What happened next:

First the Brit tries to take control of the situation, arguing his moral position. The overnight bus was a complete rip off – he was shown photos of a modern luxury double-decker but was forced into an overcrowded, dilapidated minivan. He’s angry that the bus didn’t take him directly downtown, and is not in the mood to be ripped off again. For him this is just part of a larger issue and he wants to fight back. The British guy is right in some ways, but wrong in others. He is morally and ethically correct, but he can’t convert his anger into a negotiating goal or a set of actionable variables. He’s negotiating about emotional positions – not objective interests. The Brit doesn’t know what a ‘win’ looks like.

The Dutch guy was a compromiser. He aggregated a bunch of folks together and beats down the driver from extortion to mere larceny, but at least he transacts. This seems like a pragmatic position that is well suited to the situation. He knows that they will all get cheated on the price, but it is a one-off deal and he acknowledges the relative weakness of his position. Part of his problem was that the other side knows this tactic, and sets his opening price so high that even a 25% drop is still dear. But that’s not the extent of the Dutch negotiators’ trouble. He didn’t include two key variables – time and exclusivity. As soon as the group has loaded their luggage on the roof and taken their seats, the driver continued trying to lure in new passengers. The group has no choice but to sit and wait.

The young American was coming from Shanghai and using all the wrong benchmarks. He undermined his co-negotiators by repeatedly saying it is cheaper than Shanghai. He’ll always give more and get less. Not only is the American paying more now, but is institutionalizing higher price levels for all foreigners in the future. The longer this type of negotiator works with the same counterparty, the worse his outcome.

What could they have done different?

The first negotiation they should have conducted was internal. Instead of just “taking a shot” at a single driver one after the other, they should have discussed roles, strategy, tactics and limits among themselves first. The Brit would have made a great “bad cop”, while the American could have acted as “good cop” with the Dutchie acting as the “fair judge”.

They might have tried to play one driver off against another and undermined the first drivers de-facto monopoly.

They could have changed venue by walking away. By simply walking to the side of the road and trying to hail a passing cab they could have improved the balance of power. Nothing works better in a tough negotiation than walking away.

Me? No- I wasn’t the relatively rich guy from Shanghai.

I kept my bag on my lap and didn’t pay till we got to our destination. I jumped out of the car immediately, and then offered the driver a choice of currencies – both at a twenty percent discount to the Dutch price. He looked at my US dollars in horror, and quickly took the Thai baht without a complaint.

===========
Stay Connected to ChinaSolved / ChineseNegotiation.com:

ChineseNegotiation.com and ChinaSolved.com invite you to participate the ChinaSolved linkedin group.

Twitter: @chinasolved VPN required in China.
Email at chinasolved@gmail.com

One of the main functions of relationship-building activities like banquets and KTV evenings is for everyone to relax, get used to one another and establish an idea about what the other side’s real personality is like.   When your Chinese hosts are pouring drinks and making toasts, they are really checking out your strengths and weaknesses, your tendencies and quirks.  This is part of their due diligence – they are determining what kind of person you really are.  You should be doing the same thing.

The Chinese banquet is their turf and they are hosting.  You can tell a lot about their business tactics by the way they conduct themselves at a banquet.  If they load the table with chicken feet, sea cucumber, thousand year eggs, dancing shrimp, 3 squeaks (http://www.culinaryschools.org/blog/three-squeaks/ ), or other delicacies that Chinese know give westerners trouble, then you can surmise that they plan on pressing their advantage to the fullest every chance they get.  If your counterparts reserve a famous restaurant that serves fine traditional local food but they go easy on the booze and consult with you on menu items, then these are probably people who know what they are doing and are sincere about doing business with you.

Watch the order of the toasting.  The person who toasts first is probably a handler or a junior manager.  When there’s a lull in the conversation or an awkward patch, he’s going to smooth it over with a toast.  It is unlikely that he is the true decision-maker, though he is probably going to be an important contact and facilitator.   (Note on Chinese toasts:  Ganbei translates as “dry glass”, not “cheers”.  You are supposed to empty your glass – and everyone else at the table has to do the same.  Among old school Chinese, it is taken seriously.  Don’t say it if you don’t mean it, and pay attention when they do.  You don’t want to embarrass yourself by sipping when everyone else is draining their glasses.)

The big boss will toast you directly when he is comfortable.  He may go multiple times in fairly rapid succession.  His drink of choice is usually Moutai – a very expensive, super strong variety of white liquor, or baijiu.  To westerners it tastes like lighter fluid mixed with industrial solvent, but they are as attached and proud of it as you are to your Maker’s Mark or Johnny Walker.  Don’t disparage or insult it.  You will look bad if you don’t throw back a couple of shots with the boss.  Good-natured partners with international experience will laugh it off if you can’t stomach the stuff and allow you to substitute beer or even red wine.  The guys who get offended or force you to drink in spite of your objections might prove to be equally obstinate when it comes to business, so take note.   Also be aware that they are taking your measure the whole time.  Be friendly, polite and cheerful, no matter how difficult it may be.

