Chapter 7
Business Negotiations
“The finest negotiators in the world are the Chinese. No doubt about that. Negotiation in China is a lot more subtle than in India. In India, you say this and mean it, no hidden agenda—it’s much simpler than in China. In China, there are layers and layers of hidden agendas, and you have to search to find what they really mean.”
Prakash Menon (India), President, NIIT (China)
“You can’t really say there is one Chinese way of negotiation because there are so many different cases: north China, south China, private companies, state owned. . . . They have very different ways to negotiate and different levels of predictability.”
Jan Borgonjon (Belgium), President, InterChina Consulting
Introduction
In most business books, the chapter on negotiation ends at the point where both parties sign a contract or agreement—mission accomplished! Not so with this book, because in China, business negotiations are generally not finished when the contract is signed. As our 40 interviewees explained based on their firsthand experience, a contract or agreement signed with a Chinese business partner acts more as a “marker” showing the state of the partnership at a certain point in time. There is a clear understanding (at least from the Chinese side) that the terms of all business dealings will continue to evolve and shift as the partnership operates. In this way, a contract is more like the beginning of a new chapter of negotiations between partners, rather than a conclusion.
For many non-Chinese businesspeople, the idea of a loosely defined, evolving agreement clashes directly with the concept of a contract as used in most developed nations worldwide. This difference in thinking is one of the primary issues covered in this chapter.
In addition to sharing advice on adapting to the Chinese approach to contracts, in the pages that follow, our interviewees outline strategies for coping with other common challenges to business negotiations with Chinese buyers, sellers, partners, and customers. While our interviewees hailed from 25 different countries or provinces, and work in a full range of different industries, nearly all had struggled to adapt to Chinese-style business discussions. In fact, most of our interviewees had suffered through hundreds (even thousands) of business-related negotiations during their combined 500 years of work experience in China. Their advice on surviving in Chinese negotiations produces the basis of this chapter, which covers three main topics:
To set the stage for the advice shared below, we offer the following metaphor: if the two extremes in negotiation styles are represented by, on one end, a wrestling match (in which the stronger side simply uses force to beat the weaker side) and on the other end a waltz (in which the two sides carefully coordinate their movements), then Chinese-style negotiation is somewhere in the middle of the range. The martial art of tai chi— which can be described as a combination of dancing and wrestling—is an apt metaphor for the Chinese negotiation technique, because the process involves both strength and flexibility. Tai chi also invokes the principle of using your opponent’s own force against himself (for example, tiring him out by encouraging him to struggle in a way that does not tire your side). The Chinese are masters in tai chi; in this chapter, we share advice from our interviewees on making you a master tai chi negotiator.
“One of the worst mistakes for many [foreign] people, even smart investment bankers, is to be in a hurry. Sometimes, the Chinese counterpart gets you to agree on certain things because you are in a rush.”
Ruggero Jenna (Italy), Managing Partner for Asia and Asia Pacific, Value Partners
Pre-negotiation Preparation
One of the first necessary steps upon entering into business discussions with a Chinese counterpart, according to our interviewees, is to accept the fact that the negotiation process will likely require more time, energy, and work than would be true back home or in other developed markets. In fact, most of our interviewees warn that negotiations with domestic Chinese suppliers, buyers, or other partners tend to become a convoluted process. The good news is that going through this long and difficult process often results in the formation of a partnership that can be stronger and more supportive than business partnerships formed elsewhere.
Rule #1: Be Prepared for a Long Journey
China-based business consultant Ruggero Jenna explains: “One of the worst mistakes for many [foreign] people, even smart investment bankers, is to be in a hurry. Sometimes, the Chinese counterpart gets you to agree on certain things because you are in a rush. You have to take your time. You have to manage your time. Sometimes, things aren’t sorted out in the first meetings.” Jenna advises thinking of the negotiation as a mystery to be solved, step by step, as you discover what your opponent really wants. “[The Chinese side] won’t tell you what they want, so you have to find out what their ultimate goal is, and see if their goal is compatible with yours,” he says. “Mutual understanding is really crucial.”
“When you negotiate in China, my advice is this: you should prepare for your meeting like a German, sit down like a Chinese, and enjoy [the process] like a Mediterranean.”
