management-competence-as-competitive-advantage/ Chinese partners who are arrogant and disloyal to you are probably no better to their own people.
Remember the ChinaSolved ABCs of working in China – Always Be Connecting.
Chinese negotiators have a different definition of selfishness, and you have to know it.
Finding balance is harder than you think it should be
A recent post on ChinaSolved asked Western managers in China to answer a simple question – What is your Chinese Partner’s Plan B? What are his alternatives to doing business without you? This is a key question for Western negotiators doing business in China, because there’s a good chance you are operating under a dangerous misconception.
Mutually Assured Business Destruction?
Many Westerners negotiating business deals in China erroneously believe that self-interest and that most blessed of all instincts – greed – will keep their Chinese partners engaged and relatively honest. After all, without me and my technology, assets, designs, marketing, brand…. (fill in unique competitive advantage here) the Chinese side would earn much less. “They need me at least as much as I need them…” are the famous last words in many US-China failures. The Chinese side may be working under a completely different set of assumptions, and what you consider to be universal values may in fact be quite variable. Case in point: They may consider getting rid of you to be an extremely important and valuable business objective – one that they are willing to pay a high price to realize.
Understand Chinese Negotiators’ Differences: Forget the myth of common ground . Smart negotiators in China focus on differences, and accept that their local counterparty’s values, orientations and priorities have very little in common with their own. Don’t assume that they will be satisfied with the same deal terms that would make you happy. Westerners sometimes think that they can secure cooperation and loyalty with carrot & stick tactics – enforcing contract terms with the promise of big rewards later. Back ended payouts don’t always work in China. The Chinese side has a different definition of self- interest and different priorities. They don’t necessarily care about cash – they may want something different, like technology, branding, product, or customer lists.
Different Destinations
You are all about the cash. They may not be. What are Chinese partners after?
Technology & IP
Product designs
Production process
Marketing techniques.
Overseas markets & clients
The problem is that you would be happy to share much of that in the normal course of business, and if they just cooperate as good, honest partners, they will meet their goals. But they see it differently. Why wait around and put up with you for 2 years (and bear the cost of lost opportunity) when it is much easier to drive you out of the market and still have 70% of your IP right away. Never estimate a Chinese partners’ self-confidence to backwards engineer and patch together work-arounds.
Different Routes
As far as they are concerned, the China market belongs to them. You think you are hiring them to manufacture, and you’re splitting profits on a distribution deal in the mainland market. They don’t see it that way. They helped you develop the product, and now you should go away and leave the local market to them. Government bureaucracy, corruption, convoluted distribution, regulations, insider advertising deals and distribution bottlenecks all support their efforts to get rid of you. You see these diseconomies as wasteful, unnecessary taxes on your resources. They see them as viable and sustainable competitive advantages.
Different Values
Getting rid of you may be a top priority and they may be willing to pay a high cost. There may be many complex cultural and sociological reasons for this – but you don’t care about any of them. The only thing that matters to you is the extent to which YOUR China business may be jeopardized by partners, staff, suppliers and distributors, and what you can do to safeguard your interests.
You’re the Cow.
Are you a withholding, passive-aggressive manipulator who makes promises he can’t or won’t keep? Well, maybe it is time to start – at least in China. No one buys the cow when they can get the milk for free. In China, technology, IP and business methodology is the milk of profitable transactions. If you’re giving it away too early or too cheaply, then you are the expensive cow no one buys. Sorry.
Good Will is not a Bank in China
Americans new to Chinese negotiation think that they can build up a bank of good will and trust by “front loading” their benefit package. Novices think that doing business in China is about having Chinese partners owe them favors. They are kidding themselves – and forcing conflict. If the Chinese side of the deal feels that it is ahead of the game, their best move is to terminate the partnership and lock in their gains – not wait around for you to collect on what you feel is owed to you.
American Intent
Win-Win type negotiators often feel that the best way to approach a negotiation is to demonstrate their good will, trust and value by “over-delivering”. They feel that if they provide the Chinese side with what it wants now (technology, brand, product designs), that the Chinese side will feel obligated to reciprocate later (distribution, execution, quality control). The western side has read up on guanxi and harmony, and believes that this is the way to develop loyalty and respect.
Chinese Reaction
The Chinese side may lock in gains by ditching you as soon as they are ahead. You see profitable transactions as the main goal, but your Chinese counter-party may care more about acquiring technology, designs and know-how so that he can operate independently. He’s willing to put up with you and cooperate as a means to an end. If you start off by satisfying his long-term goal, then you are simply shortening the life-cycle of a deal that was always supposed to end with you going home alone.