Outside of Shanghai it is still considered absolutely hilarious to get the foreign guy completely smashed – and lots of people doing big business in Shanghai are from out of town.  It is all good-natured fun, and you don’t have to worry about embarrassing yourself or others.  (Alcohol poisoning, on the other hand, is a threat.)  They are consuming almost as much as you are, and everyone is expected to kick back and enjoy himself.  The point, however, is that although banquets and dinner parties are business events, they are probably not the place to fine-tune numbers, rates or contracts.  You can talk about deals in general terms – but bear in mind that things might start getting messy an hour or so into the party.  Aggressive partners have been known to hold foreigners to promises made under the influence, but that’s probably a good indicator that you should be finding other counterparties.

Non-smokers be warned.  You will be offered cigarettes.  This shouldn’t be a big problem in Shanghai anymore, but you’ll almost certainly run into this practice in the smaller cities – particularly west and north.  Turning down a smoke is an insult akin to refusing a toast.  As an ex-smoker who gets awful hangovers when I smoke and drink, I feel your pain – literally.  Here’s what you do:  Take the cigarette hold it up and say thanks, and then say “I’ll smoke it later”.  Put it down on the table in front of you or behind your ear “so you won’t forget to smoke it”.  That works about 35% of the time.  You may have to let the guy light it, and then you’ll pantomime smoking it for a few minutes until you can dispose of it.  The lesson here is twofold. 1) These are not sophisticated, international people, but you probably knew that already.  Experienced Chinese know not to force cigarettes on Westerners.  2)  If your host makes you do something you are clearly not comfortable doing – particularly if it happens several times – then this is a snapshot of his personality.  These folks are not going to be flexible or easy to work with in the future.

Women drink, especially in Beijing.  You can forget about lite beer or other girly drinks.  You are going to throw back Moutai, or whatever rocket fuel is the local choice.  Two pieces of advice.  First, don’t hesitate on the first round.  It will make you a target of convenience for the rest of the night.  Second, keep your empty glass close to you, or they will continually refill it.  Woman are often given the option of switching to beer or red wine (yes—you drink shots of red wine in China) later in the evening, but you should be prepared to drink at least a glass or two of the hard stuff.  You might be able to compromise with “yellow wine” (huang jiu) – a much milder form of local booze that is closer to saki.  Again, you will learn a lot about working with these people in the future by the tone they use when making you drink.  If they are easy going and polite at the banquet, they will probably be reasonable as partners.  If they are bullying and aggressive then there’s a good chance they will exploit their local advantage later as well.

A note about KTV’s.  In mainland China you may find yourself at fancy KTV after dinner.  Some of the new places in Shanghai are enormous palaces with doormen, lines of female greeters, fountains, statues and all manner of glitz.  You will be escorted into a private room that looks like it might have been decorated by Hugh Hefner himself.  Sit down and get comfortable.  A long, involved negotiation with a female manager-type will take place, but don’t worry – they are just arranging the drinks and food.  The next step is difficult for some. An attendant will take a perfectly innocent bottle of 12 year old Glen Fiddich and dump it into big pitcher with pints of sugary ice tea.  Try not to scream or whimper.  Trust me – it doesn’t go over well.

Now the girls enter the picture.  A line of 8 – 12 girls is brought in and you are expected to choose one.  For some westerners, this is awkward and uncomfortable.  For others, it is a dream come true.  They will usually give you (or the highest ranking member of your group) first choice.  Note that nothing sexual is going to happen in the room, and you don’t have to worry about committing adultery, contracting disease or waking up married.  (This applies to KTVs in Mainland China.  In Taiwan, they can be much more … interactive.)  At the end of the evening the girls will be tipped by either you or your host (I think around rmb 300 is normal).  That should be the only cash that changes hands within the confines of the establishment.   The only thing you have to worry about is the drinking games.  Be a good sport, but pace yourself.  It’s likely to be a long evening.

The main take-away is that Chinese business people use social events to vet potential partners, build relationships and perform due diligence.  Many westerners treat banquets as an awkward chore or an obstacle that must be overcome before business can start.  To the Chinese side, this is the business and the negotiation has already started.  Remember that they are checking you out, so conduct yourself accordingly.  Be open-minded, friendly and respectful – even though things may get a little whacky at times.  You should also take advantage of this opportunity to observe and evaluate your new partner, supplier or client.  You are getting a snapshot of their true personality, so don’t ignore your instincts or observations.

Xin nian kui le.  Happy New Year.

===========

Stay Connected to ChinaSolved / ChineseNegotiation.com:

ChineseNegotiation.com and ChinaSolved.com invite you to participate the ChinaSolved linkedin group.

Twitter: @chinasolved VPN required in China.

Email at chinasolved@gmail.com 

This series of posts on Chinese negotiation conflict has taken care to avoid the word “resolution” , because more often than not Westerners and Chinese have a very different idea of what the word means.  Americans, with our bias towards justice and legal solutions, like to dig out the facts, determine who was at fault and resolve the situation with a settlement or penalty.  It’s all very public, final and transparent.   While American businessmen view a court of law as an arena where warriors slay or get slain, Chinese tend to see them more as sandboxes where spoiled children throw unseemly tantrums.