Josep Giro (Spain), Co-founder and Managing Director, SBC & Associates
After nine years of consulting work in China, Spanish consultant Josep Giro advises adopting a multicultural mindset to best handle business negotiations. “When you negotiate in China, my advice is this: you should prepare for your meeting like a German, sit down like a Chinese, and enjoy [the process] like a Mediterranean.” He explains: “ ‘Prepare like a German’ means that you try to make things as clear as possible concerning your plan and your target.” When sitting down at the negotiation table, he advises adopting a Chinese bargaining mindset— which can seem inefficient and meandering to non-Chinese. “ ‘Sit down like a Chinese’ means just sit down and talk. [Consider that] the contract is just a draft. Today, it can be like this; and tomorrow, it might be like that.” He also advises expecting a fluid discussion with lots of changes, and retracing of ground that was already covered. “Westerners want to close one point and go to another, but the Chinese move from point to point and then back again. You should accept that.”
Finally, Giro advises foreign businesspeople to learn to enjoy this convoluted process. “ ‘Enjoy like a Mediterranean’ means enjoy [the negotiating process] like a Latin person. The Chinese will tell you: ‘We are negotiating; nothing is fixed and nothing is closed. We can come back to it later.’ I use the same system. It’s like martial arts. You need to use the energy of the opponent to use less effort [of your own]. It’s the same.” Part of the “Mediterranean” style that Giro recommends involves, he says, following your intuition about how the negotiation is really going, in order to avoid being cheated.
This loose negotiating mindset seems inefficient to many non-Chinese, but there is an upside to it: while partnerships with Chinese counterparts typically get off to a slow start, when a successful business relationship does form, the bond is often stronger and more supportive than is the norm elsewhere. The bottom line: the laying of the foundation for a good partnership cannot be rushed or hastily built; however, once built up, that foundation can usually be depended upon by both sides.
“Westerners are too black and white, and Chinese are too gray. . . . The Chinese start [a business negotiation] by saying, ‘Let’s start with this and grow from here.’ Westerners start by saying, ‘This is what I want to achieve when I’m done.’”
Shah Firoozi (USA), Founder and President, The PAC Group
American negotiation expert Gene Slusiewicz explains that, while initial negotiations can take longer in China than in the West, after a partnership begins operating, the waiting times for future agreements are typically slashed. Slusiewicz says that while it may take many months to work out an initial agreement to produce a precision part with a new Chinese partner, for example, by the time the company places a second order, the part may be completed in half the time. After the design is finalized, he can produce a tool within a dozen days in China— work that would take at least a month in the United States. “The negotiation takes longer, but once it kicks off, the work will be done faster. Things get done a whole lot faster in China, and the overhead is a lot lower.”
Our interviewees advised accepting that the negotiation process will require both extra time and effort, and then following two steps: adopting the right mindset, and doing your homework. Shah Firoozi, founder and president of The PAC Group, explains: “First of all, the Chinese negotiation system isn’t black and white; it uses gradual steps. Westerners are too black and white, and Chinese are too gray.” He explains that many negotiations between Chinese and Westerners stumble because the two sides come to the discussion from different starting points. “The Chinese start [a business negotiation] by saying, ‘Let’s start with this and grow from here.’ Westerners start by saying, ‘This is what I want to achieve when I’m done.’”
On the Chinese side, Firoozi explains, the goal is rarely determined before the first negotiation; instead, they use the first meeting to judge how far they can push their opponent. “China has 5,000 years of trade and negotiation experience. Negotiation is a part of their culture.” Firoozi explains that Chinese businesspeople expect that both sides will be aggressively testing the situation to see how much they can gain for themselves. “It is still considered a part of [the Chinese negotiator’s] responsibility to try and improve upon what’s been offered—if you don’t do that, you’re not doing your job. Chinese people feel the personal responsibility to try and win better terms.” On the other hand, the Chinese side will be expecting your side to seek better terms for yourself. “The same opportunity exists for you. If you get a request, you have the responsibility to bring a counter request. What can you give in return? My experience has been that, in China, you can’t negotiate with ‘yes’ or ‘no’ answers.”
Prepare thoroughly before you begin negotiating. Research the other party’s needs. Understand what they really want and decide what concessions you could make.
