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	<title>Chinese Negotiation</title>
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	<description>Negotiate in China more effectively and successfully</description>
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		<title>China and the WTO:  Connecting the Dots, China Style</title>
		<link>http://www.chinesenegotiation.com/2012/02/china-and-the-wto-connecting-the-dots-china-style/</link>
		<comments>http://www.chinesenegotiation.com/2012/02/china-and-the-wto-connecting-the-dots-china-style/#comments</comments>
		<pubDate>Thu, 02 Feb 2012 02:57:08 +0000</pubDate>
		<dc:creator>Andrew Hupert</dc:creator>
				<category><![CDATA[Americans Negotiating in China]]></category>
		<category><![CDATA[Know Your Counter-Party]]></category>
		<category><![CDATA[Negotiating styles in China]]></category>
		<category><![CDATA[chinese negotiating behavior]]></category>
		<category><![CDATA[Chinese style]]></category>
		<category><![CDATA[Negotiating tactic]]></category>
		<category><![CDATA[US-China negotiation]]></category>
		<category><![CDATA[WTO]]></category>

		<guid isPermaLink="false">http://www.chinesenegotiation.com/?p=881</guid>
		<description><![CDATA[Look for WTO structure, rules and China’s continued membership to be major international negotiating variables within the next six months.]]></description>
			<content:encoded><![CDATA[<p>Americans and Europeans negotiating in China for a long time will recognize the pattern. A Chinese associate will make an innocuous but slightly off-topic comment in a business discussion. Later, in a seemingly unrelated discussion, the Chinese side will take offense or express surprise about the same point. Negotiators with limited China experience will wither bat the issue aside or try to win a minor point. The discussion will quickly return to more substantive matters.</p>
<p>When the deal falls apart soon after, the western manager will be scratching his head at the Chinese negotiator’s seeming inexplicable behavior. From the Chinese negotiator’s perspective, however, he has been open, honest – and maybe even a bit blunt.</p>
<p><strong><em>Prediction: </em></strong><em>Within the first 6 months of  2012, China will demand a major restructuring of either the WTO or some other international economic forum – effectively removing any meaningful oversight or ability to penalize China (i.e.: member nations).</em></p>
<p>Here’s the handwriting on the wall:<em></em></p>
<blockquote>
<h2><strong><em><a href="http://www.reuters.com/article/2011/11/14/us-apec-china-trade-idUSTRE7AD0CW20111114" target="_blank">China will play by rules it negotiates: official</a></em></strong></h2>
<p><strong><em></em></strong><br />
<em>HONOLULU | Mon Nov 14, 2011 12:58am EST</em><br />
(Reuters) &#8211; China will play by the rules of international agreements that it has been party to negotiating, a Chinese official said on Sunday.<br />
His remarks were a clear rebuttal to U.S. President Barack Obama who earlier said that China must act like a &#8220;grown up&#8221; and play by the rules of the international community in economic affairs.<br />
&#8220;First we have to know whose rules we are talking about,&#8221; said Pang Sen, a deputy director-general at China&#8217;s Foreign Ministry.<br />
&#8220;If the rules are made collectively through agreement and China is a part of it, then China will abide by them. If rules are decided by one or even several countries, China does not have the obligation to abide by that,&#8221; Pang said at a news conference after the APEC summit in Honolulu…</p></blockquote>
<p>And then again yesterday – in an unattributed Op-Ed piece in the <em>Global Times</em>, an officially sanctioned English language PRC news site:</p>
<blockquote>
<h2><strong><em><a href="http://www.globaltimes.cn/NEWS/tabid/99/ID/694054/Time-to-reassess-unfair-WTO-entry-terms.aspx" target="_blank">Time to reassess unfair WTO entry terms</a></em></strong></h2>
<p>Global Times | February 01, 2012 00:48<br />
A WTO appeals panel has upheld a ruling against China restricting exports of nine types of raw materials. The ruling, completely unreasonable to Chinese, will threaten China&#8217;s resource preservation and environmental protection efforts.</p>
<p>China has generally been following WTO regulations and rulings. But it should find the best balance between applying WTO rules and protecting its national interests. Getting approval from the West is not our top concern.</p>
<p>Admittedly, joining the WTO has boosted China&#8217;s rise. However, entry was granted at the cost of China accepting some unfair terms, from which the aftereffects have gradually emerged, including this ruling. They may become a hidden problem for China&#8217;s economy.</p>
<p>The latest WTO ruling has highlighted the urgency of amending some of the unfair terms of The Protocol of China&#8217;s Entry into the WTO. It is also necessary to express China&#8217;s dissatisfaction and garner public support for the revision…</p></blockquote>
<p>Should WTO rules be applied evenly, unevenly, more stringently, rewritten completely?  I don’t know – and that’s not the point of this post.</p>
<p>The significant issues are that</p>
<p style="padding-left: 30px;">1) The Chinese side is putting an issue on the table. As far as Beijing is concerned, they are being open and direct about their concerns. The negotiation about the WTO and international trade has begun. If the western side is too slow or oblivious to catch the drift, that is their problem (from the Chinese perspective)</p>
<p style="padding-left: 30px;">2) The Chinese side is setting the terms of the agenda NOW. The US and/or international side has to act immediately to push back or alter the variables, or they will be starting out at a significant disadvantage.<em>This is where a lot of Americans negotiating in China drop the ball</em>.</p>
<p style="padding-left: 30px;">3) <a title="Chinese Tactic: Conflict as exit strategy" href="http://www.chinesenegotiation.com/2011/11/managing-conflict-in-chinese-negotiation/" target="_blank">A common Chinese tactic is to use a manufactured conflict as an excuse to terminate an existing partnership or arrangement. Loss of fact, cultural misunderstanding or perceived insults can all be used as an exit strategy.</a></p>
<p>Look for WTO structure, rules and China’s continued membership to be major international negotiating variables within the next six months.</p>
<p>===========<br />
