But reaching the signing ceremony is getting tougher and tougher. Chinese deals almost always involve an element of policy, and China’s bureaucracy requires that international negotiators adopt a new set of rules.

What do the heavy-lifters of international negotiation have to say about reaching the contract-signing ceremony milestone in China?

1) Persistent.
They were all told it was impossible — that there was no way, no how, no chance. Persistence in China is about long term patience and composure – not threats or horse-trading. I remember the first time I put this lesson to work – long, long ago when the Portman Shangri La was the only hotel that international business people stayed in and one’s travel options were much more limited than they are today. An uncooperative concierge told me that the flight I wanted was booked and that there was nothing he could do. Instead of getting confrontational, I got comfortable. I took off my jacket and hung it on the back of the chair, put my bag down and settled in for a long conversation. As soon as he saw that I was neither leaving nor providing the adrenaline rush of a good barbarian throw-down, he quickly started supplying me with other options. I got to Beijing in time – which wouldn’t have happened if I had been issuing ultimatums or complaining. Persistence in China means becoming a very dull but not unpleasant part of your counter-party’s environment. If you go away when they tell you ‘no chance’ you’ll end up with nothing – but if you try too hard the discussion will quickly escalate into an emotional dispute. Your Chinese counter-part will enjoy a few moments of high-energy exchange, and then quietly and permanently check you off his ‘to do’ list. Westerners who get emotional, desperate or nasty are not deemed appropriate long term partners, and the initial ‘mei you ban fa’ – there’s nothing we can do’ is simply Chinese due diligence. If you don’t have the sense or smarts to try again, then you probably don’t have the resolve and maturity to be a serious business collaborator.

2) Innovative.
When Westerners describe innovation, they are usually talking about product innovation – the creation of new businesses, products and services to meet existing challenges. Chinese aren’t great at innovating products or brands, but they are masters at process innovation – figuring out new ways of getting jobs done. When Westerners view the Chinese government, we tend to see a single monolithic entity. We assume that the Ministry of Issue A has sole responsibility for Issue A and no other responsibilities. So when the representative of the Ministry says, ‘no’ our only hope is to get him to change that to a ‘yes’. Chinese dealmakers take a different approach. They are constantly looking for new contacts and revisiting overlooked branches of their network to find channels of access, potential supporters and previously unknown relationships. Competent Western deal-makers pursue the same track, believing that every time a door gets slammed shut a window is nudged open. By amassing a wide range of indirect contacts, the negotiator can eventually build a powerful network that maintains the kind of gentle but constant pressure that works on Chinese decision-makers. The successful Western negotiator in China never passes up an opportunity to add to his quiver of contacts and influencers, even if they don’t seem too useful at the moment.

3) Attention to process.
You can’t pressure the Chinese bureaucracy, but you can be ready, willing and able to move when the policy environment shifts in your favor. Winners in China play many angles in a battle of careful inches, and avoid bold dramatics that force a quick answer. The Westerners who succeed in negotiations with the Chinese conduct a concerted, serious, dignified effort that is consistent over a long period of time. When the right circumstances arise, these Westerners are aware of the situation and prepared to act quickly. Americans tend to be poor at the process element of the Chinese negotiation, while Europeans with their history of coalitions and network-building are a bit more astute. The Chinese process of deal-making looks chaotic and irrational to the newcomer, but there is a logic and order to it that remains strong even during times of great structural stress. Trying to take shortcuts, forcing decisions or aggressively taking control of the process will almost always end badly. You can’t change the Chinese regulatory and political environment, but you can monitor it and prepare in advance for the window of opportunity whenever it may arise.

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

Stay Connected to ChinaSolved / ChineseNegotiation.com:

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

ChinaSolved / ChineseNegotiation.com mailing list

Follow on twitter: @chinasolved TWITTER blocked in China

“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

—————————————
—————————————

Stay Connected to ChinaSolved / ChineseNegotiation.com:

Follow on twitter: @chinasolved TWITTER blocked in China

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

Two cross currents in Chinese negotiation tend to confuse western negotiators – even those who have been around for a long time.

Chinese negotiators seem very polite and cordial to westerners – even to the point of being obsequious at times.  They really seem interested in learning about you and your business and household life.  They will bend over backward to try to accommodate you. 
But the moment negotiations start things may suddenly turn hostile, surly and competitive.  They can become be insulting and belittling and thoroughly unpleasant.

