“What the hell is this? That isn’t what I ordered.”
Herb Feldstein, Feldstein Fixtures and Lighting. Paramus NJ

I ran a pair of surveys on Linkedin recently. One survey appeared on a set of Linkedin business groups with NO specific geographic orientation and asked, “What is the most difficult aspect of doing business?” I broke down the deal process into 5 phases –

1) Finding appropriate counter-parties
2) Clarifying deal terms
3) Finalizing the deal – signing the contract
4) Executing the agreement / doing the actual business
5) Post-deal compliance, Quality Control

I ran another survey with the same answer choices, but which phrased the question slightly differently – and targeted China-oriented business groups. This time the question was: “What is the most difficult aspect of doing business IN CHINA?”

The results were as follows:

Linked.com Surveys

Outside of China, a little over 50% of the respondents said that the biggest challenges occurred pre-deal, with only 23% reporting that their main difficulties occurred once the contract was finalized. In China, however, almost half of respondents said that their problems started AFTER they thought an agreement was reached.

One can draw two conclusions from this data:

1. Chinese businessmen deceive, cheat, mislead, or otherwise fail to honor their word.

2. Westerners in China are choosing inappropriate counter-parties, aren’t doing proper due diligence or are cutting WAY too many corners early in the negotiating process.

Which conclusion is valid? Let’s take a look:

Is choice 1 correct?
Considered politically incorrect and borderline racist in the west, answer 1 is not without validity. But rather than accuse your dear author of racism for vilifying the entire Chinese Nation with charges of dishonesty, better you re-examine your own puritanical notions about the universality of honesty as a virtue. You may be the one guilty of a subtle yet pervasive form of racism – one that is far more damaging and dangerous to you than to your Chinese counter-party. You may come from a society that holds Judeo-Christian notions of an objective, immutable Truth and considers honesty to be a simple matter of black and white, good and evil – but not everyone in the world necessarily shares your opinion. Chinese history is peopled with strong, moral and SUCCESSFUL leaders who instructed their students about the virtue and efficacy of deception. Sun Tze, in the classic “Art of War” is the most famous Chinese leader to advice followers on the most effective ways to employ deception. Years later, Mao Ze Tong’s “On Guerilla Warfare” described how deception and surprise could neutralize an enemy possessing superior technology and firepower. Even Deng Xiaoping’s “White Cat, Black Cat” lecture effectively argues that managers need to adapt a fluid, pragmatic approach to be successful.

Win-Win negotiation is hardly standard operating procedure in the US (remember “never give a sucker an even break”?) and it certainly never really caught on in China. Astute Chinese dealmakers would be ashamed at leaving money on the table or failing to maximize their benefit in a transaction. If the Western counter party is satisfied with the outcome of a deal then the Chinese side has clearly not worked hard enough. Let the Westerners wave signed contracts around all day long – there are always new opportunities and new counter-parties coming down the road.

Or is Choice 2 the true explanation?
Westerners just aren’t doing enough due diligence and are rushing into deals with the wrong counter-parties and a poorly considered deal structure. Actually, I think that this may be the problem much of the time. International lawyers are constantly warning Western clients that suing in Chinese courts is an expensive, time-consuming and ultimately unsatisfying endeavor (www.ChinaLawBlog.com – assorted) – yet novice deal-makers still seem to think that an aggressive legal strategy will remedy any unfavorable deal outcome.

There are several major factors leading Westerners to accept less stringent deal structures (or unreliable counter-parties) in China than they would back home.

A) It’s so hard to get to the negotiating stage with ANY Chinese counter-party that no one wants to let go of the first guy who seems to fit the bill for fear of never finding another one. China is indeed a difficult environment to do your first few deals – and between jet-lag, culture gap and language problems, senior Western managers have been known to suffer from some pretty serious lapses in judgment. Tired, confused and frustrated, otherwise savvy Westerners tend to hear what they want to hear – and believe promises that they would ordinarily suspect.

B) The politically correct types are so afraid of making the Chinese side “lose face” or are so anxious to “build guanxi” that they don’t drive a hard enough bargain — or don’t ask for the right things. Are you in town to buy & sell – or are you here to make friends and build your network? It’s very hard to maximize your profits and ‘build guanxi’ at the same time. Many Americans have left money on the bargaining table – or worse, signed deals that don’t provide adequate safeguards or quality controls – in the name of ‘building a long term relationship’. Well – once that American has to explain to his boss or board of directors why he’s just squandered the firm’s money he tends to be less excited about his new relationship in China.