<em>Stay Connected to <a href="http://www.chinasolved.com/">ChinaSolved</a> / <a href="http://www.chinesenegotiation.com/">ChineseNegotiation.com</a>:</em><br />
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		<title>The Lao Taxi Case</title>
		<link>http://www.chinesenegotiation.com/2012/01/the-lao-taxi-case/</link>
		<comments>http://www.chinesenegotiation.com/2012/01/the-lao-taxi-case/#comments</comments>
		<pubDate>Tue, 31 Jan 2012 02:56:44 +0000</pubDate>
		<dc:creator>Andrew Hupert</dc:creator>
				<category><![CDATA[Case studies]]></category>
		<category><![CDATA[Negotiating Basics]]></category>
		<category><![CDATA[asian negotiation]]></category>
		<category><![CDATA[European negotiating style]]></category>
		<category><![CDATA[negotiating style]]></category>
		<category><![CDATA[tactics]]></category>

		<guid isPermaLink="false">http://www.chinesenegotiation.com/?p=876</guid>
		<description><![CDATA[An American, a Dutchman and a Brit walk into an open-air third-world bus stop just before dawn.  They each need transport to the town – approximately three miles away.   The local minivan and tuk-tuk drivers have organized themselves into a mean little mafia, and they are gouging the international tourists as they disembark from overnight buses.]]></description>
			<content:encoded><![CDATA[<p>An American, a Dutchman and a Brit walk into an open-air third-world bus stop just before dawn.  They each need transport to the town – approximately three miles away.   The local minivan and tuk-tuk drivers have organized themselves into a mean little mafia, and they are gouging the international tourists as they disembark from overnight buses.  All of them are weary and disoriented from long, uncomfortable journeys.</p>
<p><strong><em>What happened next:</em><br />
</strong><br />
First the Brit tries to take control of the situation, arguing his moral position.  The overnight bus was a complete rip off &#8211; he was shown photos of a modern luxury double-decker but was forced into an overcrowded, dilapidated minivan.  He&#8217;s angry that the bus didn&#8217;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&#8217;t convert his anger into a negotiating goal or a set of actionable variables.  He&#8217;s negotiating about emotional positions &#8211; not objective interests.  The Brit doesn’t know what a ‘win’ looks like.</p>
<p>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. </p>
<p>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&#8217;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.  </p>
<p><strong><em>What could they have done different?</em></strong></p>
<p>The first negotiation they should have conducted was internal. Instead of just &#8220;taking a shot&#8221; 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”.  </p>
<p>They might have tried to play one driver off against another and undermined the first drivers de-facto monopoly.</p>
<p>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. </p>
<p><strong><em>Me?</em></strong> No- I wasn’t the relatively rich guy from Shanghai.</p>
<p>I kept my bag on my lap and didn&#8217;t pay till we got to our destination.  I jumped out of the car immediately, and then offered the driver a choice of currencies &#8211; 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.   </p>
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		<title>Guanxi in Chinese Negotiation: Of Alpha Dogs and Leg Humpers</title>
		<link>http://www.chinesenegotiation.com/2012/01/guanxi-in-chinese-negotiation-of-alpha-dogs-and-leg-humpers/</link>
		<comments>http://www.chinesenegotiation.com/2012/01/guanxi-in-chinese-negotiation-of-alpha-dogs-and-leg-humpers/#comments</comments>
		<pubDate>Wed, 25 Jan 2012 01:58:45 +0000</pubDate>
		<dc:creator>Andrew Hupert</dc:creator>
				<category><![CDATA[Americans Negotiating in China]]></category>
		<category><![CDATA[Know Your Counter-Party]]></category>
		<category><![CDATA[Negotiating in China]]></category>
		<category><![CDATA[Negotiating styles in China]]></category>
		<category><![CDATA[Balance of Power]]></category>
		<category><![CDATA[chinese negotiating behavior]]></category>
		<category><![CDATA[guanxi]]></category>
		<category><![CDATA[US-China negotiation]]></category>

		<guid isPermaLink="false">http://www.chinesenegotiation.com/?p=872</guid>
		<description><![CDATA[Chinese negotiators like building relationships as part of the deal-making process, but they aren’t typically big fans of the type of even-split, 50-50 partnerships that Westerners favor.  Traditional Chinese negotiators are more comfortable with a clear hierarchy.]]></description>
			<content:encoded><![CDATA[<p>Chinese negotiating counterparties like building relationships as part of the deal-making process, but they aren’t usually big fans of the type of even-split, 50-50 partnerships that Westerners favor.  Traditional Chinese negotiators are more comfortable with a clear hierarchy.  On one hand, they can be the alpha male who sets the rules and the pace – leveraging on their China knowledge and local contacts.  But they are also comfortable elevating you to god-like leader status while they fawn and give face – and don’t contribute much else.<br />
<br />The only role that you aren’t likely to see a traditionally Chinese counterparty take on is the one you want – an equal partnership.  If that’s what you are after, you had better plan on spending a lot of time searching out the right counterparty, and you’ll still have to negotiate very explicitly and thoroughly from the very first meeting.</p>
<ol>
<strong>Guanxi Type 1:  Your new best friend</strong><br />
• Some Chinese counter-parties will use flattery, friendship and social events to build a cordial relationship.<br />
• This is a ‘sales-type’ approach.  He is selling his services to you, and he wants a salary or expects you to buy goods or services from his firm.<br />
• Good news – they may be taking the initiative to build a strong, healthy, win-win relationship.<br />
• Bad news – they may be pressuring you to reciprocate with better deal terms, IP, or relaxed QC/compliance requirements.  He thinks his flattery and submissive behavior is a valuable service and expects compensation.<br />
• <em>More bad news</em> – This scenario often leads to a <a href="http://www.chinesenegotiation.com/2010/05/chinese-tactics-the-balance-of-power/">balance of power shift</a>. Once he has your money, technology and know-how, your status becomes somewhat less god-like.<br />