The Chinese idea of resolution is more quiet, subtle and passive.  Parties to a dispute are expected to move forward without complaint or fuss.  In many cases a third party exerts influence on one or both parties to the dispute.  Other times, the more powerful of the two will appeal, either directly or not, to the other side’s sense of pragmatism or self-interest.  Disputes are handled quietly, with an eye toward expedience and continuity.  The interests of the entire group outweigh the needs of a single participant, regardless of how worthy his claim might be.  Face must be protected at all times.  No blame is assigned, no penalties assessed – compensation will come in the form of favorable terms in a future transaction.  While the Chinese often refer to this mode of conflict resolution as “harmony”, to Americans it looks an awful lot like “surrender”.   In a business environment characterized by unwritten rules, conflicting regulations, nepotism, cronyism and corruption, the Chinese style of dispute resolution is seen as yet another example of inequitable treatment facing foreigners  – not part of a serious business solution.

The New Resolution

We can see the outlines of a new type of conflict resolution emerging between western and Chinese partners.  This is a hybrid approach to managing conflict that experienced negotiators from both Western and Chinese camps have naturally developed over times.  It serves the Western interest of insuring that the source of the dispute is identified, corrected and won’t repeat.  It also serves the Chinese notion of preserving face and strengthening the business relationship.

• Problems get diagnosed without assignment of blame or fault.
• Forward-looking solutions that balance out positions in subsequent transactions
• Ongoing negotiation about new procedures and best practices
• Increased communication and joint consultation about sensitive issues that are the source of conflict

Should you stay or should you go?

Some Westerners will deny that this approach to conflict resolution is feasible for their situation.  From their perspective, the Chinese partner may have no interest or plan to resolve the conflict at all, let alone equitably and fairly.  The underlying problem here is one of partner selection – not cross-culture conflict management.

When you are involved in business conflict in China, your only real choice is whether or not you continue this relationship.  If you have not laid down a solid foundation or one of the interested parties doesn’t trust the other, then there is really nothing to save.  This sounds simplistic, but all too many western negotiators continue dealing with Chinese counter-parties they don’t trust for far too long.  Maybe they feel that they can’t do any better or that they have no choice – maybe they think the situation will improve by itself over time.   But continuing to do business with a Chinese partner you don’t trust is lose-lose negotiation at its simplest.  In the West contracts, regulations and courts offer you a measure of protection.  The situation in China is improving, but the glue that binds commercial agreements is still personal relationships – not legal contracts.

Resolution vs. Satisfaction

One thing is certain – successful resolution to a Chinese conflict is rarely satisfying or dramatic.  You won’t get your money back.  You won’t get an apology.  No one will admit that they were wrong or that you were right.  The most you can hope for is that the wheels of commerce will turn a little more smoothly and a bit more on track.

In China, court cases and confrontation tend to yield pyrrhic victories – even if you win, it’s rarely worth it.  You might not care about quaint Chinese customs like face, harmony and guanxi – but your counter-party does.  No matter how difficult you found your Chinese partners before a shouting-match or court case, you can be sure that it will be much, much worse afterwards.  Make sure that you have solid alternatives in place before you try to “get satisfaction”  in a Chinese business dispute.  You will probably need it.

==============

Stay Connected to ChinaSolved / ChineseNegotiation.com:

ChineseNegotiation.com and ChinaSolved.com invite you to participate the ChinaSolved linkedin group.

BATNA is your Best Alternative to No Agreement.  It’s your condition when the counter-party you are negotiating with gives you a final and definitive NO.  If you have a mediocre job and are talking with a new firm about a better position, your BATNA is to keep your old job.  If you don’t have a job now, then your BATNA is significantly lower – continue your job search while living off unemployment insurance, savings, part-time work and the generosity of others.  Clearly the person with the better Plan B has a stronger negotiating position.

Chinese BATNA:  There’s always another counter-party coming ‘round the bend.

Chinese negotiators generally consider their BATNA to be fairly strong because they operate under the assumption that there is always another available counter-party.  China has a large population, and the international commercial centers (Shenzhen, Shanghai, Beijing, etc) are packed with potential deal-makers.  Since Deng Xiaoping kicked off China’s economic reforms 30 years ago, there has been a steady stream of foreign counter-parties banging down the doors to get access to Chinese suppliers, markets and partners.  Chinese managers and entrepreneurs have faced their share of shortages and bottlenecks – but overseas negotiating counter-parties have never been scarce.

Does this put westerners in a weak position when they are negotiating in China?  Yes and no.  Obviously you will have a hard time if you position yourself as a rare and valuable commodity, but there are many ways to turn this high-velocity trading environment to your advantage.  Many westerners confuse ‘guanxi relationship’ with ‘lifelong monogamy’.  Chinese deal-making tends to be more fluid and dynamic than those in other environments.  It’s more like a raucous dance club than a small-town wedding.  Western negotiators who settle down with a single partner too soon often find that they have squandered their most powerful deal-point.

