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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Chinese negotiators are not particularly risk averse.  In some cases, they seem to go out of their way to take risk.   What they hate is uncertainty.  If they don’t see all of the pieces to the puzzle, they hold off.   If all the pieces fit together to show a risky situation, he may take the deal and he may not.  

If you tell a Chinese counterparty that venture X has 30% chance of paying off, but that he can expect returns of Y if it is successful, then he will consider it – even though you might feel it’s too risky.

If you tell a Chinese counter-party that the chances of venture X paying off are unknown, then he probably won’t proceed no matter what the payoff.  

Chinese attitude towards risk when the parameters are known (or at least seem to be known) probably skews a bit higher than the average western businessperson.  Westerners – particularly Americans – seem to do better with uncertainty.  

Chinese negotiators don’t like working in the dark.  American negotiators will develop work-arounds, incremental strategies or make best-guess projections based on what they do know.  This drives Chinese negotiators nuts – they think it’s crazy to proceed when you don’t know exactly where you’re going.   The Chinese counter-party – when confronted with unknowns or uncertainty – usually opts to wait until the situation becomes clarified.  If they can’t gather new information themselves, then they will often choose to wait until the environment shifts and makes the situation less uncertain.  This drives American negotiators nuts – they think it’s crazy to stop making progress and give up momentum for no reason. 

The misunderstanding grows worse when both sides start talking to each other about RISK when the real problem is UNCERTAINTY.  Remember – risk refers to the probability of an event occurring (though some definitions encompass the degree of loss).  Uncertainty refers to whether or not parameters and probabilities are clearly and accurately understood.  There’s an excellent chance that you and your Chinese counter-party are talking about two completely different things when you are throwing around the word, “risk”.   If you back up a little and discuss your situation from a broader, less opaque point of view, you may find that you and your Chinese counter-party aren’t as far apart as you had thought.  

There is always the danger of misunderstanding between any two parties in a negotiation.  The risk of uncertainty is much higher when you are negotiating in China.

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