• <em>Even worse news</em> –  Those pretty young girls half your age who laugh at your jokes and think that you are so wonderful… yeah, they are in this category.  Sorry, but someone had to tell you.  </ol>
<ol>
<strong>Guanxi Type 2:  Your guide, teacher &#8211; and boss?</strong><br />
• Chinese businessmen will offer to help you through their connections, insider knowledge and guanxi with suppliers and regulators.<br />
• Consultative approach.  They are offering to help you solve specific problems and clear away existing bottlenecks.<br />
• <em>Good news</em> – They may really know what they are doing and can facilitate your business.<br />
• <em>Bad news</em> – They feel that they are in charge of the new partnership.<br />
• <em>More bad news </em>– You probably need them more than they need you, so you are negotiating from a position of weakness. </ol>
<p>Beware of your American impulses to treat every relationship as an equitable, just, “we’re all in this together” 50-50 partnership.  It could be taken as a submissive gesture – which can invite aggressive, value-grabbing behavior.  </p>
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		<title>Bad Apple in the China Barrel</title>
		<link>http://www.chinesenegotiation.com/2012/01/bad-apple-in-the-china-barrel/</link>
		<comments>http://www.chinesenegotiation.com/2012/01/bad-apple-in-the-china-barrel/#comments</comments>
		<pubDate>Mon, 23 Jan 2012 01:53:41 +0000</pubDate>
		<dc:creator>Andrew Hupert</dc:creator>
				<category><![CDATA[Americans Negotiating in China]]></category>
		<category><![CDATA[Case studies]]></category>
		<category><![CDATA[Negotiating in China]]></category>
		<category><![CDATA[Apple]]></category>
		<category><![CDATA[Balance of Power]]></category>
		<category><![CDATA[Foxconn]]></category>

		<guid isPermaLink="false">http://www.chinesenegotiation.com/?p=858</guid>
		<description><![CDATA[Foxconn is a B2B outsourcer and doesn’t need a consumer-friendly brand image, but Apple can’t continue using the reverse Nuremberg defense, “it’s not our fault – we are just giving orders”. ]]></description>
			<content:encoded><![CDATA[<p>Apple Inc. has been grabbing all the wrong headlines lately, and the <em>NYTimes</em> piece <a href="http://www.nytimes.com/2012/01/22/business/apple-america-and-a-squeezed-middle-class.html?_r=2&amp;ref=charlesduhigg&amp;pagewanted=all">How the U.S. Lost Out on iPhone Work</a> and the <em>BusinessInsider.com</em> <a href="http://www.businessinsider.com/you-simply-must-read-this-article-that-explains-why-apple-makes-iphones-in-china-and-why-the-us-is-screwed-2012-1">commentary</a> summarize one part of the problem. Apple isn’t the first company to build corporate strategy around supply chain considerations – it’s been a mainstay of Taiwan’s very successful business planning ever since the mid-1990s. But outsourcing has always been a controversial strategy for US companies, as demonstrated by the auto industry when it started shuttering Detroit factories in the 70s in favor of cheaper Mexican labor – and ended up enabling its own biggest competitors like Toyota and Datsun (predecessor to Nissan).</p>
<p>There are three problems with Apple’s corporate strategy, and the damage being done to its reputation is only the first to manifest. Apple has gone from being the <em>corporate underdog who made good</em> to the poster child for Evil Inc. remarkably quickly &#8211; largely due to the management policies of its Taiwanese OEM partner Foxconn (and its parent Hon Hai). Foxconn is a B2B outsourcer and doesn’t need a consumer-friendly brand image, but Apple can’t continue using the reverse Nuremberg defense, “it’s not our fault – we are just giving orders”. We all know how the products are made.<br />
<br />But I’ll let the PR pros weigh in on the benefits and costs of being an evil corporate monster. It hasn’t hurt Apple’s sales, and plenty of other companies and industries sell great products while behaving beastly to their workers and suppliers.</p>
<p>Apple does, however, have two other problems that will eventually pose a greater threat to its bottom line.</p>
<p style="padding-left: 30px;">1. It is way too exposed to supply chain risk.  We’ve seen this before, and it doesn’t end well. Apple has given all the power to its suppliers but retained all the profit for itself. Its designs are in the hands of an engineering team it controls only indirectly. While Taiwanese OEM firms have a good reputation and track record for protecting their client’s intellectual property, Apple is giving up an important competitive competency by outsourcing it’s complete production cycle to a small group of companies that it doesn’t control. Foxconn is in a very powerful negotiating position, and <a href="http://www.chinesenegotiation.com/2010/05/chinese-tactics-the-balance-of-power">it may not be satisfied with razor thin margins forever</a> .</p>
<p style="padding-left: 30px;">2. Apple is equally exposed to negotiating risk with China – and that may end up being even more dangerous. Beijing giveth, and Beijing retains the right to take away. Right now the considerable power of the Chinese government is flowing Apple’s way, making it easy for Foxconn to do business. But that can change without warning – as it has for so many in the past. If Apple finds itself out of favor with Beijing policy makers, its supply chain is vulnerable to the Chinese bureaucracy. The same is true if a Chinese competitor finds itself in possession of Apple’s proprietary technology. Right now China’s flexibility and ability to mobilize resources is drawing Apple in. China can be famously rigid and immobile when it wants to be.</p>
<p>All China has to do is find Apple (or its suppliers) guilty of violating PRC law – which is almost certainly happening &#8211; to shut down Foxconn production for a couple of days. Apple’s share price will tank, and management will find itself in a very weak negotiating position.  Beijing probably won’t, unless it stands to gain something – like technology or customers.</p>
<p>&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;<br />
Background articles on<strong><em> BusinessInsider.com</em></strong>:</p>
<p><a href="http://www.businessinsider.com/you-simply-must-read-this-article-that-explains-why-apple-makes-iphones-in-china-and-why-the-us-is-screwed-2012-1#ixzz1kEUMhyfX">This Article Explains Why Apple Makes iPhones In China And Why The US Is Screwed<br />
</a></p>