Turn China’s Negotiating Environment to Your Advantage:

1)      Don’t try to beat them – join them.  China’s high velocity deal-making environment can work for you as well.  Always have 3 counter-parties for any significant deal or business goal.   At any given time, you should have a primary partner or supplier, a back-up who can step in quickly, and a special situation that will take a longer to develop but meets specific needs.

2)      Don’t give away exclusivity.  Chinese deal-makers like to joke that in business it is best to have many girlfriends but no wife.  Westerners should take this hard-hearted advice to heart!  Many international JVs founder because the Chinese partner was a bad fit – or treated the exclusive partnership as an excuse to sit back and collect rents.  Offer exclusivity only when it serves your interests – and then make it conditional on objective benchmarks.  Also consider using limited exclusivity, based on region, product, time and/or performance.

3)      Consider diversifying your activities geographically.  If you are building a factory then you are clearly rooted to a specific place.  But if you are involved in services, sourcing, web-based businesses or other intangibles, keep your geographic options open.  China is a huge place, and the regulations, customs and enforcement of policy can vary significantly from one city or province to the next.  Check with a competent international lawyer or consultant first, since registration requirements may restrict certain activities.  Shanghai and Beijing are getting prohibitively expensive, however, and it’s wise to shop around.

4)      To tell or not to tell…   Do you let supplier A know that you are also talking to prospective suppliers B, C and D?   In China a little truth goes a long way, but dishonesty can land you in the ditch.  The best strategy is to begin your relationship by making it clear that you have a range of counter-parties but remain vague about their identity.  Don’t worry if your new Chinese associate feigns hurt feelings or outrage – they do the same thing when they negotiate.   Problems occur when you promise exclusivity – OR ALLOW THEM TO BELIEVE THAT YOU HAVE AGREED TO AN EXCLUSIVE ARRANGEMENT – and then look for new partners.

5)      Benchmark. A tried & true practice for successful Westerners in China is to play one partner off another.  It helps if they don’t know each other (this is where geographic diversification is helpful) – and if you have been above board from the start.  Remember that relationships count for more in China than in the US, so don’t make this mean-spirited or insulting.  The more matter-of-fact you are about your business methods and other relationships, the better your results will be.  Be wary of suppliers or distributors who get offended by a little competition – they may not be appropriate counter-parties.

]]> http://www.chinesenegotiation.com/2011/01/chinese-negotiating-best-practices-the-chinese-batna/feed/ 3 http://www.chinesenegotiation.com/2010/05/us-china-negotiating-rule-don%e2%80%99t-kiss-frogs-in-china/ http://www.chinesenegotiation.com/2010/05/us-china-negotiating-rule-don%e2%80%99t-kiss-frogs-in-china/#comments Tue, 04 May 2010 02:14:11 +0000 Andrew Hupert http://www.chinesenegotiation.com/?p=576 In China, counter-party selection is more important than potential deal terms. Good partners don’t necessarily lead to good deals, but bad partners always lead to disaster. The Chinese know this about themselves – that’s why guanxi and networking are so important here. Westerners have a different set of terms – due diligence and reputation – but the meaning is analogous for business purposes.

If you are dealing with an honest, competent guy then due diligence isn’t particularly difficult. He has references, ongoing partnerships and relationships. But it’s up to you to lay down the right ground-work and then ask the right questions. Those annoying banquets and drawn-out lunches aren’t just for show – the Chinese are performing their due diligence on you. You should respond in kind – volunteering background information and sketching out general plans and priorities. They are getting to know you. Yeah, they are interested in how many kids you have – but what they really want to know is how stable and trustworthy you are as a partner. It’s ok for you to ask similar questions – about their plans for growth, expansion and client relationships. Keep it general and comfortable at the early stages – but don’t act like a buffoon talking ONLY about how developed Shanghai is or how much you enjoy Chinese food. They’re working, and you should be too.

If you are dealing with a dishonest, unreliable partner, due diligence is extremely easy. He won’t be able to provide a single relevant reference, and your job should be done. Walk away and don’t look back. It really is that simple.

Chinese partners who are reliable and solid today will be just as solid next year. The sketchy guy who flatters you but tries hoodwinking you over nickel & dime issues today is going to be just as sketchy next year.

Western bedtime stories talk about a frog that turns into a prince when shown a little trust and respect. The Chinese don’t have that story – and there’s a good reason.

1 – Figure out what you are really looking for in a partner — being as specific and detailed as possible.
2 – Create a win-win deal structure that can be executed and put into action reasonably quickly and effectively.
3 – Avoid building an operational structure that allows (or requires) your partner to screw you over the moment it becomes possible.

Today we focus on Part 3 – building a self-reinforcing deal structure that gets stronger (in a positive way) as it succeeds.

Common Mistake: The Swinging Balance of Power
Too many China deals follow this patter: the Western part agrees to inject capital, IP and know-how into the partnership and the Chinese side agrees to provide administrative support, local expertise and distribution. The western side – seeking to protect its investment – crafts a contract that includes conditions, penalties, punishments and contingent liabilities. China side receives assets, capital and IP from western counter-party – and promptly stops picking up the phone.