C) Not knowing how to structure a proper China deal. When money changes hands the power balance shifts. That’s when smiles disappear — and phone calls don’t get returned. If your China deal involves up-front payments or transfers of assets and IP, then you are putting yourself in a very dangerous situation. Pay attention to the way you have structured your deal so that your Chinese counter-party doesn’t have to choose between common sense and honesty. Trust is wonderful. Verification is better.

Experienced deal-makers – Chinese and Westerner alike – know to budget time and bandwidth to post-deal negotiation in China. No matter how much time you spend hammering out the deal terms and contracts, you should still expect to conduct your second REAL negotiation after you thought the deal was already done.

Click here to see the original Linkedin poll

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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.

Johari in the Classroom
I’ve just started teaching a new Global Negotiating course at NYU’s Shanghai campus. The class is mostly made up of junior-year undergrads from New York University studying in Shanghai for a semester, but we also have a good number of local Chinese visiting students from Shanghai’s Jiao Tong University and East China Normal University. The group runs the full spectrum of Chinese-Western backgrounds – from Westerners of European descent to Asian-Americans to local Chinese who have never been outside of Mainland China. These are some of the brightest, most open minded young people I’ve ever worked with – but they lack real-world business experience. One couldn’t ask for a better setting to study negotiating behavior, since they are extremely intelligent and motivated but are still ‘blank slates’ in terms of hands-on management exposure.

I introduced the Johari Window to demonstrate the importance of research and preparation when negotiating a business deal. There was complete consensus when I explained the 3 ‘north-west’ quadrants. Everyone agreed that the “Known to Both Parties” quadrant presented negotiators with an even playing field, and that “Known to One, Unknown to the Other” gave an obvious advantage to the party with greater knowledge. But when I pointed out the “Unknown to Both” quadrant, consensus suddenly disappeared. Students raised in ethnically Asian households (regardless of geographic location) saw the “Unknown to Both” quadrant as a strongly negative deal environment. The chance of loss was unacceptable. Several Westerners in the group, however, emphatically disagreed. They saw the “Unknown to Both” quadrant as a significant opportunity. (The most vocal dissenters were male; age around 19). To them, uncertainty created an environment in which deal-makers could use their talents and abilities to wrest a competitive advantage. (See the post “Negotiating in China – Western vs. Chinese Attitudes towards Risk & Uncertainty” for more on the decomposition of risk into two components – possibility of loss and uncertainty)

Conflicting Assumptions of Universality
Both the Americans and the Chinese saw their views as obvious and universal. Before our discussion, neither side viewed reaction to uncertainty as a culturally-sensitive variable. To Americans, it was obvious that one had no choice but to proceed in an environment of uncertainty. The Chinese were equally convinced that that the only course of action was to avoid uncertainty and take a defensive posture. Every one of the students walked into the classroom fully aware of the need to be culturally sensitive and willing to be open to different ideas – but on an operational level they carried notions of universality that were completely ungrounded. They simply didn’t know what they didn’t know about the other group’s perspective.

Winning by Hitting the Ground Last
Another interesting observation had to do with the definition of ‘advantage’. Students with a Chinese background took a more absolutist view of uncertainty, while the Americans were more competitive. The western students felt that competitive advantage could be won by operating in an uncertain environment. They could use their intellect and resourcefulness to outperform their counter-party in a situation where both sides were equally uninformed. Those from Chinese households were more concerned about their absolute position. Uncertainty was viewed as unfavorable, and the fact that it might be more or less unfavorable to the other side was irrelevant.

To put it crudely: The American students, it seems, are less afraid of falling in the darkness as long as they can land on the body of their competitor. The Chinese would rather avoid the uncertain situation and wait for the light – even if it means passing up an opportunity.

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Thanks very much.

-Andrew

The upshot is that Americans and Europeans have somewhat different negotiating styles that they bring with them to China. Negotiating is more craft than science, so a skilled negotiator can adapt to the culture and environment he finds himself in. There is no absolute ‘better’ or ‘worse’ – but some approaches are more appropriate than others.

Europeans tend to be more collaborative, patient and network-oriented.
Americans are more competitive/compromising, direct and transaction-oriented. While Europeans are speaking to a broader range of counter-parties in China – both in terms of age groups and organizational types, Americans focus on middle-aged decision makers from private Chinese companies. There is a weak trend indicating that Europeans are more focused on selling into the China market while Americans tend to be buyers.