<p><a href="http://www.businessinsider.com/steve-jobs-new-iphone-screen-2012-1#ixzz1kEUFL3uV http://www.businessinsider.com/steve-jobs-new-iphone-screen-2012-1">Steve Jobs Freaked Out A Month Before First iPhone Was Released And Demanded A New Screen<br />
</a></p>
<p><a href="http://www.businessinsider.com/apple-child-labor-2012-1#ixzz1kCeE8EYw http://www.businessinsider.com/apple-child-labor-2012-1">Your iPhone Was Built, In Part, By 13 Year-Olds Working 16 Hours A Day For 70 Cents An Hour</a><br />
===========<br />
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		<title>What can you do for me tomorrow?</title>
		<link>http://www.chinesenegotiation.com/2012/01/what-can-you-do-for-me-tomorrow/</link>
		<comments>http://www.chinesenegotiation.com/2012/01/what-can-you-do-for-me-tomorrow/#comments</comments>
		<pubDate>Fri, 20 Jan 2012 01:58:32 +0000</pubDate>
		<dc:creator>Andrew Hupert</dc:creator>
				<category><![CDATA[Americans Negotiating in China]]></category>
		<category><![CDATA[China Negotiating Trends]]></category>
		<category><![CDATA[Negotiating in China]]></category>
		<category><![CDATA[Negotiating styles in China]]></category>
		<category><![CDATA[Balance of Power]]></category>
		<category><![CDATA[chinese negotiating behavior]]></category>
		<category><![CDATA[Chinese partnership]]></category>
		<category><![CDATA[Negotiating tactic]]></category>
		<category><![CDATA[US-China negotiation]]></category>

		<guid isPermaLink="false">http://www.chinesenegotiation.com/?p=836</guid>
		<description><![CDATA[American dealmakers pressure a counterparty by asking, “What have you done for me lately?”   Chinese dealmakers say, “What can you do for me tomorrow?"]]></description>
			<content:encoded><![CDATA[<p><em>American dealmakers pressure a counterparty by asking, “What have you done for me lately?”   Chinese dealmakers say, “What can you do for me tomorrow?</em>”</p>
<p>Chinese and American negotiators have differing views towards opportunity and sunk costs. Americans spend time, money and energy vetting deals and counterparties at the start of a negotiation, so once they decide on an investment they stay committed for as long as it makes economic sense. Abandoning one deal to search for another usually involves a significant loss – particularly when they are far from home. Chinese negotiators, however, spend the early phase of a deal focusing on relationship-building and learning about technology and business models. Until recently, they have invested relatively little in the way of cash – often putting up non-cash assets like production capacity, land, staff, and non-tangibles like distribution channels, connections and know-how. If they pull out of an agreement the opportunity costs are generally a lot lower – and if they have learned your business or acquired your IP in the early stages, may even be negative. (Think of negative opportunity cost as an incentive to move on to the next deal.)</p>
<p>A Chinese negotiator, therefore, has a greater range of motion than his American or European counterparty. This is one of the ways that Chinese negotiators <a href="http://www.chinesenegotiation.com/2010/05/chinese-tactics-the-balance-of-power/">shift the balance of power</a> very effectively midway through a negotiation. Your assets are sunk and losing value – theirs assets are fluid and growing (now that you’ve taught them a business).</p>
<p><em><strong>What does it take to hold on to a Chinese partner?</strong></em><br />
When structuring deals in China, if you want to hold on to your partner make sure there is a rising payout – and that he can make more working with you than working against you. If you can’t offer those terms, you have to seriously reconsider whether you want an equity or strategic partnership with a mainland Chinese counterparty.</p>
<p>Often the question is a simple one – would you rather own a minority stake in a money machine or a controlling interest in a broken down jalopy?</p>
<p><em><strong><strong>Do it the Disney Way</strong></strong></em><br />
When Disney did their Shanghai deal, they didn’t play cat and mouse with the Chinese authorities. <a href="http://online.wsj.com/article/SB10001424052748704630004576249403695469400.html"> Walt Disney Co. handed over about 57% of their cheese to a couple of SOEs representing the Shanghai government</a>.  Sounds like the mouse got trapped &#8212; but you can bet that no one will be selling Disney knock-offs outside the Shanghai subway stations. This is a self-reinforcing deal, because the Chinese partner feels like the brand is working for them. Disney’s apparent weakness – its minority stake – is actually a strength. Shanghai now has something to lose if the partnership goes bad.</p>
<p>The key consideration is that Disney has a unique and highly recognizable brand that their key Chinese market is already clamoring for. If you don’t have that, then you’ll have to make do with money, technology or other assets. Your Chinese partners don’t just want a lot – they don’t just want a growing return. They want more than YOU are getting. For the Chinese side, sometimes one of the deal variables is out-dealing the foreigner – so plan accordingly.</p>
<p><strong><em>But I Don’t Want To Give Up Control</em></strong><br />
If you’ve looked at all the angles and majority control is still your one and only choice, then plan accordingly and prepare for the tough times. That doesn’t mean you should act tough – just the opposite. You have to look patient, while keeping your options open and protecting yourself against an army of counterparties who feel that they have nothing to lose by trying to swipe your technology, business model, key people and markets. Here are a few of other things you have to do:</p>
<ul>
<li>No exclusivity talk. The Chinese will ask for it, and some Americans think they are being clever by playing coy and dangling exclusivity in front of their counterparty’s face like a carrot on a stick. Bad move. You are guaranteeing that you and your non-partner will have a damaging conflict. He may not win, but you’ll certainly lose.</li>
<li>No partners. If you want to play the lone wolf, then be the lone wolf. Assuming that a Chinese partner will be satisfied with a perpetual subordinate role only works if you are A) over-paying, B) working with a stupid partner, or C) all of the above. Build nice, cordial relationships but be clear that you are paying for transactions – not offering an equity stake. If the Chinese side indicates that this isn’t what they are looking for, then for God’s sake, pay attention and move on! Don’t twist their arm into learning your business model and technology when you know they will eventually be dissatisfied.</li>