Rule #2: Do Your Homework before the Negotiation Begins
China-based negotiation expert Gene Slusiewicz stresses that negotiating in China requires being much better prepared than would be needed in the U.S. or other developed markets. You must be crystal clear about the goals your side is trying to achieve, he says, while not letting your counterparts know these too early in the negotiating process. A process of discovering the true goals of each side is an expected part of the challenge; the Chinese side will likely make it very difficult initially for you to uncover their true goals.
Slusiewicz offers the following advice for when preparing to negotiate with a Chinese supplier: “You want to understand what you want to obtain from the negotiation, the final outcome. In any purchasing agreement, you have to balance many things: quality, technology, service, warranty, and price. Price is the last thing on my list that will be discussed and resolved.”
Before the discussion, Slusiewicz advises holding a “stakeholder meeting” including all relevant voices—people from sales, quality, purchasing, and manufacturing. “You need to understand what your team needs. You also need to listen to the voice of the final customers. Is the customer very demanding or easy to please? What is critical to the customer: time, price, design, or something else? This will give you the key elements in the negotiation.”
Next, Slusiewicz and his team spend time considering the other party’s needs. “What is he [or she] going to ask for?” Slusiewicz suggests investigating by talking to other buyers who use that particular supplier, then drafting a list of the key points you expect him or her to ask for.
Last, Slusiewicz suggests taking control of the meeting schedule and the top-priority issues to address. “The final step is to have an agenda, otherwise the other side will run the meeting. Write down the key issues that are important for you, so that you won’t forget them in the heat of the negotiation. You will then be prepared for the negotiation.”
Business development and investment entrepreneur Aviel Zilber agrees that far more preparation is required for business negotiations in China than back home in Israel. Because the goal of the meeting is typically to gain the trust of the opponent, and to unearth his or her true (often unstated) goals, Zilber recommends having a kind of dress rehearsal to plan strategies for different possible scenarios: “Actually, you have to do the meeting before the meeting.” Zilber also stresses that much work will need to be done as a follow-up after the meeting itself, and that most meetings are conducted mainly as a kind of goodwill gesture. “The follow-up can be more important than the meeting itself. The purpose of the meeting is for introductions, and sharing contacts and ideas. Chinese businesspeople don’t make decisions during meetings.”
Take control of the negotiation by preparing an agenda that covers the key issues you want to discuss. Otherwise, the other side will run the meeting, not you.
“The follow-up can be more important than the meeting itself. The purpose of the meeting is for introductions, and sharing contacts and ideas. Chinese businesspeople don’t make decisions during meetings.”
Aviel Zilber (Israel), Chairman, Sheng Enterprises
“Know your opponent inside and out" is another key piece of advice offered by our seasoned China negotiators. Says consultant Ruggero Jenna: “Negotiations are very important [in China], as a lot of business terms get settled through negotiations. Don’t be afraid of negotiations, and take your time.” He adds that “pre-discussion” homework will include knowing as much as possible about the opponent’s business—such as their profit margin, revenue, and business goals. “You need to know the margin structure and how much money they make on their products. We always develop a proposal based on our understanding of their numbers and their goals.” Also critical, says Jenna, is to be extremely clear about the terms you hope to achieve. “The Chinese are smart negotiators. They know exactly what they want. So, we should know exactly what we want on the other side of the table. Otherwise, it’s a problem.”
There isn’t one Chinese way of negotiating. . . . Each region in China has different characteristics— the Shanghainese have a way of negotiating, the Beijingnese have a way of negotiating, and people from Shandong have another way.”
Jenny Hsui (Singapore), Co-founder and President, ChinaVest
Rule #3: Adapt You Negotiation Style and Tactics
One important part of your preparation is to adapt your negotiation style, depending on which part of China your counterpart comes from. Our China veterans described several distinctly different regional negotiating styles. ChinaVest founding partner Jenny Hsui explains the basic regional differences she has noted after 30 years of doing business in China after leaving her native Singapore. “There isn’t one Chinese way of negotiating. People write books about how you negotiate with the Chinese, but actually there isn’t one style of negotiating. Each negotiation style is very specific to the area they come from. Each region in China has different characteristics—the Shanghainese have a way of negotiating, the Beijingnese have a way of negotiating, and people from Shandong have another way.”
Our interviewees provided the following advice for working with business partners from northern, eastern, southern, and less developed regions in China.