1. Determine his real needs, and have a business response. Don’t project your desires on your Chinese partners. Find out what he really wants. Assume nothing. Your first job in mastering Chinese negotiation is to be able to acquire mission-critical information, and nothing is more critical than figuring out what his real goals are.
2. Know what you want. Profiting from your IP, technology, brand and other Western super-powers depends on two things – having something he wants and knowing what you want from him. Withholding is easy. Knowing what you want from him is tougher. Good negotiators in China are able to articulate a graduated list of goals and demands. Prepare for a “YES” when you negotiate.
4. Grow your deal – tap into his ambition. What does he really want? Chinese negotiators often ask for assets and technologies that they don’t really know what to do with, while ignoring variables that might really benefit them. Does he plan on expanding to western markets, developing his own brand or climbing the technology ladder? It might be possible to enlarge the scope of your proposed deal – and thus get more in return. But to do that, you may have to help him develop his own business plan – particularly if it involves international expansion.
5. Walk away smiling – if you have to. Some Chinese negotiators are too grabby for your own good. If all he cares about is your technology and your benefit is obviously a secondary consideration, you may have to withdraw and reassess. Don’t stick around hoping things will magically get better on their own. They won’t. If a China deal is going to die, than quick & clean is the best way. Don’t hang around to get abused and battered, praying that they’ll eventually see what a great partner you could be. Get the hell out of there now.
Americans negotiating in China must understand the Chinese decision making process.
One of the difficulties negotiating Win-Win deals in China is widespread usage of gate-keepers (assistants and other access-controllers) in Chinese business. Unlike their American counterparts, Chinese access-controllers often take on the appearance of important decision-makers, when in fact they are low-ranking functionaries. The American gatekeeper says, “He’s unavailable, would you like to leave a message?” In China, you are more likely to hear, “he’s leaving the country on business tomorrow and you need to send a detailed proposal including technical specs on your product or service by noon.”
Chinese gate-keepers: Messengers in disguise
Gatekeeper as messenger
The trick to handling gatekeepers in China is to understand that they are one-way, one-time messengers directly to your decision-makers office – and treat them that way. You can’t and should not negotiate with a gatekeeper – but you needn’t obey him either. He wants a proposal that, according to him, will go right to the top people. Treat this for what it is – a one shot delivery system. Craft your message accordingly.
In many cases, the gatekeeper is a frustrated, neglected, disrespected poor wretch, toiling away in obscurity in the shallow end of the bureaucratic pool. A little attention may go far. “I need your advice – how have past Western suppliers / partners handled this?” ”How does your boss like to see information – tech specs, financials data or detailed explanation?” “What kind of proposals has he been happy with before?” “What would you do if you were part of our team?”
Dealing with gate-keepers
Identify what they want. HINT: It’s probably not a transaction. Chinese gatekeepers are notorious for acquiring IP, plans and big-picture technical data. This can work for you or against you.
Control the content of your proposal or message. Figure that whatever information you provide will be lost and used against you. If it’s advertising or a semi-public whitepaper – no problem. If it’s highly sensitive or proprietary data, then that is a problem.
Information is a two-way street. Talk about “WE” a lot, and find out what others have done right in the past. Play on his desires to do a good job. “I don’t want to waste your boss’ time…”, “I consider this a tremendous opportunity and I’m nervous about making a mistake…” Let him fill in the blanks on who makes the decisions, what their criteria will be. Try your best to get names and titles. If you can get him talking about the decision-making process, that’s a win.
Don’t invest anything you aren’t afraid of losing – and that includes TIME. Gatekeepers are a direct, one-way conduit to the real decision-maker, and should be treated as such. Service providers in China have learned not to spend the time crafting detailed proposals – even outlines. Most of the consultants I know have a two page introduction prepared that they customize for prospects in China. Don’t outline projects, provide timetables or analyze problems for free. Local service providers (probably related to the boss in some way) will get the actual contract based on your assessment.
Know your limits – and know when to walk away. If the gatekeeper was sent to steal information then this is never going to turn into a deal. Sometimes the most important piece of information is that the negotiation is not worth the time or effort.
MYTH: Chinese negotiators don’t talk about business at banquets and social events.
TRUTH: They don’t talk about SPECIFIC TRANSACTIONS or details — but they are definitely “on the job” .