<li>Have multiple counterparties for key functions and service chains. It’s not efficient, but you don’t go it completely alone in China for efficiency. Always be ready to move on to your next best option. This means that you have to build in plans and budgets for continually expanding your range of connections – and you can’t rely on the network of the people you may be leaving behind. When Partner A helps you hire internal staff and find your service-providers and suppliers, you have a problem dropping him in favor of Partner B – because the first guy now has conduits into your business.</li>
<li>Safeguard your IP. If it’s any good, someone will make a play for it. Protect everything (with your own lawyers – not a partner’s) and only bring in what you can afford to lose. Even if you register and copyright everything, they will still copy and backwards engineer whatever they want to use. It won’t prevent you from using it in China, but you will be competing with your own designs.</li>
<li>You have more to lose than money or technology. Apple is finding itself tied to some very unsavory labor practices, and it can’t disengage even if wants to. It’s brand image is going to be battered, but it has no choice but to stay involved with partners that make it look as evil as any other sweatshop operating, worker-killing, child labor exploiting factory boss.</li>
<li>Be ready to walk away when the time comes. For some westerners, this is the hardest part. If you can’t do it, though, then you will never maintain full control over your own business.</li>
</ul>
<p>===========<br />
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		<title>Know Your Chinese Counterparty: Long Term Planners or Short Term Opportunists?</title>
		<link>http://www.chinesenegotiation.com/2012/01/know-your-chinese-counterparty-long-term-planners-or-short-term-opportunists/</link>
		<comments>http://www.chinesenegotiation.com/2012/01/know-your-chinese-counterparty-long-term-planners-or-short-term-opportunists/#comments</comments>
		<pubDate>Wed, 18 Jan 2012 01:18:25 +0000</pubDate>
		<dc:creator>Andrew Hupert</dc:creator>
				<category><![CDATA[Americans Negotiating in China]]></category>
		<category><![CDATA[China Negotiating Trends]]></category>
		<category><![CDATA[Know Your Counter-Party]]></category>
		<category><![CDATA[Negotiating in China]]></category>
		<category><![CDATA[Negotiating styles in China]]></category>
		<category><![CDATA[tactics]]></category>
		<category><![CDATA[chinese negotiating behavior]]></category>
		<category><![CDATA[Chinese partnership]]></category>
		<category><![CDATA[Chinese style]]></category>
		<category><![CDATA[chinese tactics]]></category>
		<category><![CDATA[guanxi]]></category>
		<category><![CDATA[US-China negotiation]]></category>

		<guid isPermaLink="false">http://www.chinesenegotiation.com/?p=829</guid>
		<description><![CDATA[If Chinese dealmakers are such long-term relationship builders, how come I just got dumped? Wham, Bam, Thank You American!]]></description>
			<content:encoded><![CDATA[<p><em>If Chinese deal-makers are such long-term relationship builders, how come I just got dumped? Wham Bam, Thank You American!</em></p>
<p>A Chinese negotiator approaches each deal with two options in mind. His Plan A is a win-win, long-term relationship that will bring him many profitable transactions over a long time. He knows that this will require a lot of time and effort, but this is the Chinese template for success, and he considers the investment to be standard operating procedure. It is simply the way they roll. Plan B is a one-off, win-lose transaction. While not optimal, normal business operations require plenty of non-strategic transactions. Since he doesn’t plan on seeing the counterparty again, he should maximize profit immediately. Often that means lower quality production, inferior materials and little or no service.<br />
<br />For a Chinese business person, the worst case option is investing lots of time building relations and educating a counterparty only to have the deal fizzle out and go nowhere. This is Plan F – as in failure. An experienced Chinese counterparty is continually assessing the situation, sensitive to any whiff of deal failure. A smart negotiator knows when to shift gears, and he’ll downgrade you from Plan A: Relationship to Plan B: One-Off in a heartbeat, without warning or explanation. In fact, if he’s worth his salt as a dealmaker he’ll disguise his tactic so you continue believe you are involved in a long term negotiation. It’s the best way for him to narrow his losses and recoup a portion of the time, money and opportunity cost he has already invested in this losing venture. He will view the failure to build and maintain a long-term relationship as either a betrayal or a disappointment – but either way it is on you. He just wants to salvage whatever he can and move on to the next opportunity.<br />
<br />What tips the scales to your detriment? It could be a lot of things, but the general idea is that you didn’t live up to your end. There are three general classes of foreign failure:</p>
<p style="padding-left: 30px;">1. You or your product offering were found wanting from the very first encounter. It was never a long term thing. Foreigners read these books and hire consultants who talk about guanxi and face. They think that all Chinese are master strategists playing a multi-layered, long-term chess game. Sometimes a Chinese guy just wants to buy or sell something. Sometimes they just want free technology or IP. If the western guy wants to believe that there is some kind of eternal bond between him and the Chinese counterparty, that’s his funeral.</p>
<p style="padding-left: 30px;">2. The Chinese side thought that there was something there, but it just isn’t working out. The westerner may not have the right temperament or character. He may be too crude, too aggressive, too impatient, too greedy or too stupid. Maybe the technology or product isn’t good enough or doesn’t fit the Chinese side’s business model. Whatever the reason, the relationship isn’t working and the Chinese negotiator needs to cut losses. That may mean a predatory transaction – or it may mean they simply stop returning calls or emails.</p>