Who is better at negotiating? Well, the naïve answer is that Americans tend to transact more and report greater success than their European counter-parts. But the more nuanced answer is, ‘it depends’.

Most of the original survey data was collected at the end of 2008 – before the worst of the economic downturn hit – so US markets still seemed relatively intact. At the time, the American approach of buying cheap in China and selling to US consumers made a great deal of sense. American deal-makers are about shaking hands, signing contracts and shipping containers. While this strategy had more to commend it when US shopping malls were full of buyers, there is still something to be said for a sharper deal-focus. It keeps costs under control and allows for greater flexibility in a shifting market. Reducing your activity is much easier to do when you don’t have to worry about a wide range of partners and stakeholders.

Europeans, however, seem more comfortable with a complex, multi-faceted approach to negotiating and networking. They are more likely to be sitting down with bureaucrats, SOEs, and other multinationals – even though these conversations aren’t likely to result in deals any time soon. Furthermore, Europeans seem to be bringing over younger executives – in keeping with the ‘apprentice’ type training programs still favored in Germany and Northern Europe. Europeans are also more favorably disposed towards far-reaching joint ventures than the go-it-alone Americans who prefer to set up their own Wholly Owned Foreign Enterprise (WOFE). If China is shifting back to a more centralized economy where bureaucrats are controlling a greater share of the economic pie, then their approach will put them in the same room with more decision makers than the Americans.

Both approaches have advantages and disadvantages. One facet of the European approach that Americans may want to start emulating is their attention to the Chinese market. If western consumers overspent in the last 10 years – and most indicators seem to point to that trend – then there even after a recovery there will still be less business in traditional developed markets. The Europeans seem to have a head start over their American counterparts in two important respects. 1) They are already more focused on developing Chinese markets, and 2) they have spent more time building networks with a wider range of Chinese stakeholders – including the very bureaucrats and SOEs managers that Americans tend to shun.

It’s interesting to note that in my current survey (which by way is still in desperate need of more respondent data: http://app.icontact.com/icp/sub/survey/start?sid=6492&cid=355149 ) shows that American are considered the WORST negotiators in China – beating out Europeans 2:1. (36% to 18% of respondents.) It’s time for us to show some of that famous American ingenuity and resourcefulness.

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That means that over 70% of the admittedly small (and potentially biased) sample feels that China’s economy will recover within 18 months. Only 46% think that the US will be back on track by 4Q2010.
he implications of these trends – assuming they turn out to be true – should impact on the way that western investors and business people structure their negotiation with Chinese counter-parties.

Look for these 5 trends to impact on your future China negotiations:

1) FDI is in demand again. Foreign Direct Investment is what helped to create China’s booming post-Deng economic miracle, but starting around 3 years ago western investors started noticing that ‘not all FDI was created equal’. Certain types of western investment were preferred – while some types of investment had a great deal of trouble getting approved. Nowadays, I’m hearing that FDI is in demand again – even in places like Suzhou that once turned up its nose at smaller or less hi-tech projects. As an inbound investor, your key leverage will be in the area of job creation. The more good jobs you can supply, the more favorably your applications will be viewed.

2) Tougher access to markets & a more ‘middle class’ middle class. 40% of the pre-recession Chinese economy was ‘external’ – either exports, OEM, trading, multinational corporations, or other non-domestic activities. This was the exciting, vibrant part of the Chinese economy – the kind that Time and Business Week liked writing about. The recession has devastated this part of the Chinese economy and dashed the hopes of many western marketers and retailers who saw this burgeoning ‘middle class’ as a huge untapped market. The good news, however, is that the REAL Chinese middle-class – those making upwards of rmb 5,000 per month (about US$7,500 per year) is still growing. In fact, one of the main goals of the Chinese stimulus package is to diversify the benefits of China’s economic reform – thus spreading demand across a wider geographic range. The bad news – this market is tough for westerners to tap without local assistance. When you negotiate for marketing or distribution partners, make sure your counter-party already has established channels – and a realistic plan for moving your products. Get confirmation, and don’t be ‘oversold’. Almost no private distributor or retailer has true nation-wide access, so you should be skeptical. Be careful with nation-wide exclusivity. It is rarely a good idea.