Beijing and Northern China
A typical negotiation with northern Chinese, says Jenny Hsui, begins by first ascertaining whether the opponent is a trustworthy, decent, and worthwhile negotiating partner. “For northerners, the relationship is very important. They want to know that they will get along with you before they will agree to anything else. It isn’t a straightforward transaction in that sense.”
Hsui gives examples of typical “starting point” questions from a northerner preparing to negotiate with a potential new business partner. “The northerners—for instance, in Shandong—tend to start off with principles. They first establish that: we’re going to cooperate on this and that, we’re coming here in a friendly manner, we’re not trying to take anything from you,right? And you are not going to take anything from me. Do we want to work toward the long term? Good.” Only after they feel certain that their opponent shares the same basic principles and values, and can be trusted, will the negotiation begin, Hsui says. “After you establish good [shared] principles, then you can do business together.” Next, northern Chinese will set out the main “big points,” or shared goals, to keep in mind. “You establish the big points; maybe it’s just five points, but you always have to think of these five points. [Northern Chinese] will fight like mad for the principles, and not pay so much attention to the details.”
Hsui’s business partner (and husband), ChinaVest co-founder Robert Theleen, adds this comment on the difference between northern and southern Chinese: “If you start with numbers in Beijing, [Chinese businesspeople will] think you are an idiot; they’ll think you are unsophisticated. You must begin with the concepts and principles. On the other hand, in southern China, if you cannot quantify your ideas, then they don’t take you seriously.”
Turkish stone materials supplier Onder Oztunali makes a similar observation after his five years in China. “The Chinese are great negotiators, so you have to understand them. In every city, there is a different negotiating style,” he says. “Beijingers aren’t really price-focused. They want you to treat them with respect and dignity, and they want to really believe in you. I prefer the northern style, but most of my customers are southerners.”
Shanghai and Eastern China
Many of our interviewees described businesspeople in Shanghai and the Yangtze River Delta as “tough negotiators” and “sticklers for detail.” They also expressed confidence that an agreement signed in this region would be followed (in contrast to the situation elsewhere in China), partly because of the business culture in China’s commercial center, and partly because the region has recently become so internationalized. A 25-year China veteran, Jan Borgonjon sums up the Shanghai experience in this way: “In Shanghai, you can be sure that you will have very tough negotiations, and that you can be very straightforward, very explicit. Normally, once you have a deal, you have a deal. Once something is signed, you know it will be implemented— in Shanghai and the whole east China region.”
Jenny Hsui offers this advice concerning Shanghai residents: “The Shanghainese will beat you up on the details and won’t care about establishing principles.” She says that businesspeople in the Yangtze River Delta region care less about establishing shared values (as compared with their northern counterparts), get to the nitty gritty of the negotiation more quickly, and expect both sides to fight aggressively in order to win the best possible terms. “When negotiating with a Shanghainese, if they come up with an offer and you accept it without discussion, they are going to think they gave away too much. They will then renegotiate the whole thing,” she says.
Consultant Josep Giro warns that Shanghainese business-people can be very fickle, tending toward short-term thinking: “In Shanghai, if you are successful, you are only successful today. Tomorrow, if you are not efficient, maybe you are out of the market.”
Guangzhou and Southern China
In general, southern Chinese were described as the most difficult to work with in terms of giving misinformation and failing to follow agreement terms. Consultant Jan Borgonjon’s advice is typical of the warnings about working with southern Chinese: “If you go to the south, you never know what you are going to get. In Canton [Guangzhou], it’s very tricky. It’s a complex, traditional environment, more suitable for Hong Kong and Taiwanese entrepreneurs, and quite difficult to navigate for Westerners and often also for Chinese from other parts of the country.” He stresses that such warnings are “generalizations,” and that experiences vary with individuals. Nevertheless, he says, the different styles found in the different regions of China are an important factor in negotiating situations.
Jenny Hsui also describes people from Guangdong province as “very numeric,” adding that “the Cantonese are pure traders.” Josep Giro agrees: “In Guangdong, it’s all about money—like in the northeast of Spain.”