<p style="padding-left: 30px;">3. Some partners outlive their usefulness. A good Chinese business person is always trying to close the gaps in his own knowledge and find ways to drive down costs or expand markets. Westerners who plan on charging perpetual rent for last year’s technology (that the Chinese side has already mastered) are greedy and naïve. Chinese deal-making is all about “what can you do for me tomorrow”. Westerners can get away with demanding the lion’s share of profits when they are providing interesting technology or methods that the Chinese side doesn’t understand – but they had better keep the innovation train rolling. When the new ideas stop, so does the relationship.</p>
<p>To a Chinese manager with a long-term perspective, it doesn’t really matter if your betrayal or disappointment occurs in the first five minutes or after doing business for years. They will downgrade you from value-adding partner to one-off pest as soon as the circumstances require it.<br />
===========<br />
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		<title>American Negotiating Culture – Through the Eyes of the Chinese Counterparty</title>
		<link>http://www.chinesenegotiation.com/2012/01/american-negotiating-culture-through-the-eyes-of-the-chinese-counterparty/</link>
		<comments>http://www.chinesenegotiation.com/2012/01/american-negotiating-culture-through-the-eyes-of-the-chinese-counterparty/#comments</comments>
		<pubDate>Mon, 16 Jan 2012 02:04:23 +0000</pubDate>
		<dc:creator>Andrew Hupert</dc:creator>
				<category><![CDATA[Americans Negotiating in China]]></category>
		<category><![CDATA[Negotiating in China]]></category>
		<category><![CDATA[Negotiating styles in China]]></category>
		<category><![CDATA[chinese negotiating behavior]]></category>
		<category><![CDATA[Chinese style]]></category>
		<category><![CDATA[Conflict]]></category>
		<category><![CDATA[US-China negotiation]]></category>
		<category><![CDATA[US-China relations]]></category>

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		<description><![CDATA[The American way of negotiating is not the only way, and the Chinese person across from you is struggling just as hard as you are to successfully manage the yawning gap between your cultures.]]></description>
			<content:encoded><![CDATA[<p>Attention American negotiators: Here at <a href="http://www.chinesenegotiation.com">ChineseNegotiation.com</a> we spend a lot of time discussing the various attitudes, propensities and quirks of Chinese negotiators – and heaven knows there are more than a few. But turnabout is fair play, so let’s take a moment to consider what we Americans are doing to our poor, beleaguered Chinese counterparties. Crazy as it sounds, Americans have a negotiating culture of our own, and other people have to contend with our peculiar negotiating style.</p>
<p>American cultural quirks that Chinese have to put up with:</p>
<ul>
<li>First and foremost – we are the only negotiating culture that leads with the lawyers. Europeans consider negotiation to be an exercise in diplomacy while Asians consider it the province of paternalistic company leaders to build lasting relationships. American negotiators – even when they are salesmen or purchasing managers – are fixated on contracts and legal institutions (like courts and regulations). Whereas traditional Asian negotiators feel that relationships are the key to business and that contracts are merely written records of agreements between individuals, Americans put more weight on the document than on the human bonds between business leaders.</li>
</ul>
<ul>
<li>We are the only negotiating culture that believes that liability can be assigned in advance through a contract. This is one of the many aspects of international negotiation that has become “normal”, but it still strikes traditional Asian negotiators as crazy that Americans consider contracts binding even as the market environment changes. Asian negotiators in general, and Chinese in particular, feel that as the external situation evolves, so must a business relationship. Many Chinese partners have been bewildered and disappointed when their American partner stated waving a piece of paper in their face instead of responding fairly and maturely to new market realities.</li>
</ul>
<ul>
<li>Americans believe that negotiations end. To Chinese, the negotiation is part-and-parcel of the business relationship. As long as the counterparties are still engaged in business, the negotiation is supposed to continue. What’s the point of taking the time to build a connection if you aren’t going to grow the relationship through continuous give and take?</li>
</ul>
<ul>
<li>Americans want to decide everything in advance and put procedures ahead of human decisions. Chinese (and most other Asian) negotiators understand that conflict and differences of opinion are inevitable, and their business agreements usually assume that the leaders or concerned parties from each side will work things out informally. American contracts, with their penalty clauses and rigid requirements, are not only insulting and arbitrary, but seem designed to undermine any kind of positive relationship.</li>
</ul>
<ul>
<li>Americans love deadlines, timetables and schedules, even when there is no business rationale for them. They can be arbitrary and illogical.</li>
</ul>
<ul>
<li>Most disturbing of all, American negotiators are adversarial and rude. We insist on running everything and taking control of situations that we don’t understand. We are famous for coming to China and trying to sell inappropriate products or services at ridiculous prices. Our technology and designs are nice enough, but we expect people to pay over and over for the same thing – even after their people have figured out how to make it themselves.</li>
</ul>
<p>I’m not proposing that we give up our way of doing things – and I certainly understand the value of contracts and compliance with regulatory codes. It’s important, however, to acknowledge that the American way of negotiating is not the only way, and the Chinese person across from you is struggling just as hard as you are to successfully manage the yawning gap between your cultures.</p>
<p>===========<br />
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		<title>Know Your Chinese Counterparty:  Competitive Negotiating Style</title>
		<link>http://www.chinesenegotiation.com/2012/01/know-your-chinese-counterparty-competitive-negotiating-style/</link>
		<comments>http://www.chinesenegotiation.com/2012/01/know-your-chinese-counterparty-competitive-negotiating-style/#comments</comments>