3) More SOE/ State bureaucracy. The MNCs are hurting, expats are repatriating and private Chinese businesses are getting slaughtered. Who is winning? State Owned Enterprises and those working directly with municipal, provincial and national governments. The Chinese economy is moving away from the ‘wild west’ anything goes capitalism of 2007 and becoming more like the centralized economy of years past. The lion’s share of the government’s stimulus plan targets infrastructure, government agencies and bureaus and SOEs. ‘Market economics with socialist features’ is out – ‘statist capitalism’ is in. This means your negotiations will take longer, be more guanxi-based and take place with groups of bureaucrats instead of a single decision-maker. Better practice those banquet & baijiu (Chinese liquor that tastes like rocket-fuel and packs more of a punch) skills. Gambei, penyou!

4) BOP (Balance of Power) Perception Gap. Anyone who did business in Japan during the 1980s will remember this problem — both sides see their negotiating positions as stronger. Someone is going to have to give here, and if that chart in this article is accurate, it might end up being YOU. Yes, just as with Japan, the situation may very well change in the very near future. But if you can’t tolerate a touch of arrogance and condescension from across the table, then your negotiations in China could be extremely unpleasant – and unproductive. Suck it up and don’t let your discussions devolve into emotional conflict. Your counter-parties – particularly the bureaucratic ones – are likely to see the current economic climate as a vindication of Chinese methods and culture. Expect some lecturing. Sorry.

5) Less Transparency, More Guanxi. Unfortunately, the trend towards greater openness, transparency and rationality in Chinese negotiation is waning. It may come back, but for now you are best off working off a more traditional playbook. I use Carolyn Blackman’s excellent “Negotiating China: Case Studies and strategies” – published in 1998- in my negotiating class, and used to refer to it as a great picture of what negotiating in China used to be like. Now I talk about how relevant her work has again become. She talks about old-school negotiating tactics favored by bureaucrats that seemed to be getting replaced by international technocratic methods. Now I am revisiting her work and finding a new relevancy. Order it on Amazon today.

ChineseNegotiation.com and ChinaSolved.com invite you to participate the ChinaSolved linkedin group. http://www.linkedin.com/groups?gid=1392417

Partnerships – be they formal JVs, long term contracts or informal best-effort sales deals – aren’t necessarily bad ideas for US businesses who would want to sell into China, but they are tricky to set up and can lead to problems that far outweigh the benefits if you are unfortunate or unprepared.

Learn from the mistakes of others:

ChineseNegotiation.com research has revealed a few basic trends when it comes to negotiating with Mainland Chinese counter-parties.

1) Your China deal is much more likely to run into snags AFTER the contract is signed. In the US, you have much greater latitude and inclination to put the brakes on a potentially bad deal early. In China, you often don’t know until it’s too late that you are negotiating with an inappropriate counter-party or discussing the wrong deal points. Roughly half of all western dealmakers report that they have the biggest negotiating problems AFTER the contracts are signed than in the early stages. Compliance, QC and implementation are the most common potholes that westerners report.

2) You are much more likely to be a victim of misunderstanding and incompetence than fraud and dishonesty. That usually means that traditional Western due diligence isn’t necessarily going to spot these problems before they occur. Your Chinese counter-party may be doing his honest best to satisfy the terms of your deal — and can’t understand what YOUR problem is. Culture, attitudes, standard operating procedures and QC metrics are very different between China and the US. Unfortunately, ambitious business-people tend to give everyone (including themselves) the benefit of the doubt that ‘everything will work out’ in the early stages of deal-making.

3) Sellers have a much tougher time negotiating successfully in China than buyers. Americans have traditionally come to China for manufacturing or to buy finished goods. Purchasing experience is still quite valuable, but it doesn’t necessarily prepare you or your operation for selling to the Chinese market. B2B sales in China have some things in common with US markets – but retail selling is completely different.

4) The most successful western dealmakers in China have the fewest counter-parties. Old China Hands who rank themselves as successful or highly successful tend to have a relatively small universe of counter-parties. Less successful negotiators are speaking to more people – particularly young counter-parties who may not have the authority to make deals. Lot’s of experienced deal-makers are saying, “of course, that’s obviously true in any market’’ – but just make sure you ‘walk the walk’ while you are struggling to make those first few deals. You’ll make the fastest progress with the young, sophisticated, bilingual grads who attend the AmCham mixers – but the deal will be made with the middle-aged guy in the smoke-filled private banquet room of a restaurant or KTV. In the US, you can work your way up the food chain – but that doesn’t always work in China. Make your early negotiations about access to the real decision-makers – not costs and commissions.