What just happened? The deal was structured in such a way that the Balance of Power shifted 180 degrees in favor of the Chinese side the moment the assets were transferred. Suddenly the western side found itself with a worthless partnership, poor control of its own property and a contract that probably can’t be enforced.

How can western deal-makers structure their relationship to avoid this turn of events? By creating a deal that both sides can reasonably expect to be more valuable tomorrow than it is right now.

Structuring a self-reinforcing deal:

There are 3 ways to build such a deal structure:

1) Triggered incentives.
You agree in advance about what the incentives will be and what will trigger them. These are default-mode rewards – barring any unusual or unforeseen event, the reward is granted once a specific requirement is met. This could be number of units sold, amount of profit accrued, length of time spent in the partnership or any other condition. This kind of incentive usually repeats and can be predicted as a normal course of business. The most common examples are sales commissions, profit shares, vesting accounts or scheduled bonuses.

2) Conditional incentives
Changes to the basic structure of the agreement can be made after certain conditions are met. One common example is a discount for cash payments or a bonus for meeting a deadline. Another application would be exclusivity for a certain region if certain sales targets are met. These incentives are often unique or 1-off deals.

3) Penalties and punishments
Some negotiators and lawyers still try to enforce compliance through use of penalty or punishment clauses in the contract document. Withholding payment or commissions to collect on ‘fines’ imposed for non-compliance sounds good in theory – but is mess to put into practice. Chinese courts rarely award damages, so once your conflict reaches the court-room you are almost guaranteed of losing – even if you win the case.

In China, options 1 and 2 sometimes work. Option 3 is ineffective, and often leads to far bigger problems than the one you were trying to solve in the first place.

The key to developing effective incentives is to figure out specifically what kind of behaviors and outcomes you wish to reward, and then developing a simple, straight-forward means of measuring it. Incentives only work when all parties expect tomorrow’s payoff to be bigger than yesterday’s. The problem here is that counter-parties often pick the wrong goals to compensate – leading to ineffective or counter-productive deal structures.

The Sales Commission Approach
A common example is the basic ‘commission on sales’ incentive scheme. Fewer deals are more straight-forward and effective, yet there is still plenty of room for misunderstanding and problems.

The first issue is that if you pay someone to sell, then that’s what he is going to do. Sell. He’s not going to manage, train, collect, design or plan. That’s fine, if all you want him to do is sell – but if you’re plan (whether written or ‘in your head’) is to have this person provide a range of services in addition to selling, you have a problem on your hands. He may have little interest in performing such ‘unpaid’ work while there are sales to be made.

The second issue is the SIZE of the commissions being paid out. Developing new markets is hard, time-consuming and risky. That’s why some clever partners try to incentivize sales reps by paying them a higher commission rate at the beginning, and a lower rate as their sales rise. This seems much fairer to the boss than to the salesmen – who perceives it has a real DROP in his pay. Partners who propose a sales arrangement had better stop and consider what they’ll do in the even of success. Every owner and sales manager SAYS he isn’t bothered by writing big commission checks – but the truth can be different. Many partners feel that big, regular commission payments can destabilize a partnership over time and encourage the non-selling partner to seek cheaper options.

Third – be careful what you wish for. If all you want is sales, then your local partner will provide you with sales. But be very clear on the return and collection policy at the beginning. A smart salesman can manufacture bogus sales that will look real enough for a few months, but will ultimately burden the company with non-collectible receivables or a warehouse full of returns.
_______________

Follow on twitter: chinasolved
ChineseNegotiation.com and ChinaSolved.com invite you to participate the ChinaSolved linkedin group.
ChinaSolved / ChineseNegotiation.com mailing list

Smart goals.

SMART is an acronym as well as a description:

Specific, Measurable, Actionable, Realistic and Timely (or Time Bound)

Everyone agrees with the idea, but putting them into practice in real negotiating situations is hard. Why? Because to come up with SMART goals you have to know exactly what you want, what the other side can deliver, and what the environment is really like. That takes work, research and discipline. It’s much easier to ‘play it by ear’ and hope for the best – but it won’t yield you the same caliber of results.

What are SMART goals?

Specific – Who, What, Where, When, Why & How. Anticipate as wide a range of questions as possible. You may not know the answers yet – but you should at least know what the variables are. Who are you selling to? What are you selling? What does your competitive environment look like? You get the idea.

Measurable – First decide how you will measure success. Profit is the first answer most people come up with, but unfortunately it is not always the best. By the time you know your profit or loss figure it’s probably pretty late in the game. Existing companies with years of history can and should use sales, expenses and profit as part of their goal system. Start-ups, however, could be months away from their first transaction. You need to think of some solid success factor and KPI (key performance indicators) to measure right off the bat. Hint – expenses are a good one. Selection & recruitment of key managers and staffers is another. Number of sales calls and appointments is sometimes appropriate as well.