Interior (Undeveloped) China
Adventurous pioneers seeking to establish enterprises in the less developed regions of China face even greater challenges, mainly because there may be a huge gap between international business standards and the business norms practiced in the undeveloped area in which you have chosen to invest. South African consultant and 13-year China veteran Kobus van der Wath offers this specific advice for those managing a business in the hinterlands: spend time learning everything possible about the potential partner’s situation and appreciate that they may be lacking in resources, information, or basic business practices taken for granted in more developed markets. He tells of one first-hand experience: “We negotiated with some small SMEs in central China. They didn’t have computers. How could they price? They didn’t know the real numbers. In some cases, you have to help the Chinese side to understand some of the issues; some may be a little unsophisticated. Someone in the company might say, ‘Let’s do business,’ but they don’t know why we are cooperating. They don’t understand what strategic thinking means.” In such cases, you may need to explain fully to the Chinese side how your partnership will work. Don’t assume that your partner has basic business knowledge or will stick to the standard practices that you employ.
“Chinese are very skillful in making things look as they are not. Knowing this, helps in business a lot. When I’m negotiating, once I see that the Chinese side apparently isn’t interested in something, I know that this is actually the thing they are most interested in.”
Oto Petroski (Macedonia), Founder, Trading company
Especially when working with partners from undeveloped regions of China, entrepreneurs are advised to take extra time to ensure that the Chinese side really understands the terms of the agreement. Says Jan Borgonjon: “If you negotiate something with the other person, but the other person hasn’t really understood what he [or she] is signing, you will have problems. If he [or she] has really understood, there is less likelihood that they will breach the agreement. You have to make sure they have understood. It’s not about the American way. It’s not about drafting a contract and putting in some tricky things—‘I got you!’ You didn’t get anybody in that case.”
At the Negotiation Table: Tactics and Strategies
The most challenging aspect of the actual negotiation process, our interviewees explained, is that the Chinese side typically won’t directly share the main goals they hope to achieve—at least not at first. For strategic reasons, they may prefer to conceal their truly critical goals in order not to lose bargaining power. Instead, they may present “decoy” goals in order to confuse their opponent. This creates a far more challenging scenario than is typical in developed markets, when both sides tend to be upfront about their desired outcome. In this section, our pioneers offer strategies for surviving China’s “cat-and-mouse” negotiation process.
Expect to play a complicated game of hide-and-seek. When negotiating, the Chinese often withhold information, motives, and facts. Foreign negotiators who are completely transparent will be misunderstood and be suspected of hiding something.
Rule #1: Know the Needs of the Other Side
Danish furniture entrepreneur Simon Lichtenberg explains the difference between European and Chinese negotiating methods: “First of all, the whole goal [in a negotiation with Chinese opponents] is to find out the real needs of the other side. You have to understand what the other guy needs and put yourself in his [or her] shoes to get the best possible deal.” He gives an example of the trial-and-error method that one must use to determine the true goals of the Chinese side. “The classic example used is that of two sisters fighting over an orange. You have to determine how to make both of them happy. If you cut it in half, neither will be happy. Finally, you realize that one needs the peel in order to make a cake, while the other wants to eat the orange fruit because she is hungry. So you give the peel to one and the orange fruit to the other and they are both happy.” A similar discovery process is often necessary in negotiations with Chinese, he says. “The challenge is to understand what the other side really needs. Maybe it’s warehouse space, or maybe it’s low price. Listening to what they are saying isn’t enough. Discovering what the other person needs is the hard part.”
Adding complexity to the process, Lichtenberg comments, is the Chinese side’s possible attempt to pretend that one particular goal is important in order to sneak in the most important goal unnoticed. “One of the main mistakes [foreigners make] is that they don’t know what the other side really needs or wants, or what their objectives are. The most obvious mistake is to believe what the other side is saying. You have to look deeper. It’s much more complicated than that.”
Trader Oto Petroski of Macedonia shares the following strategy for unearthing the true goals of a Chinese opponent: “Chinese are very skillful in making things look as they are not. Knowing this, helps in business a lot. When I’m negotiating, once I see that the Chinese side apparently isn’t interested in something, I know that this is actually the thing they are most interested in. They know how to make a problem concerning something that isn’t interesting or valuable. They make you waste time on unimportant questions; they try to make you hot, make you tired, try all kinds of tricks to make you lose concentration.”
