Practicing the Chinese Art of Negotiating

Negotiating with the Chinese is a combination of hard-nosed bargaining, relationship building, and banqueting. When negotiating with the Chinese, being polite, understanding, and respectful of the cultural differences is extremely important; however, you also need to be a skilled negotiator to keep up with your potential new partners.

Although your Chinese hosts are incredibly hospitable, you can expect your counterparts to be very smart and demanding at the negotiating table. This section explains how the Chinese think and act when dealing with foreigners.

After many attempts to get to an agreement, you may find that you can’t conclude a satisfactory deal. Don’t be afraid to walk away from a bad deal. If you’ve been negotiating for about a year, you’re probably at the end of your rope. Make sure you let the Chinese know from the beginning that you’re responsible for looking out for the best interests of your company — even if that means not reaching a negotiated agreement with them.

Thinking like the Chinese

Thinking like the Chinese is a good way to get an understanding of their negotiating strategies. This section explains some Chinese perspectives.

Developing a relationship is most important

Many Westerners negotiating in China emphasize getting a contract signed; however, the Chinese believe that developing a relationship is the primary objective of any negotiation. Foreign businesspeople tend not to fully understand the importance that the Chinese place on relationship building.

First, the Chinese need to be satisfied that a good long-term relationship with your company is possible. They consider criteria such as

✓	The people who represent your company
✓	The way you conduct business
✓	Whether you do what you say you’re going to do
✓	The success of your company in the international market
✓	Your company’s reputation

Only then do they ask themselves, “Are you the right partner? Can I do business with you over the long term?” (For more about relationships, go to Chapter 15.)

Sometimes you may feel like the Chinese don’t trust you. Some people say the suspicion has to do with the past abuses by foreign powers in China (see Chapter 3 for details). Whatever the cause, the Chinese need to be comfortable in dealing with you before they begin any discussions “Developing trust and then doing your bargaining,” earlier in the chapter).

The Chinese often don’t believe that the signed contract defines the agreement. Many times, they think that the contract is just a snapshot of what was agreed to then and there. (For more on contracts, go to Chapter 18.) Be prepared to hold the Chinese feet to the fire if they don’t perform their obligations according to the contract.

Sometimes the Chinese try to have it both ways. When the snapshot view benefits them, they may tell you it’s only a snapshot. However, if you try to play the game the same way, don’t be surprised if they expect you to adhere to the letter of the contract! For info on strategies, see the upcoming section titled “Navigating Chinese negotiation tactics.”

Haggling is expected — and kind of fun

The Chinese like to haggle about everything — it’s part of their culture. They bargain over the price of fish in the market. They squabble over the discount on the purchase of a washing machine. In their daily lives, they wrangle over most everything they buy. So don’t be surprised when the Chinese want to negotiate all the nitty-gritty details of the deal with you.

Navigating Chinese negotiation tactics

The Chinese use some common tactics in negotiations. We explain some of these tactics so you’re ready to negotiate from a position of strength.

The Chinese like to take their time when starting up negotiations, so don’t get down to business right away. Take your time by making small talk for a while. (For more information about business meetings, go to Chapter 11.)

The setup: Accusing you of violating the guiding principles

The Chinese usually open negotiations by thoroughly explaining broad guidelines for the discussion — its guiding principles. For instance, the Chinese often emphasize that “mutual benefit” will be one of the guiding principles. In this way, they set up the expectation that any negotiated agreement will be fair to the Chinese side.

Pay careful attention to what the Chinese tell you during the start of any negotiations. They explain to you at length what their expectations are. They often use broadly worded statements that give the Chinese flexibility in interpreting them the way they want. Later, they continually refer back to these principles and try and use them to their advantage.

After setting the stage, the Chinese finally get to the details. At some point, they don’t like what your side proposes. They say what you’ve suggested violates the spirit of the guiding principles that they so carefully explained to you in the beginning. You’re not living up to your end of the deal.

Shame on you for trying to pull a fast one on the Chinese! Now you’ve created a problem, and you have to fix it. This Chinese negotiating tactic is classic: They try to make you feel guilty about how you’re negotiating with them. Their hope is that this tactic triggers the response they’re looking for. You guessed it: concessions from your side! You need to remind them that “mutual benefit” (or any of their other open-ended principles) is a two-way street.

You, too, can play the game the Chinese way. If they lay out their guiding principles, you can do the same. The Chinese should get the idea that the discussions need to be more balanced.