5) Americans perceive Mainland Chinese as the best dealmakers in China — and tend to view themselves as the worst. Overseas Chinese, who used to be perceived as the ‘gold standard’ for cross-culture deal making, seem to be losing their appeal. There are ways of neutralizing or minimizing your Mainland host’s home field advantage – but they all involve doing more research before you land, checking facts and being patient. Americans who plan on out-dealing Chinese at the table are the ones that have the most trouble. You’ll fly home with the wrong contract – signed by the wrong people.

These are not earth shattering revelations — but together they paint a picture that is powerful and simple: Many westerners are simply negotiating with the wrong people — and not walking away when they should.

The PPP: Perfect Partner Profile
ChineseNegotiatin.com recommends that you build a PPP – a Perfect Partner Profile for every deal you are doing in China BEFORE you start negotiating. This is an idealized description of your ‘dream partner’ in China – and it may contain a few surprises. Many Americans come to China looking for the biggest, most powerful & well connected counter-parties – only to find out later that there is no effective way to apply leverage or enforce agreements. Conversely, American bosses who join up with smaller startups in the hope of controlling the partnership often find that their new partners are willing – but no able – to satisfy the terms of the agreement.

When crafting a PPP, you are looking for complimentary gaps in skills and capabilities — not similarities. You are also trying to partnerships with counter parties who are too large, so small, too weak or too powerful.

Size: How big should your partner be?
If they are too big your deal won’t matter. If they are too small, they may not have sufficient resources to fulfill all of your requirements. Americans who come to China thinking that a signed contract or regulations are going to protect their interests are in for a very rude awakening. In China, the best deal structures are those that incentivize compliance. If your counter-party feels that a relationship with you will contribute to his bottom line, it will continue. Otherwise you have merely educated your potential competitor.

BOP – Balance of Power.
The ideal balance is 60-40 in your favor. Game theory demonstrates that as the power level of the weaker partner diminishes below ‘reasonable parity’ it can distort the relationship and lead to non-economic outcomes. In China, if you are too powerful, the other side has lots of motive and opportunity to cheat – or to walk away. This is where cultural differences often manifest themselves. The NY boss who shouts at his “subordinate” in Shanghai will quickly finds that his calls don’t get returned – or worse.

Culture – How local do you want to go?
Americans trying to enter China should decide in advance, because you have more choices than you may know about. If you are looking to sell to the Chinese mass market, you want a pretty local partner. It’s worth your while to hire translators and sophisticated middle managers who can help you bridge the culture gap. If you are looking to buy, recruit, manufacture or design, then you may be ok looking for a more international or multicultural JV. More than a few westerners end up in incestuous deals with people who have more in common with them than with their Chinese target market.

Capabilities:
It’s important to select a partner that will satisfy your needs now and for the foreseeable future. Weak partners are the easiest to negotiate with – but the partnerships are the least stable. If a potential partner can only satisfy a portion of your needs and you will have to find additional resources, you are best off working out a non-exclusive buy/sell agreement. Chinese owners have an unfortunate tendency to over-promise before the deal is signed, and then confront you with new demands for resources or cash in order to bring their own abilities up to standard.

Timeframe: Where do they see themselves in 3-5 years?
Is there room for you in their growth plan? If not, then consider negotiating a shorter arrangement with a sunset provision that will outline how you are going to part ways. If you plan on shedding your partner and going independent in a few years, then plan accordingly. Determine what your counter-party’s attitude is. If you are transferring IP or know-how, then you are never getting it back. Westerners are criticized for their lack of patience and short time horizons in China. Chinese negotiators are renowned for their ability to outlast counter-parties. Plan accordingly.

Next: Profiling your counter-party’s goals, variables and BATNA

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Cultural roadblocks vs. business bridges
Negotiators with the most success tend to see culture as less of a roadblock while less successful negotiators are the ones declaring that cultural issues are sinking their deals.

A recent survey of 160 businesspeople from all over the world asked participants to assess Mainland Chinese counter-parties in terms of 5 culture issues: Trustworthiness, long term orientation, value placed on relationship, risk aversion and negotiating style. This universe of participants included 11% ML Chinese, 18% overseas Chinese, 34% North Americans, and 28% Europeans.