Actionable – This is the one that separates plans from dreams. Saying that you want to be the most famous brand in China is nice, but it’s not an action plan. Deciding to invest in online advertising and shooting for a 1.5% response rate from you email campaign is much more actionable. SMART goals translate directly into operational and marketing plans.

Realistic – Lots of old-school sales managers liked to set super-ambitious goals to get their front line people to try harder. Not a great China option. When you set your goals too high all you do is condition your team to fail. If investors are involved, you have to be particularly careful to walk a thin line between optimism and realism. If you tell a backer that you’ll go from 0 to 20 million in sales in Year 1 and only manage 10 million – you might feel justifiable proud of your accomplishment but he’ll just see your 50% shortfall. Your management team may see that as well.

Timely- ‘Someday we’ll be the biggest, most profitable company in China….’ Sounds like a nice wish – and it is. But Someday isn’t on the calendar. You need to ‘chunk’ your plan down to actionable components. An overall goal of US$15 million by the end of year 1 is a good start, but that still leaves you groping in the dark for 11 months or so. Breaking it down to a quarterly or monthly sales plan is better. The best of all is to decompose the entire sales process to an operational process. Month 1 – hire sales manager and develop a manpower plan. Hire and train 10 salesmen. Month 2 – Close 20 sales with an average value of US$250,000. Etc. This kind of goal-setting helps you achieve two things – first it helps you stress test your business plan, and second it enables you to monitor your plan at every stage.

Hypothetical Case:

Let’s look at some typical goals for new business entrants to China. Take a top-down look at a generic business entry case. NewBiz Inc. is a newly formed management consulting firm started by 2 ex-investment bankers who plan on selling their knowledge to Chinese entrepreneurs. The owners – let’s call them Poor and Lee – have to put together a business plan for their new venture, and they wisely decide to start with a basic goal system.

What’s their naïve initial goal? To make a lot of money. To have powerful clients. To penetrate the China market. To get up and running as quickly as possible for the least investment feasible and make lots of sales. To make good connections.

Sound too simplistic? Maybe – but no more than many business plans I’ve seen for new business entrants to China. Poor & Lee will, of course, apply solid SMART planning to their China entry plan.

1 – Specific. Poor & Lee start out with a general, sloppy goal — to build a powerful or successful brand. How do they make that more specific? One good way is focus on product or service. What do they want NewBiz to be – the biggest, the best, the broadest or the most focused? What specific problems will they solve? What will their services be? What is their specialty? What separates them from competitors? The same goes for clients. Poor &Lee must visualize the specific type of clients they are gunning for. Be specific to the point of knowing exactly which specific companies you anticipate working with and how you will pitch your business. I know of one young consulting company that went so far as to publish a list of prospective clients. A bit presumptuous, maybe, but an excellent technique for conveying their specific goals about the client and products that they are preparing for. What if you don’t have all the details? That’s a great sign – it tells you exactly what kind of research and planning you should be devoting your time to.

2 – Measurable. All negotiating goals must include numbers, of course, but the numbers must make sense. This is one of the key variables that separate a wish form a goal. Dollars, time, percentages are all valid. In the early stages, Poor & Lee might be focusing on ‘soft’ goals – like what kinds of contacts they are making, who they will partner with and what their new service offering will include. These aren’t as easy to measure as sales, expenses and net profit – but those metrics won’t be effective for months. New China operations should identify the holes in their planning process and figure out a way to objectively measure the progress needed to fill the gaps.

3 – Actionable. Goals must be both strategic and tactical. What’s your strategy? What will you tactics be? A good goal is a destination, but it must contain within it the germ of a strategy. If your goal is to have a powerful brand, then you have to know what your product stand for. How will you get there? If your plan is for clients – you must be able to answer questions about how you will acquire them, what services they expect and whether you want a few big ones or many small ones. Poor & Lee have to take their broad goals like “powerful brand, important clients, profitable operations’ and translate them into step-by-step operating plans. Powerful brand breaks down into ‘research the market and identify 5 key competitors, 20 potential clients and 3 industry specialties’. Now, it may turn out that they can’t identify any competitors or suitable clients. This is very positive – because now they can attack the question of ‘why is this market so undeveloped?’ It may turn out that there is a huge demand that isn’t being serviced – or that demand isn’t really there at all. If you can’t plot out your next step, then you don’t have a suitable goal.

4 – Realistic – Poor & Lee should determine the short, medium and longer term goals that will combine to form their major goal. Their short tem goals will probably be quite realistic – if a bit limited. But as the time frame extends, their goals become more and more vague and wishful. There’s nothing wrong with ambition – but it must be bound by logic and reason. Entrepreneurs must be able to connect the dots. If Poor & Lee plan on going from 0 sales to market leadership in 5 years then they must formulate a plan that explains where the 30 or 50% YOY growth come from. ‘We’re the best because we’re the best’ is what kids say. Negotiators know their own BATNA and understand the limitations imposed by internal and market factors.

5. Timely or time-bound. Poor & Lee need to articulate where they will be in 6, 18 and 24 moths. An established company may focus on 12, 24, and 60 months. 5 year plans don’t have to be actual blueprints, but they should describe your best-case scenario.