The demand: Asking for the moon

A favorite Chinese tactic is to make outrageous demands. The Chinese can put on quite a performance. With a straight face, they ask you to pay for all the business insurance costs because the Chinese say they’re not necessary. Or they ask to be your exclusive distributor in perpetuity. Or they want you to pay for all expenses involving expatriate costs. Their attitude seems to be that there’s no harm in asking.

When the Chinese do make an outrageous request, they generally see a slim chance of getting what they’re asking for. By setting the bar so high, the Chinese have more room to negotiate a better deal for themselves. The Chinese put an obligation on you to come up with something closer to what they’ve asked for — not a bad negotiating tactic if you can get away with it.

Leave yourself some wiggle room in your position in case you need to make some concessions. But after you reach your bottom line, say no (see “Saying no the Chinese way,” later in this chapter). And maybe say it several more times! If you don’t, you can expect the Chinese to ask you to cough up even more concessions.

The better offer: Threatening to go to one of your competitors

The Chinese like to create competition for their business by negotiating with several foreign companies at once. The message is that if the Chinese can’t work out a deal with you, they’ll go to one of your big competitors, often in Germany or Japan.

Talk to several potential Chinese business partners about possible cooperation, and the people you’re negotiating with will have to compete for your business as well. Bargaining in China is difficult, and reaching a negotiated agreement can be highly unpredictable. You have plenty of partners to choose from, so make sure you take the time to find the right one.

Divide and conquer: Pointing out your inconsistencies

One negotiating tactic is to try to divide and conquer the visiting foreign negotiators. The Chinese look for inconsistent messages or points of view from your negotiating team. If you’re giving mixed signals to the Chinese by offering multiple approaches or proposals, the Chinese may seek to exploit them to their full advantage. Therefore, careful cooperation and teamwork are necessary. If one of your subordinates makes a misstep in judgment, your leaders can tell the Chinese that the employee didn’t know what he or she was talking about. However, this tactic causes your subordinate to lose face to the Chinese, which you should consider before acting.

Look for the same openings the Chinese do. If you find contradictions from the Chinese side, try to use them to your company’s advantage.

The clock: Outlasting your patience or citing deadlines

When the Chinese take their time explaining the broad principles guiding the discussion, you may start to grow restless. You start looking at your watch. Your flight home leaves in two days, and you feel like the discussions have just started to move forward. Whenever you begin to push things along and get into the details, the Chinese circle back and continue to talk about their expectations.

The Chinese often use the clock as a negotiating tool. To them, most foreigners seem to be in a rush to get a contract signed or a deal done, so the Chinese deliberately try to control the timing and progress of the negotiations. The waiting game that the Chinese play really wears down most foreign businesspeople, and your counterparts know it. Negotiating a complex agreement in China may take as long as a year.

The Chinese also may pressure your company into making concessions by rushing you. They inform you of a deadline — sometimes just a week away. They insist that the agreement be completed by a certain date. Often, they say that the government officials who’ll be signing the agreement are available to do so only on a particular day. For visiting foreign businesspeople, knowing whether the Chinese message is fact or fiction is difficult.

Here are some tips for working with the clock:

✓	Leave plenty of time in your schedule for negotiations, and never reveal any internal deadlines your company may have on any China-related project.
✓	Set deadlines with the Chinese, and keep trying to push things along. Tell your Chinese counterparts that your company has a certain number of days to work on this very important project.
✓	Organize the agenda in a way that addresses the important issues early.
✓	Gain a home-field advantage by having the Chinese negotiate at your headquarters.
✓	A potential partner who abuses the clock in negotiations may be quite difficult to work with throughout your relationship. In that situation, consider looking for a new partner.

Taking the time to get it right

Some people say that negotiations in China have a beginning, a middle, and never seem to end! As we discuss in Chapter 11, both sides need patience when doing business in China. Here’s why your Chinese counterparts may be taking their time:

✓	They’re using the time wisely to make sure the deal is done the correct way, even though you keep checking your watch — and calendar! They’re willing to go slowly in the beginning to ensure that everything will work out in the long term.
✓	They’re concerned about losing face (for more about face, go to Chapter 11). They don’t want to risk getting embarrassed by putting together a bad deal, so the Chinese negotiators take every precaution — including as much time as they need — to make sure the deal is a good one.
✓	The person you’re dealing with doesn’t have the power to make a decision on a particular matter and needs to seek approval from someone else. This is often the case with SOEs, which use a decision-by-committee process. As a result, internal approval at SOEs often takes more time than it does with private companies.
✓	The Chinese are using the delay as a negotiating tool (see the preceding section).
✓	The Chinese side is sorting out internal issues among themselves. (For more on Chinese style of consensus management, see Chapter 11.) When the Chinese specifically say there’s no problem with the way you want to proceed, there usually is one. When you hear the expression mei wenti (pronounced may one-tee), which means no problem, dive deeper into a discussion to look for any problems.