Chinese negotiators don’t engage in meaningless chit-chat or small talk. They are doing BIG TALK – big picture, general goals, and business philosophy. Americans who come to China and treat banquets and guanxi-building meetings as lightweight social events that come before the REAL negotiation are missing the point and undermining their position. These face-to-face opportunities are the pre-game show — they are the real action. This is where the Chinese side learns about you… and where you are supposed to deliver the real message about yourself, your company and your plans for China.
Chinese business negotiation STARTS at the banquets & guanxi-building. These things aren’t supposed to be fun!
____________
Ideas for big talk:
1. Where do you see your company in 5 years? What will be the relationship and role with foreign partners?
2. How do you define successful partnership? What is trust between partners?
3. What do you see as the strength and weakness of Western firms operating in China? What can you and I do to leverage on those strengths and attack those weaknesses?
4. HR is one of the biggest challenges for Western firms in China. Do you have any advice?
5. What are your plans for expansion and growth? Do you anticipate operating in overseas markets? Do you plan on entering America/Europe?
Negotiating to add value in China brings new challenges
The old joke among international negotiators is that when a Chinese businessman says he believes in “Win Win” negotiation, he really means that he wins now – and he wins later.
When Roger Fisher and William Ury wrote Getting to Yes in 1981 one of their most controversial ideas was win-win – that both sides could benefit from a negotiation by finding new ways to add
Some slices are more equal than others.
value and enlarge the “pie”, or total benefit of the deal.
While it’s a great principle, one of the prerequisites is that both parties to the negotiation have to be “rule breakers”. They each have to be able to go off the established playbook and innovate. In China, where not all negotiators have the same range of motion to champion creative or novel methods, this approach often leads to disappointment and failure.
Win Win has implications for Chinese negotiators.
Principals only ?. There are some who say that you should only negotiate with the boss in China, and that anyone but the owner is a waste of time. If you are buying plastic parts or haggling with the owner of a 3rd tier workshop, this makes a lot of sense. But if your business is with an SOE or multi-million dollar enterprise with multiple branches and business lines, it may be counter-productive. Busy paternal leaders are notoriously difficult to connect with – and dilettante absentee owners make a mockery of this practice. Your best bet is to take the time to figure out how your existing contact fits in on the organizational chart.
SOE (State Owned Enterprises) can’t do it. In recent years, Beijing’s corps of bureaucrats and administrators have taken pains to reform their images. They now appear modern, market oriented and open minded. While this isn’t exactly a false façade, it shouldn’t be taken as a sign that the Pillar Industries have become hothouses of entrepreneurial creativity. Precedent still rules – particularly if your deal isn’t for billion-dollar energy or agricultural assets. Find out what established bureaucratic practice is early, figure out your options, and re-check your business plan to make sure your strategy still makes sense.
Employees talk about innovative, win-win deals – but this may be a ploy. One of the rules of Chinese negotiation is that any concession you even hint at – no matter how hypothetical the context – gets carved in stone, while their sworn guarantees are conditional at best. This is a factor when mid-level employees with vague titles start spinning “what if” scenarios. “What if we could improve quality at a lower price with a faster lead time – would you make us your exclusive supplier for all of Greater China then?” It may quickly turn out that the quality is average, the price pops up and they can’t stick to their own timetable – but they still expect you to honor your “promise” to grant them exclusivity. Best practice in China is to always have an alternative counter-party.
Entrepreneurs are the ones most likely to talk about innovative Win-Win deal structures and exciting business tie-ups. The problem isn’t that they’re lying – they might just be too optimistic for your own good. Before you go too far up this particular path, find out who they’ve worked with before and what kinds of deals they’ve done. You might not lose cash or assets on a pie-in-the-sky brainstorming session with a young Chinese start-up, but you will be giving up potentially valuable ideas and getting nothing in return. Always check references (even if it is done informally).
The Switcheroo. Regular readers will be familiar with the dangers of the Chinese BoPs – The Balance of Power Shift. In this scenario your Chinese counter-party is anxious for your help, and willing to repay you with insider knowledge and market access. ”You are so smart, so accomplished, so sophisticated…” etc. Once the flattery starts you immediately lower you guard and make what you consider to be a solid Win-Win proposal – you’ll help him with technology, business process or branding, and he’ll help you establish your business in China. The problem is one of timing. You have to help him first – and once he understands your “secret sauce” then you find you have just trained your newest competitor. He won’t even take your calls anymore.
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