Mainland China and the US are separate and distinct cultures that do not share identical values, attitudes or morals. It isn’t racist to say that Chinese and Americans have different definitions of truth, honesty or fairness. The key to good international negotiating is to develop a process for understanding, testing and forming agreements at the most basic level. It doesn’t do any good to work out complex power-sharing formulas if you and your counter-party unwittingly disagree about the meaning of ‘agreement’.

Generalization vs. Stereotypes
All business theory (and most of the social sciences) is based on some degree of generalization. Being able to make statements about the behavior, proclivities and methods of large numbers of people is the stock & trade of researchers, educators and marketers. There is nothing wrong with making generalizations about people – provided that such generalizations A) strive for accuracy, B) evolve and improve and C) attempt to capture actual, recognizable groups. None of this is easy and generations of social scientists and researchers have devoted entire careers to the pursuit of better & more accurate generalizations. The struggle continues.

Stereotypes are negative and unproductive simply because they do NOT strive for accuracy, seek to evolve or attempt to capture actual, recognizable groups. Generalizations tend to spark discussion and debate – stereotypes act to silence discussion and retard understanding.

Examples:

Generalization: Americans tends to regard written contracts as authoritative, specific, legally binding commitments while Mainland Chinese tend to see them as general agreements between parties at the time of signing.

Stereotype: Chinese people never honor their agreements and can’t be trusted.

The above example of generalization (if it is indeed accurate) is acceptable in a business situation. The stereotype is harmful, counter-productive and just plain wrong.

Reverse Racism – Assuming Universal Values.
Some newcomers to China are appalled by any and all assertions that Chinese people behave differently or have different priorities than westerners. Students (and first-time visitors to China) often have difficulty acknowledging that the US is itself a culture. They sometimes fail to see that other people have attitudes, beliefs and values that are equally valid and fully formed. This leads to a strange reverse racism. “How dare you say that Group X doesn’t have the same morals, beliefs, priorities and taboos as my group? That’s racist!”

Actually, assuming that YOUR value system is universal, valid and so obviously superior that it sets the standard for everyone else is racist and bigoted – even if you do it unwittingly. It isn’t racist to assert that Chinese don’t traditionally respect contracts – but it is a bit racist to assume that Chinese believe that they should have the same attitudes as Americans. Asserting that Chinese counter-parties are every bit as honest and trustworthy as American counter-parties is wrong for many reasons – but mostly because it is condescending, culture-centric and not necessarily accurate. (Also, because experienced business people know that Americans aren’t winning any prizes for honesty and integrity in their deal making practices, but that’s another can of worms.)

Negotiating Values
Experienced international business people know that the best negotiations are the ones that arrive at a true meeting of the minds between counter-parties at every step in the process. Cultural difference makes that challenging but not impossible. Smart negotiators will turn weakness into strength by discussing basic, naïve issues early in the process. Traditional Chinese counter-parties are famous for their relationship-building socializing – which plays a strong due-diligence role and helps them understand more about the values and attitudes of their counter-parties. Western negotiators can save themselves a great deal of post-negotiation frustration and failure by spending more time establishing understanding about basic goals and values and worrying less about technical deal-points and formulas.

Treat your first big negotiation in China as an independent project, and you’ll be laying the base for many successful deals for years to come.

 
If the pundits are right – and heaven knows the law of averages is on their side – then there will be more and more Westerners negotiating their first business deals with Chinese counter-parties in coming years.   If, like many Westerners new to China you decide to ‘dive in with both feet’ and start ‘making things happen’ you will find yourself in a world of hurt.  Confusing, frustrating, expensive hurt.  That old folksy advice from woodshop class – measure twice, cut once – is a great idea in China.  But here we’ll say, ‘investigate twice, decide once’ instead. 
 

Don’t assume that you’ll have clear, transparent information flows.
Develop a stable, reliable, independent system for gathering information about China.  The main idea here is to avoid relying on your negotiating counter-party for basic market & economic information.  You wouldn’t do it in NY – don’t do it in Shanghai. 
 

The good news is that there are more high-quality, timely information sources about China than ever.  You don’t have to stop with the big western newspapers and magazines.  If you aren’t using basic tools like LinkedIn Groups (start with the ChinaSolved group at:  http://www.linkedin.com/groups?gid=1392417 ) and Chinalyst.net (http://www.chinalyst.net/), you should start soon. The bad news is that getting up to speed and staying current will require big investments of time and energy, so plan accordingly 

 
Re-set your China goals
Once you’ve started researching your China negotiating process, you will probably find that some of your initial assumptions about the new business need adjusting.  Developing a comprehensive goal system is such a basic task that many sophisticated Western managers ignore it until it’s too late.  If a seasoned US manager is planning to open a new business in NJ, he’ll likely be able to tell you about roll-out schedule, product development, anticipated market share, budgets, manpower plans, etc.  Ask that same guy what his goal for the new China shop will be to ‘make as much money as fast as possible’.   