Although deal-making usually takes longer in China, negotiations can also speed up unexpectedly at times. Perhaps one of the Chinese government officials wants to conclude the deal by a certain date to look good with the big boss. If you’re pleasantly surprised with the pace of the negotiations, keep the momentum going on your side, too.

If the businesspeople you’re dealing with in China really want to do things in a hurry, trouble may be lurking around the corner. Be careful that you’re not exposing your company to some scam. China doesn’t have a lot of transparency concerning company information, so use every source at your disposal to thoroughly check out your business partner before agreeing to anything. For more on due diligence, please see Chapter 17.

Exchanging information

Often, impatient foreign negotiators reveal their hand before the Chinese show any cards. Don’t give any specific information to the Chinese side about your company’s negotiating position, and don’t provide any detailed proposals to the Chinese in hopes of jump-starting the negotiations. Don’t tell them what the venture, deal, or arrangements can or should look like. And don’t let down your guard under pressure to explain your proposal.

You can give the Chinese side information about your business — as long as you don’t give away any proprietary or confidential information. For example, you can tell them how your company is structured and the types of products you make. You simply don’t want to go into details of what makes up your product. For example, you don’t want to tell them the secret formula for your line of soap products. And don’t give them samples of your products if you think reverse engineering them is possible.

The Chinese expect you to give away a lot of information. They ask for detailed explanations as if they know nothing about your business. But in the beginning of negotiations, they’re not usually very willing to tell you much from their end. If the negotiations go well from a Chinese perspective, they’ll begin to share appropriate information with you. As a general rule, expect them to provide you with as much information as you provided them. Before the start of negotiations, you can gain more information about the company and its business from the marketplace. See the upcoming “Using intermediaries effectively” section for advice on how to find information the right way.

Keeping track of all the details

Capturing the details of what goes on in all your negotiations with the Chinese is a must, so take detailed notes. You’ll likely need to bring up past discussions during the later stages of negotiating. The Chinese keep very accurate records of conversations at your meetings, and they’ll be sure to recall any significant statement your company makes — especially where they find inconsistencies in what your team suggested.

Note-taking is also a good signal to the Chinese that you’re as serious about the negotiations as they are and that you’re not losing sight of what’s important. Of course, you need to take notes only at formal business meetings.

Also consider taking a timeout when negotiating with the Chinese — simply pause to reinforce what’s been agreed to so far. That way, you can avoid covering old ground in the future and avoid possible deal-breaking misunderstandings.

Have the points that have been agreed to so far put in English and Chinese right away. Get both sides to agree to them in writing. You can then move on to the next stage of discussions.

Saying no the Chinese way

Because the Chinese are very concerned about causing anyone (on either side) to lose face, they don’t like to use the word no during negotiations. (For more about face, please go to Chapter 11.) The Chinese are worried that they may offend you by sounding too negative, so they say no indirectly — “this may be a bit difficult” or “this could be a problem for us.” Foreigners sometimes assume they’re making progress when the Chinese are really rejecting the idea. You need to appreciate that hinting at a no is a refusal.

Don’t be afraid to say no to the Chinese — they’re used to hearing foreigners respond this way — but try softening the tone a bit by making it more polite and subdued. Perhaps the best way to say it is “this may be difficult.” They’ll respect you more if you deliver the message less directly.

Treating anger appropriately

Chinese negotiators used to rarely display anger — it’s a violation of Confucian principle. In those situations, foreigners would’ve done well to be similarly reserved. However, like many cultural rules, this provision was a bit more relaxed for foreigners. Today, Chinese negotiators commonly make a show — at least one time — of losing their tempers. This idea is particularly true when you’re dealing with the owner of a private company.