The general base-line responses for the entire sample group:

1. Which side is more trustworthy?

Mainland Chinese were more trustworthy: 5%
No trend: 53%
Westerners were more trustworthy: 42%

2. Are Mainland Chinese more long-term oriented or less compared to Western negotiators?

Mainland Chinese are more long term: 33%
No trend: 17%
Mainland Chinese are less long term: 50%

3. Which side is more likely to cultivate better post-deal relationships?

Chinese: 62%
No Trend: 25%
Westerners: 13%

4. In your opinion, are Mainland Chinese counter-parties more or less risk averse than Western negotiators?

More: 37%
Same/no trend: 38%
Less 25%

5. What is your Mainland Chinese counter-party’s negotiating style?

Yielding: 7%
Compromising 16%
Competitive 35%
Avoiding 22%
Collaborative 19%

Western Views on Chinese negotiators:
For analysis we isolated North Americans and Europeans to examine the impact of cultural differences on negotiating behavior. While we couldn’t say for sure that this sample contains no ethnic Chinese, participants had the option of selecting an Overseas Chinese category.

1. Trustworthy

a. MC more 3%
b. No trend 49 %
c. Westerners more 48 %

2. Long Term orientation

a. More 37%
b. No trend 12%
c. Less 51 %

3. Value of relationship

a. More: 60%
b. No trend 24 %
c. Less 16%

4. Risk aversion:

a. More: 42%
b. Same/no trend: 34%
c. Less 24 %

5. Counter-party style

a. Yielding: 4%
b. Compromising 9%
c. Competitive 39%
d. Avoiding 28%
e. Collaborative 20%

Success rates influence attitudes towards Mainland counter-parties
The next step was to sort the Western negotiators based on how successful they saw themselves in China. Participants were asked what percentage of their negotiations led to completed contracts. “High Success” negotiators reported that 75% or more of their negotiations resulted in signed contracts. “Low Success” negotiators completed deals in 50% or less of their transactions.

High Success (75 – 100% of negotiations resulted in deals)

1. Trustworthy

a. Mainlanders 4%
b. No trend 59%
c. Westerners 37%

2. Long Term orientation

a. More 43%
b. No trend 13%
c. Less 44%

3. Value of relationship

a. More: 61 %
b. No trend 28 %
c. Less 11%

4. Risk aversion:

a. More: 39%
b. Same/no trend: 35 %
c. Less 26%

5. Counterparty style

a. Yielding: 4 %
b. Compromising 9 %
c. Competitive 35%
d. Avoiding 30%
e. Collaborative 22%

Low Success (50% or fewer of their negotiations lead to success)

1. Trustworthy

a. Mainlanders 2%
b. No trend 36 %
c. Westerners 62%

2. Long Term orientation

a. More 30%
b. No trend 12%
c. Less 58 %

3. Value of relationship

a. More: 58%
b. No trend 19%
c. Less 23%

4. Risk aversion

a. More: 45%
b. Same/no trend: 33%
c. Less 21%

5. Counterparty style

a. Yielding: 5%
b. Compromising 10%
c. Competitive 43%
d. Avoiding 26 %
e. Collaborative 17%

Conclusions: Westerners who ranked themselves as more successful in China tended to see less of a cultural difference between themselves and their Mainland Chinese counter-parties. This was particularly true in terms of trustworthiness. 59% of high-success negotiators didn’t see any difference between Westerners and Chinese negotiators, but only 36% of the low-success negotiators felt that trust was a non-issue. While successful negotiators balanced out on their views towards Chinese negotiatiors’ time-frames, less successful Westerners saw Chinese as more short-term oriented.

1- Finding an appropriate counter-party
2 – Agreeing to clear deal terms
3 – Finalizing the deal and signing contracts
4 – Executing the deal (starting the actual business)
5 – Post deal compliance / QC

It’s been a five days and I’ve managed to gather 58 responses.

Overall
The general overall results are:

We’re seeing a lot of trouble at both extremes — starting the deal and managing post-deal compliance are both troublesome. This is a very naive, generalized view that is probably the source of many misconceptions about business in China. The problem? Newcomers and old hands are both showing up in the results and making it appear that there are friction points across the board. In fact, it seems that more experienced China hands are finding that it is much easier to start negotiations than to successfully conclude them — and that getting paid (or maintaining a profitable relationship) are harder still.

Position
When we filtered for job-title or position, we began to see some more interesting results. Owners – who live or die by the bottom line – are most concerned about late-stage considerations, like compliance and contract. Managers are the ones fretting about generating deals and negotiating deal points.


Age
The small sample size disqualifies the more extreme readings, but we can still see that older (presumably more experienced negotiators) are less worried about doing deals and more concerned about executing business and getting paid.


