Preparing for the Process

Negotiating with the Chinese can be hard enough — you don’t want to make it any harder by not being prepared. Getting your team together beforehand to prepare for the negotiations is sure to improve your chances of success.

Most people going to China from outside Southeast Asia are very jetlagged when they arrive. We recommend that you don’t get involved in important negotiations during your first few days in China. Also, plan to stay long enough during your trips to China. You need more time to get things done the Chinese way.

Organizing your team

Here are some aspects to consider when deciding who should be involved in negotiations:

✓	Leadership: The Chinese like to deal with a single leader, so have the most senior person from your company represent you as the leader at the negotiating table. He or she should have authority to make decisions. (For more information on Chinese business meetings, go to Chapter 11.)
✓	Head count and role call: Bringing the right skills to the table is highly important. In the beginning of discussions, your technical people need to be at your side. Also, being underrepresented may give the Chinese the impression that you’re not serious, so be sure that you bring along other experienced team members as well.
✓	Consistency: The Chinese don’t like changes in your negotiating team. You may need some technical representatives for part of the discussions, but having a core team that represents your company through it all is best. Try to have the same company leader from start to finish. At least one of your company representatives needs to be at all the meetings so that one or more people know the history of the entire negotiation. This move protects your company from any false claims from the Chinese that you agreed to something previously.

Assemble your team before any meeting takes place. Go over the progress so far and goals for the meeting. You can also discuss what concessions you’re willing to trade off. And remember to discuss what trade-offs are absolutely nonnegotiable with your team.

Developing trust and then doing your bargaining

Through all the negotiating, the Chinese are still trying to figure out whether they want to do business with you and your company. You need to convince the Chinese that you and your company are committed to the Chinese market and to working with them as a trusted partner. Demonstrate that you’re open and honest, and take the time to get to know the representatives from the Chinese side on a personal level.

Reputation is extremely important, so you need to prove to the Chinese that you and your firm are reputable. Give real-world examples where your firm has lived up to its commitments, and allow the Chinese to check out your existing business relationships so they can get a good idea of how your firm does business. Better yet, if you’re lucky enough to already have some successful relationships in China or Asia, use these contacts as references.

You can also build trust by hosting a small group of your Chinese counterparts at your company’s headquarters or arranging for the Chinese to visit your place of business back home. The Chinese generally like overseas business travel and are impressed that you think highly enough of the relationship to invite them. Obtaining a visa for visiting Chinese can sometimes be problematic in certain countries, so plan accordingly. U.S. companies that belong to an American chamber of commerce in China may be able to take advantage of a program to expedite visas for their Chinese guests.

Considering how best to divide the pie

A Chinese CEO of one of the largest privately held Chinese companies recommends that foreign businesspeople not negotiate with the Chinese. In his mind, “negotiation” implies a zero sum mentality — that in order for you to win, the Chinese side must lose. Instead, he suggests that you consider how to divide the pie with them so that both sides win. In other words, think about how best to distribute the benefits of a commercial relationship with the Chinese. The Chinese certainly do expect their fair share. (For more on mutual benefit, go to Chapter 11.)

Finding out what the other side needs the most makes negotiating a lot easier. Here’s a list of Chinese counterparts and what they may be looking for:

✓	Government officials: They normally want benefits for their city or region. They want new factories that produce new jobs and more taxes.
✓	Businesses: They’re typically looking for new technologies that can improve their position in their home market or export market.
✓	Service industries: They’re looking for know-how from the West so they can be more competitive in a quickly deregulating business environment.

Appealing to SOEs and private companies State-owned enterprises (SOEs) and private Chinese companies often look for different benefits. You have to adjust your negotiating style (and possibly business plan) for each group: ✓ SOEs are often focused on protecting or creating jobs, so in many cases, they’re not that interested in efficiency. They also like to do deals that help them achieve political business goals (such as “green development”). ✓ Private Chinese companies are very bottom-line focused, and they value many of the same things that their Western counterparts do — profits, efficiency, and so on. SOEs have a tough negotiating style for two reasons. First, they possess many of the country’s best assets — and they know it, so they’re aware of their leverage. Many of them also take their charge to protect the value of those assets very seriously, so they proceed cautiously to make sure that they’re not getting a bad deal. This process often involves a good deal of internal approvals. Because private companies haven’t had access to those prized assets, they’re much more efficient — including in negotiations. Their decision-making is usually centralized with the largest shareholder. Unlike SOEs, the owner/largest shareholder can usually approve a deal with a good deal of speed, if he or she is so inclined.

The Chinese take a lot of pride in their country, so they like to be assured that your relationship will not only bring business benefits to them but also do something good for China. For example, if you’re acquiring a poorly performing company in China and taking on pension liabilities, you can emphasize that your company will guarantee to honor future benefits for retirees, which is something the current owners may not be able to do.