If the Chinese side shows anger, the chances are that it’s as much for theatrical value as anything else. The key is to keep your composure. Don’t worry that you may have gravely insulted Mr. Zhu in a way that’s never happened before. Try to show a little concern, but don’t fall for any suggestion that you have to work hard to make it up to him.

If the need arises, you can show your temper as well. Because the anger display has more significance in Chinese culture (again, being contrary to Confucian teachings), you want to save it for when it counts. But when you really want to make a point — especially if you’re genuinely angry — don’t be afraid to show anger. Try not to go overboard for the context, though. If your counterparty seems to be more reserved, don’t lay in too much. If he or she is a bit more mercurial, you have greater license.

When showing your temper, don’t make it personal and cause somebody to lose face. In other words, avoid using you too much. Use phrases such as we were told rather than you said. However, you can make an exception if you’re personally insulted. For example, if somebody on the other side constantly interrupts you or essentially tells you that you don’t know what you’re talking about, such actions would rise to the level of a personal insult worthy of a personal response.

In general, you want to stay away from getting drawn into mind games of when to show anger — it only complicates the discussions. Although a display of anger can be part of the process, make sure you and your team remain professional in your dealings with the Chinese. Don’t spend time deciding when and how to get angry.

Using intermediaries effectively

Using intermediaries can be a constructive way to communicate with your Chinese counterparts. It’s not as common in China today as it once was, but when you’re dealing with the government and/or government businesses, using an intermediary does have its advantages. The intermediary often works behind the scenes after the most recent formal negotiating session is complete.

The Chinese sometimes use intermediaries to get important messages to you. They may prefer to have someone else ask you a difficult question, or they may not feel comfortable speaking to you directly on something because they don’t know you well enough yet. After the relationship is more developed, you likely won’t need to use an intermediary as much. The intermediary usually delivers any messages to your side’s senior leadership in a face-to-face private meeting.

Sometimes, using an intermediary can provide you with information that the Chinese side hasn’t revealed. Intermediaries can help you figure out what the Chinese negotiating position may be. The intermediary can also signal your intentions to the Chinese.

Consider using an appropriate person whom both sides know well as the go-between during your negotiations with the Chinese. If you were first introduced to the Chinese company through a personal connection, whoever made that introduction may be useful as an intermediary with your potential partner.

Don’t trust an intermediary too much. If anything, he or she is likely to favor the Chinese side. Therefore, don’t let the intermediary know your bottom line. Also, take certain things the intermediate says with a grain of salt — particularly if he or she is communicating a ridiculous demand from the other side and telling you it’s the only way to get the deal done.

Making concessions

The Chinese expect you to make significant concessions for the opportunity to work with them. They insist that they’re willing to make concessions, too. This statement is usually just a way for the Chinese to get your side to make further concessions, not to favor your company in any way.

Your company can play the tit-for-tat game, too. You should have plenty of minor concessions you can give the Chinese in return. For example, you may agree to have the Chinese language version of an agreement appear first, with the English version second. (Note that this concession doesn’t refer to controlling language, which we discuss in Chapter 18.)

The deals that the Chinese offer are usually small and not very meaningful. But they like to tell you that these concessions are significant. Like your side, they have a laundry list of giveaways, too.

Unless your main concern is the amount of the economics you’re entitled to in a joint venture (JV), “control” is an issue where you can usually make concessions. If you’ll have over 50 percent of the equity and board members, going to war over exactly how much equity you’ll have usually isn’t worth the effort. As we discuss in Chapter 7, by law certain critical decisions need unanimous board approval.

Banqueting as part of the deal making

The Chinese use entertaining as part of relationship building. It’s really part of the negotiating game, too. On one hand, they’re trying to soften you up by being extremely gracious hosts during the elaborate Chinese banquets. They’re also sizing you up, trying to see who the key influencers are, and getting to better understand the leadership structure and personalities within your company.

You banquet often during the various stages of negotiations with the Chinese (though you don’t actually conduct business at the banquet itself). Expect to be on the banqueting circuit every time you visit China. See Chapter 16 for more on dining.

Banqueting in China generally involves lots of drinking and socializing with your Chinese negotiators. Your negotiating team will be included in all the banquets. The Chinese have a reputation of getting foreign visitors to drink pretty hard the night before key negotiations are to begin. Also, the alcohol served at banquets tends to produce nasty hangovers. Don’t fall into this trap: Be sure to minimize your intake of alcohol when you’re in China to negotiate on behalf of your company.