Another mistake that foreigners make, says Petroski, is to believe the Chinese side when they seem to be agreeing readily to give concessions. “Usually, when a foreign guest comes to a Chinese company, the Chinese [hosts] are very polite, so if you want this and that, they say, ‘Fine, you get what you want.’ But this isn’t true. It doesn’t work like that, because they cannot give you whatever you want. You can’t take that at face value.”
“Whereas in the West, people might come to a certain conclusion [in business negotiations] simply because it is the best decision for their company, in China, it is often more complex than that. . . . there is usually at least an element of personal gain involved.”
Jeffrey Bernstein (USA), Founder and Managing Director, Emerge Logistics Shanghai
When negotiating in China, know and accept your personal limitations as a foreigner. It is often better to use a trusted Chinese partner to represent the company.
The underlying message from our interviewees is that international businesspeople who treat the negotiation process as a simple, straightforward exchange of information will end up confused and frustrated, because the Chinese side likely will be neither simple nor straightforward in their discussion. Consultant Kobus van der Wath explains: “One key issue for me is that you always get the sense that the [Chinese side] is hiding some information that may impact the final outcome. They are holding back some information, or they have some motives, or a set of facts, figures, or data that I don’t know about. So, in a way, I’m negotiating blindly. I don’t really know what they want to do. They do it on purpose.” Van der Wath warns foreign clients to change their strategy when working with the Chinese. “Usually, foreign companies are transparent. You immediately understand their strategy, programs, process, and so on.” But communicating in a straightforward way with Chinese opponents will be misunderstood, as they expect to have to play a complicated game of hide-and-seek to discover your true goals and motives.
Long-time China hand and logistics entrepreneur Jeffrey Bernstein also advises focusing the negotiation on seeking to identify the true goals or obstacles facing the opponent, considering that the items laid out openly are not the truly critical issues. “One piece of advice is: be patient. Second, try to understand the needs and the pressures on your counterpart. In many cases, it might seem like the counterpart is just stalling or causing problems. But there might be a good reason why the person has no ability to come to a decision. You really have to take the time to understand. In many cases, the counterpart may want you to dig deeper to learn why there is an obstacle. You will be expected to understand what they are hinting at.”
Foreigners may misread, or not even notice, such evasive Chinese-style hints. Thus, Bernstein advises bringing China-savvy partners with you to all negotiations. “It is important to have a person you can trust reading the tea leaves for you, otherwise you may miss hints—and that could be very costly.” Of course, he says, “it is important to ensure that the China-savvy partners’ interests are in line with your own; otherwise, you might not be getting the full and correct story.”
Entrepreneurs can also benefit from assuming that the chief decision-maker will have a personal stake in the negotiation outcome, says Bernstein. “Always assume that the person on the other side of the table has some kind of personal benefit lining the transaction somewhere. Not necessarily a kickback—maybe it’s as innocent as seeking approval and recognition from their boss, or maybe they want a personal relationship to come out of it. Or it could be a financial benefit.”
“[The Chinese] feel better about a negotiation after having had a long struggle. Their thinking is that you will have respect and admiration for your adversary after a long battle.”
Gene Slusiewicz, negotiation expert, The PAC Group
Bernstein advises that the concept of “success” in any negotiation is different for the Chinese than for the Americans and Europeans. “Whereas in the West, people might come to a certain conclusion [in business negotiations] simply because it is the best decision for their company, in China, it is often more complex than that. People don’t just do something that is the right thing for the company. Instead, there is usually at least an element of personal gain involved, which isn’t necessarily financial. It could be gaining face, or returning a favor to a friend or another third party who isn’t directly related to the negotiation.”
Finally, one has to be careful in identifying the real decisionmaker among those on the Chinese side. “One mistake foreign negotiators make,” Marjorie Woo says, “is to mis-identify the Chinese who can speak good English as the smarter, better educated, and more aggressive negotiator—that is often not true.” The key people, Woo says, are usually in the background, or not present or not vocal in the negotiation. “They typically don’t speak English and may have little relevant Western business knowledge, but they’re the real decision-makers. So, once you think you’ve agreed on certain points, actually the person has to go back to confirm with the people in the background.”
Gene Slusiewicz also warns that foreign businesspeople often don’t get to talk directly with the real decision-maker on the Chinese side. Therefore, he advises: “Try to meet the person who has the decision-maker’s ear. He [or she] is the person who tells the decision-maker, ‘This is a good deal.’”