		<pubDate>Thu, 12 Jan 2012 01:01:48 +0000</pubDate>
		<dc:creator>Andrew Hupert</dc:creator>
				<category><![CDATA[Know Your Counter-Party]]></category>
		<category><![CDATA[Negotiating styles in China]]></category>
		<category><![CDATA[chinese negotiating behavior]]></category>
		<category><![CDATA[Chinese style]]></category>
		<category><![CDATA[Shell matrix]]></category>
		<category><![CDATA[tactics]]></category>

		<guid isPermaLink="false">http://www.chinesenegotiation.com/?p=804</guid>
		<description><![CDATA[Competitive-type Chinese negotiators are happy to see you walk away with no deal, but they hate the idea of you falling into the clutches of another Chinese business. ]]></description>
			<content:encoded><![CDATA[<p>Chinese Negotiating Styles:  Competitive Types</p>
<p>G. Richard Shell, in the brilliant <em>Bargaining for Advantage</em>, classified all negotiators as Competitive, Compromising, Accommodating, Collaborating or Avoiding.  If you care primarily about your own benefit and not at all about your counterparty&#8217;s, you are competitive.  If your concern lies mainly with your counterparty’s benefit (such as those who must negotiate from weakness) then your style is accommodating or yielding.  Those that believe in win-win, 2+2=5 deal-making are collaborators, while <a href="http://www.chinesenegotiation.com/2008/10/chinese-negotiation-trends-revenge-of-the-avoiders/">those that would rather not engage in any transaction at all are avoiders</a>.  Compromisers are more of a default setting, and many negotiators don’t consider it to be an independent style.  </p>
<p><a href="http://www.chinesenegotiation.com/category/negotiating-styles-in-china/ ">Chinese negotiators, with their attention to relationship building and harmony, are often mistakenly assumed to be highly collaborative</a>. In fact, Chinese negotiators have traditionally had great facility with the bottom two quadrants of Shell’s matrix – SOE managers and <a href="http://www.chinesenegotiation.com/2009/11/know-your-counter-party-the-chinese-bureaucrat/">bureaucrats display an avoiding style</a>  while price-cutting manufacturers and service providers who want a deal at any price are accommodators.  </p>
<p>But with great success comes great pride, and China has been VERY successful in the last decade.  They’ve imported much of the best of western business learning – and a few of the worst of our business habits.   Egos have been rising as fast as the GDP, and nowadays you are as likely to encounter Chinese competitors at the negotiating table as their American counterparts.</p>
<p><strong>American vs. Chinese Competitive Negotiators</strong><br />
An American competitor will lean forward and control as much of the table as possible.  His power comes from the things he says – be they threats or promises.  He is the battlefield commander, calling the shots and bringing the awesome firepower of his intellect to bear on the opposing forces.  </p>
<p>A Chinese competitor, in contrast, is the emperor of the boardroom.  He will sit back, turning his chair into a throne, deigning others to approach and present their case.  Control of access is his key strength.  He may not be able to decide who has physical access to his presence, but he can control what he says and to whom he says it.  These are the entrepreneurs, the engineers-turned-managers, and the party cadres whose definition of business skill often includes connections, corruption, IP theft and fraud. </p>
<p>The good news is that Chinese competitors tend to overestimate their own position.  They are easy to spot, and behave fairly predictably.  Considering how mysterious and withholding they consider themselves to be, the Chinese are actually pretty easy to read.  This style of Chinese negotiator likes to give the appearance of being able to endure any amount of pain, and would gladly see both of your fail rather than give up ground to the foreigner across the table.  He does, however, have a significant weakness.  While a competitive-type Chinese negotiator is happy to see you walk away with no deal, he hates the idea of you falling into the clutches of another Chinese competitor.  Plan in advance and neutralize his advantage.  </p>
<p>The bad news is that you are involved in a straight-up win-lose hypercompetitive relationship.  .  The chances of a one-off transaction with this kind of Chinese negotiator are fairly high, but the possibility of a strategic relationship are not.  Once you have made your deal, he is going to move on to the next victim.  These people are zero-sum gamers who want only two things from you – your assets and your absence</p>
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		<title>Failure is Always an Option in Chinese Negotiation</title>
		<link>http://www.chinesenegotiation.com/2012/01/failure-is-always-an-option-in-chinese-negotiation/</link>
		<comments>http://www.chinesenegotiation.com/2012/01/failure-is-always-an-option-in-chinese-negotiation/#comments</comments>
		<pubDate>Tue, 10 Jan 2012 02:00:14 +0000</pubDate>
		<dc:creator>Andrew Hupert</dc:creator>
				<category><![CDATA[Americans Negotiating in China]]></category>
		<category><![CDATA[Negotiating in China]]></category>
		<category><![CDATA[BATNA]]></category>
		<category><![CDATA[chinese negotiating behavior]]></category>
		<category><![CDATA[tactics]]></category>
		<category><![CDATA[US-China negotiation]]></category>

		<guid isPermaLink="false">http://www.chinesenegotiation.com/?p=796</guid>
		<description><![CDATA[In negotiation, failure is always an option.  If you know what you are doing in China, it can be a damned good one. ]]></description>
			<content:encoded><![CDATA[<p>Let’s take momentary break from the usual pursuit of best practices in US-Chinese negotiation and speak for a moment about worst practices.    I am referring to the idea that “failure is not an option” (FINAO) when pursuing a deal.   For negotiators who know what they are doing, failure is not only an option – sometimes it is the only option.  One of the hallmarks of modern negotiating is the concept of <a href="http://www.chinesenegotiation.com/2011/01/chinese-negotiating-best-practices-the-chinese-batna/">BATNA – best alternative to no agreement </a>.  This is what empowers a good negotiator and underpins sensible negotiation strategy.   If you can’t decide when to walk away then you are a price-taker, which is not a good position to be in when doing a China deal.  </p>