Gender
The gender results were a bit of a surprise for two reasons. First, it seems that far fewer women took the survey. Does this mean that women are less engaged with Linkedin on other online platforms (which seems unlikely to me, but I’d appreciate your input), are less involved in China deals or are less likely to volunteer for surveys. Whatever the the cause, women made up less than a quarter of the sample — and were the most likely to encounter friction at the early stages of China deal-making.


See for yourself by going to the Linkedin survey , take the poll and look over the comments of those that have already taken the poll.

]]> http://www.chinesenegotiation.com/2009/02/simple-poll-shows-some-are-struggling-to-do-china-deals-while-others-are-working-harder-to-get-paid-for-deals-they-thought-were-done/feed/ 0 http://www.chinesenegotiation.com/2009/02/whats-the-most-challenging-aspect-of-doing-deals-in-china/ http://www.chinesenegotiation.com/2009/02/whats-the-most-challenging-aspect-of-doing-deals-in-china/#comments Thu, 05 Feb 2009 04:01:47 +0000 Andrew Hupert http://chinesenegotiation.com/?p=160 What’s the most challenging aspect of doing deals in China?

I’m asking readers who are already on LinkedIn to take part in a quick , 1-question survey:

http://polls.linkedin.com/p/20391/cgejn

While you’re there, sign up for the group ChinaSolved . ChinaSolved.com and ChineseNegotiation.com are using the group to post survey results and build a network of US & China-based investors & managers interested in China business.

Thanks

]]> http://www.chinesenegotiation.com/2009/02/whats-the-most-challenging-aspect-of-doing-deals-in-china/feed/ 0 http://www.chinesenegotiation.com/2009/02/china-negotiation-survey-results-chinese-negotiating-counter-parties-and-age/ http://www.chinesenegotiation.com/2009/02/china-negotiation-survey-results-chinese-negotiating-counter-parties-and-age/#comments Mon, 02 Feb 2009 05:51:43 +0000 Andrew Hupert http://chinesenegotiation.com/?p=150 The most successful Western negotiators in China are focusing on middle-aged counter-parties from private Mainland Chinese enterprises. It probably comes as no surprise to experienced negotiators that there was a strong correlation between high success rate and older counter-parties. American and European deal-makers reported the highest percentage of successful negotiations when talking to Chinese in their 40s and 50s – and avoiding those in their 20s and 60s. Low success negotiators tended to meet with a younger cross section of potential counter-parties. Westerner who ranked themselves as moderately successful negotiators (50% of their negotiations led to signed deals) in China met with EVERYONE – from the 20s to the 60s.

The Survey
The survey was running for 1 month and received approximately 160 responses.
The question being discussed here was: ‘Did you successfully negotiate deals?’ The range of answers was A) Every negotiation yielded success (100%); B) Most negotiations yielded success (75%); C) Half my negotiations were successful (50%); D) A few successes (25%). Aggregate responses were:

100% successful: 8%
75% successful: 52%
50% successful: 24%
25% successful: 14%

The next step was to look at age of the Mainland Chinese counter-party. Survey respondents were asked to judge the age of their negotiating partners. For this question, multiple answers were possible – with the average respondent reporting that they sat down with members of 1.7 age groups. The responses were as follows:

Under 30: 24%
30 – 39: 54%
40-49: 57%
50-59: 27%
60+: 11%

American and European responses were isolated and divided into 3 groups – High Success (75 & 100% success rates), Moderate Success (50%) and Low Success (25%) and then filtered by the age groups they were spending most of their time with.

Low Success Westerners – Western negotiators in China who had trouble doing deals were spending lots of time with younger Chinese negotiators. Of the ‘Low Success’ category, 46% reported meeting with 20-somethings. In their defense, they seemed to be meeting with anyone who would talk to them – the average low-success negotiator was negotiating with members of 2.08 age groups.

Moderate Success Westerners –Westerners reporting 50% success rates were still spending lots of time with young Mainlanders – 40% of moderately successful respondents were spending time with the sub-30s. The key difference was the introduction of an older counter-party. 27% of moderate successes were meeting with ML Chinese over the age of 60, compared with only 8% of the low-success dealers. This group of Western negotiator was seeing an even wider range of counter-party than the low-success negotiators — the average respondent was meeting with 2.13 age groups.