“Americans want to have a two-hour meeting and to accomplish their goals and be done. But you don’t get done in the first try [in China]; it might take three or four visits. It’s like a slow dance in which both partners learn what the other side wants.”
Gene Slusiewicz, negotiation expert, The PAC Group
Rule #2: Use a Skilled Negotiator
Choosing the right person to represent your company during the actual meeting can also be critical to success. American courier and call services company founder Mark Secchia says his secret to successful negotiations in China is to keep himself away from the discussion table. “I’m a terrible negotiator, and I know that. I have people around me who are much better negotiators than I am.” In particular, he tells how he promoted his former CSR (Corporate Social Responsibility) manager to purchasing manager for both his meal delivery business and his newer export business. “She has a great personality and is an awesome negotiator.”
Secchia asks others to negotiate for him because he finds that his American background still hinders him when facing Chinese opponents. “When I negotiate with Americans, I believe everything they say. But that doesn’t work in China,” he says. Although Secchia long ago learned to second-guess and double-check information shared during a negotiation in China, he still finds himself unskilled at the game of bluffing and exaggerating. “What makes me a poor negotiator in China is that I’m too emotional,” he says. “When we buy plastics for a company, for instance, I know what the real production costs are: the labor rates, electricity rates, the taxes due. So, if, for example, the [potential supplier] lies to me straight off that their cost is RMB5,000 [US$715], and I know it’s actually RMB1,700 [US$240], that makes me feel I’ve been cheated. By their standards, they’re not lying—that’s just the negotiation technique they use. But for me, it’s so hard to believe anything once they have started negotiating with a lie. I’m just not comfortable with that negotiating style and so I’m not good at it.” His advice: expect such tactics, stay cool, and if necessary, leave the discussion to someone on your team who is comfortable with such strategies.
“Here, you have to build relations more slowly. . . . If you are not patient, or if you come for a short time and have to leave, it won’t work. The Chinese work in a very sophisticated way.”
Aviel Zilber (Israel), Chairman, Sheng Enterprises
Belgian consultant/entrepreneur Jan Borgonjon employs the same strategy: “I don’t negotiate; it’s my Chinese partners who negotiate. My advice is that when negotiating with Chinese, leave it to the Chinese. If you go to France, you work the French way. So, in China it’s the same. Many of the so-called problems of China are problems of the foreign businesspeople who come here. You can’t complain about something you should have known about.” Dutch internet entrepreneur Marc van der Chijs admits a similar weakness: “I don’t think, as a foreigner, that I negotiate well. It’s a disadvantage because of the cultural background and the language.” However, he says sometimes, he must do negotiations himself, as there are some things he can’t delegate. Van der Chijs also warns that the negotiating process in China generally takes longer than in Europe, and that “face” can be a serious issue. “Embarrassing or offending your counterpart—even inadvertently—can be the end of the deal,” he says.
Selecting the right negotiation team is also a top priority for consultant Kobus van der Wath. “You must overall make sure that you select teams, especially for negotiations, that understand the basics of guanxi, Taoism, and Buddhism, and that know about Chinese history and current news events. “All such cultural information may be referred to during the negotiation. If you don’t know these things yourself, bring along Chinese colleagues who do.”
When negotiations hit an obstacle and begin stalemating, try to arrange for an offline talk with the other side’s decision-maker. Communicate and build trust in an informal setting.
Rule #3: Have a Heart-to-heart Talk
One feature of many negotiations, our interviewees said, is an offline, heart-to-heart talk between the two sides’ top decision-makers. Advises veteran China entrepreneur Jenny Hsui: “What you want to do when you run into a problem is to reach the chief decision-maker and have a talk. I call it a ‘walk in the woods.’ You ask about his personal life, his family, his children, his friends, about the province he comes from.” Only through this painstaking process—in which you must also share information and build trust—will true deal-breaking and deal-making issues emerge.
Shah Firoozi agrees that the most important discussions in many negotiation sessions take place away from the negotiating table, during the break periods. “I’ve seen many times that most negotiations don’t take place in the meeting rooms, but in dining rooms, or outside. I can tell you a story: I don’t smoke cigarettes, but I started smoking cigars so that I can also go out during the key part of the discussion—the smoking break. I started smoking these small cigars because I can’t afford to miss those conversations.”