<p>	Back home in the US, we generally encounter FINAO syndrome among hard-driving young salesmen and financial broker-types who don’t understand how much damage they are doing to their reputation by make every deal a life-or-death struggle and every prospect a mortal enemy.  In China FINAO syndrome usually afflicts senior managers who are new to cross-border deal making.  A combination of high expectations from HQ bosses and lack of experience finds China novices latching on to the first counter-party who can speak English.  They spend all of their time trying to make an inappropriate deal work in an unfamiliar environment.   The more resistance they run into, the more vested they become in forcing this particular deal through. </p>
<p>	Sometimes the most important negotiation is the internal one.  If your HQ is working with a bad set of assumptions and demanding that you deliver on goals that aren’t appropriate for China, you are setting yourself up for disaster.  The second worst thing that can happen to you is that your Chinese counterparty gets frustrated and walks away.  The worst thing that can happen to you and your career is that your Chinese counterparty figures out exactly what is going on, and signs a deal that is bad for you – or would be good for you in theory, but he doesn’t plan on delivering.  In China there are always two negotiations – one about the contract and one about the actual business.  FINAO guys do a great job with the first one – and get slaughtered like sheep on the second one.  </p>
<p>  	The best China negotiators know how and when to walk away.  They take the time to give themselves options – which includes preparing alternate counter-parties and business models in case their Plan A falls through.  But even more important, they take the time and effort to build support with the higher-ups in their own organizations.  Good Chinese negotiators will know when you are afraid to go home without a contract, and will make you pay for it – either now or later.  </p>
<p>In negotiation, failure is always an option.  If you know what you are doing in China, it can be a damned good one.<br />
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		<title>Comparative Negotiating Styles 101:  US and Europeans in China</title>
		<link>http://www.chinesenegotiation.com/2012/01/comparative-negotiating-styles-101-us-and-europeans-in-china/</link>
		<comments>http://www.chinesenegotiation.com/2012/01/comparative-negotiating-styles-101-us-and-europeans-in-china/#comments</comments>
		<pubDate>Thu, 05 Jan 2012 02:03:35 +0000</pubDate>
		<dc:creator>Andrew Hupert</dc:creator>
				<category><![CDATA[Americans Negotiating in China]]></category>
		<category><![CDATA[Negotiating in China]]></category>
		<category><![CDATA[Negotiating styles in China]]></category>
		<category><![CDATA[chinese negotiating behavior]]></category>
		<category><![CDATA[Chinese negotiating style]]></category>
		<category><![CDATA[Chinese style]]></category>
		<category><![CDATA[European negotiating style]]></category>
		<category><![CDATA[US-China negotiation]]></category>

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		<description><![CDATA[The key to successful Chinese negotiation is to start out cordial but non-committal.  As the Chinese say, it is best to have many girlfriends but no wife.]]></description>
			<content:encoded><![CDATA[<p>Negotiating styles in China.</p>
<p>Americans, Europeans and Chinese negotiators can all reach great deals, but their approaches and styles differ.  One is not necessarily better than the others, but each style of negotiator has to align with the prevailing environment and set appropriate goals.</p>
<ul>
<li>Americans are take-charge aggressors. They want to control and lead everything.</li>
<li>Europeans are diplomats.  They build networks and exploit niches.</li>
<li>Chinese are manipulators.  They like to build relationships &#8211; often from a position of apparent weakness &#8211; and later shift the balance of power to their advantage.</li>
</ul>
<p>American deal-makers in China like to start out from a position of strength, which some negotiators equate with power and toughness.  Their plan is to intimidate early and then become nicer and more cooperative later on, as a concession.  To Americans, the relationship is the reward.  Unfortunately, this often triggers aggressively competitive behavior from the Chinese side, since they interpret the initial American position (aggressive tough-guy) as a rejection of Chinese relationship-building overtures.  Even though the American plans on ending up with a cordial relationship, it can be hard to put this train back on track if there is a misunderstanding in the early days.</p>
<p>Europeans in China have the opposite problem.  Natural networkers, Europeans are quick to make concessions to build a connection. This pliability on key issues is often interpreted as a sign of weakness, and once the conceding begins it is difficult to put on the brakes.  Chinese negotiators may feel like they are driving the relationship and will become more competitive and demanding.  Europeans will do more deals, but at less advantageous terms than might be possible.</p>
<p>Europeans see themselves as occupying a position midway between Chinese guanxi-builders and American dominators, but Chinese see them as American-lite.  Europeans in China do build better networks, though, mainly because they plan for and invest in them as a matter of strategy.  They send younger people over for longer postings.  Americans would rather buy or bully than build, and tend to make up a plan as they go along.  They see themselves as nimble and resourceful, while the Chinese tend to see them as unprepared.</p>
<p>The key to successful Chinese negotiation is to start out cordial but non-committal.  As the Chinese say, it is best to have many girlfriends but no wife.  Americans tend to do the opposite. They like to talk tough and play hard-to-get during courtship, but beneath the surface are as monogamous as the Puritan stock from which they spring.  This gives them the worst of both worlds – putting them in a weak position with a monopolistic service provider.  Americans could learn from the Europeans, who try to put Chinese on their back foot by committing early to a relationship in principle, but being vague about timetables and promiscuous about relationships. </p>
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