 
Successful managers in China are using SMART goals (specific, measurable, actionable, realistic and timely) – just like in other places.  If you can’t articulate a comprehensive goal system for your China business, then congratulations! You now know exactly what you have to do first – research until you have good, sensible goals.

 
Develop a network of professional service providers. 
Yes, you may have to pay for advice and professional services in China.  Sorry.  Free advice is even more expensive in China than in other places.  There is a wide range of professional service providers in the major Chinese cities.  You can start researching in advance (ChinaSolved, LinkedIn, NextStep and the Chamber of Commerce  are all great places to start) – or you can ask your negotiating counter-party for his opinion.  Guess which one is the better idea?   (Hint – just like back in the US, finding a lawyer and accountant you can trust are your first steps.)

Its final exam time in Shanghai, so many of the students from my International Negotiation class are waking up and starting to ask naïve questions.  Those are the best kinds of questions since they get to the root of all possible misunderstandings.  This semester’s crew is finding BATNA a little tricky to apply in practice (cases). 

BATNA stands for Best Alternative To No Agreement.  There are variations on the acronym, but the basic concept is meant to identify where you’ll be if this negotiation yields a big fat ‘NO’ from one side or the other.

The BATNA should be an assessment of your present business assessment.  It forms the basis for your strategy and informs your action plan — but the BATNA is itself an essentially static description or snapshot of your organization’s assets, liabilities, capabilities and resources.  It has numbers and time.  It is a cold-blooded assessment of your organizations health- and is completely independent of the outcome of the negotiation you are planning.  That’s the whole point.  If you think your BATNA is ‘if we don’t get this deal than we’re screwed’ then your REAL BATNA is ‘we’re screwed’.    That’s the whole point of the exercise – to know how bad your worst-case scenario really is.   

Because the BATNA is so closely tied to the action plan, many students of the negotiation craft get them confused.  They end up developing a BATNA assessment that basically says, “if we don’t get this deal then we are going to be in trouble so we had better get this deal on the most aggressive terms possible since our situation in the marketplace is deteriorating so quickly”.  That’s neither a BATNA nor a negotiating plan.   A well-developed BATNA underpins a negotiating action plan, but it is not merely statement of that action plan.  BATNA analysis starts with independent metrics and observations about the organization.

Here are 5 elements to a BATNA analysis that demonstrate its importance.  The first one is the only one that is absolutely necessary.

Elements to BATNA analysis

1. Snapshot of the P&L and other basic business metrics. 
   Notice the words “metric” as in ‘to measure’.   The first job of BATNA analysis is to have a very clear idea of where you really are now.  Everyone thinks they are doing this implicitly, but that’s simply not good enough.  You have to sit down and articulate in very explicit terms just what your financial and operational status will be if this negotiation doesn’t yield an agreement.   
    
2.  Deal Structure. 
   The BATNA and Goal analysis work together to tell you what you should be negotiating for.  Put another way, the BATNA sets the M in your LIM analysis. The goal analysis tells you where you want to be. The BATNA analysis tells you where you are.  Now you understand the gap – and hopefully have numbers on it.  The BATNA forms the floor of your negotiating strategy.  You can now build your walk-away position as one that puts you marginally better off than your BATNA.  From there, putting your ‘most likely’ and ‘best case’ scenarios on the map are pretty easy.
    
3. Vector. 
   BATNAs fall and rise.  This is particularly important if your environment is in flux (i.e.: now, everyone) or if your competitive position is shifting.  You should know if your own BATNA is rising and falling in the near term.  Is your steady-state business remaining stable, or are you in a deteriorating position in a failing industry?  This is more of an environmental analysis than an inward looking audit.  I referred to ‘rising or falling BATNA’ in my class when the recession shifted the negotiating balance of power from suppliers to purchasers – and now my class thinks that this is the main purpose of the BATNA analysis.  Determining if your BATNA is rising or falling is an interesting issue to analyze – after you already have a solid understanding of your operational and financial status in the event of no deal.  BATNA’s shouldn’t be referred to as ‘rising’ or ‘falling’ until you’ve already stated what yours is.
    
4.  Short Term Tactics. 
   The BATNA analysis can act as your own personal ‘devil’s advocate’.  If performed seriously, it will let you know your own weaknesses and friction-points.  Your job is now to address your immediate shortcomings with good bargaining while simultaneously hiding or disguising your shortcomings from counter-parties.  In other words, the BATNA tells you what to look for and what to lie about.
    
5. Long Term Strategy. 
   In the short term, you can just react to deficiencies and weaknesses revealed by the BATNA.  In the long term, it’s your job as a manager to steadily improve your company’s strategic position — or to increase your company’s BATNA.  You can think of BATNA as a key metric for understanding a company’s strategic position — and every deal you do now should contribute to raising your company’s BATNA in the future. 

 Remember — a thorough BATNA analysis is the launching pad for a negotiating action plan — but it is by definition remains independent of the negotiation itself.  You BATNA should include numbers and descriptions of competitive pressures and advantages — but should not be a plan for changing the future.  That’s what your goal and LIM analyses are for.