High Success Westerners –Americans and Europeans reporting the most successful negotiations in China were meeting with a smaller, older set of counter-parties than their less successful countrymen. The interesting thing is not that they are seeing more middle-aged Chinese than the low-success Westerner – but rather that they are meeting with significantly fewer members of the younger and older demographics. Only 9% of high-success dealers were meeting with those in their 20s. Likewise, the share of successful negotiators meeting with 60+ Mainlanders dropped to only 4%. The average high-success negotiator was only seeing members of 1.54 age groups – mostly in their 40s, though 30 & 50-somethings were well represented as well.

Implications – Traditional practices in a radically different environment:
These demographic patterns won’t seem strange to experienced Western business people, since they approximate the trends that we’d expect to see in NY or London. The same study indicated that when Mainland Chinese negotiate with other Mainlanders, they tend to focus almost exclusively on younger counter-parties – possibly member of their existing network or peer group. So the question emerges – are Westerners applying their traditional best practices in China (consciously or unconsciously), or do economic forces impose this particular business reality in boardrooms from Anaheim to ZhuHai?

Common ground – the Reliable Middle-aged Manager:
Two China myths dearly loved by the business press are the Whiz Kid Entrepreneur who is transforming China into a free-market paradise and the Backroom Patriarch who pulls strings from a position of authority, respect & secrecy – and both seem to be disproved by these findings. A common trend about commercial enterprises all over the world is that middle managers with 15-30 years of experience are pulling the trigger on just about all significant decisions. Younger employees – regardless of their ability, talents or genius – are most highly valued when they carry out other people’s plans and strategies. Older, more experienced managers are preferred as strategic planners, goal-setters or supervisors. Day-to-day operational decisions are usually made by middle-aged managers – either individually or in committees.

Decision-making with Chinese Characteristics
Does this mean that Western deal-makers can simply apply their tried & true methods and tactics in China? Not really, since identifying and reaching the real decision-maker in China is a big part of successful deal-making. Westerners have to be aware of the differences between the negotiation process at home and here in China.

Access is tougher.
Chinese decision-makers are harder to identify and make contact with than those back home. In the US a reasonably aggressive salesman or purchasing agent can expect to ‘climb the ladder’ and move closer to the true decision-maker as his proposal gains traction within the target organization. You can’t assume the same is true in China. Yes, commercial practices in Shanghai and Shenzhen are getting more rationale and transparent. Language barriers, non-economic factors and impaired information flows all make gaining access to the right people much more challenging in China than in the West. Newcomers to China are advised to begin their research by identifying key decision-makers and developing a plan for gaining access. In the early days, worry less about closing deals and more about developing good channels of information.
Gatekeepers are more prevalent
I still remember one fateful meeting early in my career when a prospective buyer told me that the company president wanted to see me. I was a bit flustered and apprehensive at first – and then confused as the Big Boss walked out of his office, looked me up and down for a few seconds, shook my hand, took my card and then abruptly returned to his desk. ‘Wanted to see me’ was right – he wanted to make sure that I actually existed and wasn’t a raving lunatic or shifty scammer. Every US manager knows about due diligence and the need to personally verify that a legitimate counter-party exists. This is not the way in most China businesses. Gatekeepers are more common and play a larger role here. A lot of those younger Mainland counter-parties are not really negotiators – they are gatekeepers whose instructions are to keep the boss from being disturbed. Many Western negotiators make the mistake of assuming that they will work their way up the decision-making chain of command by starting at the bottom. It tends not to work too well. Successful Westerners tend to develop reliable methods of ‘ambushing the DMU’ and initiating direct contact with the real decision-maker.
High turnover means bad habits may be transmitted & institutionalized
A danger for Western negotiators in China is high turnover – both within their own organization and within their Chinese counter-party’s team. With an average tenure of 18 months, many China-based negotiators are switching jobs before they’ve had the opportunity to significantly improve their deal-making skills. This is particularly dangerous for Western managers running teams in China, since there is an excellent chance that your new recruits are being trained in ‘negotiating worst practices’. Anyone who has been to one of Shanghai’s many cash-bar networking events will know all too well how easy it is for young expats to spend months chasing down dead-end leads and non-starter business development schemes. If they were hanging around long enough to build their skill level and learn from past mistakes, then this wouldn’t be a major problem. But if your recruits only last a few months before they wash out or move on, then your organization may be institutionalizing rookie mistakes. That explains why unsuccessful deal-makers are spending so much time with young counter-parties. These are the newbies networkers who can’t yet tell the difference between a Tsingdao-fueled party-boy with business cards and a viable business prospect.

Next: Types of Mainland counter-parties

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