Is this a subtle form of racism or anti-western feeling?  You wish.  The odds are that they are even worse to other Chinese. 

This is where two cultures clash – but it isn’t Chinese-Western.  It’s modern Chinese vs. traditional Chinese.  In the old days, deals were either done with family or friends (for no profit) or with strangers for as much as they could get. But overlaid upon this traditional negotiation mind-set is the now popular notion that modern companies conduct win-win negotiation.  Since China opened to the West, experts and returning Chinese have chided and berated China organizations to pay more attention to long term relationships, brand-building and developing a  positive reputation.

The result is talking win-win but walking win-lose. 

In the long run, this will probably lead to a fairer, more transparent, more equitable negotiating environment.   In the short-run, it leads to a confusing situation where Chinese counter-parties talk one way before the negotiation – but another way during. 

Like many other things in China, this situation is complicated by success.  The Chinese have noticed that talking win-win but walking win-lose can be extremely effective.  That means that they’ll keep it up until something better comes along.  And that’s where you come in.

Information is power – but only if you use it the right way.  You know the plays but that doesn’t mean you’ll be able to block their moves.  The wolf in sheep’s clothing still has claws and teeth.  What can you do?  Try these best practices:

• Don’t rely on your counter-party for basic information or arrangements until you know that you can trust them – usually about 6 months after you’ve retired.
• Maintain a healthy range of counter-parties.  If you only have one channel of price or market information, then you are a sitting duck. 
• Don’t be taken in by kind words, flattery or promises of undying love & devotion.  It’s tough setting up deals in China, and we tend to cling to our hard-won progress even when we shouldn’t.  These guys are in business.  They don’t love you – they love your money, technology and IP.
• Control your own schedules and timetables.  If you really can’t make a hotel reservation, get from the airport to downtown or hire a car, then maybe China isn’t for you.  Your counter-parties are very eager to help you with arrangements – because that way they can control the timing of every aspect of the negotiating process.
• Know when to walk away.  If your existing counter-party isn’t the guy for you, then keep looking.  No one gets more honest after they’ve already taken you for a ride.

How do you deal with this? 

1) Make the initial negotiation about information.  Find out who makes the decision, what they care about, who your competition is, and what their boss’ goal is.   Your negotiating partner may be willing to give you lots of useful facts and figures.  I’ve had people tell me exactly how I should structure my proposal so it had a better chance of success.  But you should also expect to run into your share of tight-lipped, anally retentive jerks as well.  There are 1.3 billion Chinese people, and every single one is different.  Take your shot at building a rapport, but don’t count on it.    

 
2) You are may be dealing with a low-status person who can’t make any important decisions.  Accept it, and act accordingly.  Either use him as a conduit to the hidden decision maker, or call it a day and go home.  Don’t waste your time arguing, cajoling and getting worked up.  It’s not his fault – he would probably love to engage in a genuine negotiation with you if he could. 

 
3) Gather as much information as possible and face the facts that you will probably be walking away from this one.  There’s a reason Chinese companies use this strategy, and it’s not so that they can raise your comfort level and build long term, win-win relationships.  They do it because it’s an effective way to gain a one-off advantage and evade responsibility.  The customer service and quality at these places probably isn’t that great – and they are a real pain to try to collect from if you are the seller.  Good thing you found out early.

 
4) In the end, your only leverage may be making the counter-party lose face.  They don’t care about profit or deal terms – they care about what their boss says.  If they have to tell the boss that the Great White Whale has gotten away, it’s going to make them look terrible.  This is not a great option if the person sitting across from you is a decent person, but your not here to make friends. 

 
5) Have multiple counter-parties.  Don’t let one uncooperative counter-party control your schedule.  Take your time and find acceptable alternative partners.  The person you are trying to negotiate with may not be helping you get the deal with HIS company, but he may help you get the deal with someone else.  He will explain to you what the market is like, what quality levels you can expect, what general price levels you can expect and what your baseline deal terms are. 

Many of my more successful negotiations have taken place while I had one foot out the door.  You don’t have to make it personal.  Practices this phrase until you know it by heart and can say it while faking a smile, “Unfortunately we wont’ be able to do business this time, but maybe at some point in the future our situations will be different.” Then start walking.

The key to successful negotiating in China is to gather as much information as possible.  Don’t get emotionally involved with a deal by feeling that you have already invested so much time and energy to get as far as you did that you become unwilling to walk away.  Remember – no one in China gets more cooperative after the money changes hands.