“Most negotiations don’t take place in the meeting rooms, but in dining rooms, or outside. . . . I don’t smoke cigarettes, but I started smoking cigars so that I can also go out during the. . . . smoking break. . . . can’t afford to miss those conversations.”
Shah Firoozi (USA), Founder and President, The PAC Group
Firoozi says the key point is to make a friendly connection with the other side. “It comes down to building connections—you need to connect with the people you are dealing with; you need to be sincere and genuine. Everybody knows that you are here to make a profit. There’s no misconception about that. You need to understand that your counterpart also has the same objective.”
Rule #4: Compromise and Trade
U.S. negotiation expert Gene Slusiewicz describes the negotiation process as a kind of detective case in which both sides strive to discover the other side’s needs (critical goals) and desires (smaller goals), then begin compromising and making concessions in order to reach a conclusion. “You try to meet your key needs, wants, and desires. But you also must know the opponent’s needs and priorities. Then you can say, ‘I will trade you one need for a couple of desires.’ ”
Slusiewicz advises taking an almost mathematical approach to weighing the needs of both sides: “Before you go into a negotiation, you need to write down on a piece of paper what are the supplier’s needs and desires, and what is his strength and bargaining power.” For example, if the supplier knows he is your top supplier and that it would be difficult for you to change suppliers, he realizes his advantage. On the other hand, if you can offer something that the supplier needs or wants, such as industry-specific training, then you have an advantage.
Make a list of your primary and secondary objectives. Try to do the same for the opposing side. Start compromising and trading concessions based on the list.
American leadership development training company founder Marjorie Woo warns that this slow, back-and-forth negotiation process is often frustrating, especially since the Chinese side may reconsider terms already agreed to. “You think they’ve agreed on some points and then you meet them the next day, and they start from zero. Initially, I got very frustrated and angry, since I’m Western-trained in my business dealings.” Woo concludes that such backtracking doesn’t show ill intention from the Chinese side, but more often indicates a degree of misunderstanding on both sides. Says Woo: “Over time, I began to realize that the The Chinese are not so experienced in our style of negotiation. Though sometimes they don’t really understand, they show no objections in order not to offend you. Then we tend to assume that they’ve agreed, because they haven’t objected. Finally, when they sign the letter of intent or memorandum of understanding, it’s only a draft for them. Once the representatives sign the contracts, they go back and talk to their friends, colleagues, and boss. Then they make notes on the points where people have different opinions. Next day, when we meet again, the boss may say: ‘I think perhaps we have to do it in a different way.’ By doing this, they don’t really mean to cheat you. They just don’t have enough information to really know where they stand.”
Finally, Woo advises giving concessions when necessary. “The other common characteristic is that Chinese people feel better when they get 51% profit and you get 49%. To them, 50% and 50% isn’t winning. I think that we have to insist only on the things that are really important. Since 1% represents only a small amount of profit, we usually agree on that. We’re clear that on certain things we can’t compromise, but we’re flexible on other points.”
Take detailed notes during the negotiation. If your Chinese counterpart takes a confusing position on any aspect of the deal, ask them to clarify. Don’t stop asking for information until you understand all the reasons behind your opponent’s decision.
Rule #5: Expect Dramatic Outbursts
A feature of many Chinese-style negotiations is a fair amount of drama, such as planned displays of emotion, and even losing one’s temper. Seasoned China hands say this should be accepted as part of the game of negotiating. Such scenes are generally forgotten after trust is established and a deal is struck. (Note, however, that losing one’s temper with a staff member or colleague can cause them to lose face, and is not considered acceptable behavior.)
Italian consultant Ruggero Jenna describes a recent negotiation between a key client and Chinese suppliers. “We tried to fix points of agreement, but the Chinese came in with something new every day.” Jenna says that, at certain points, his client had to show frustration, as a cue that the Chinese side had met his breaking point. “If you are showing your displeasure with some issue during the negotiation, you can shout or even break things. We sometimes walk away from the discussion table. In such cases, the Chinese side usually comes back to you with a concession. This is the way of negotiating in China.”
Twenty-year China veteran Jenny Hsui agrees. The Singaporean consultant shares her own tactic, which she calls “banging the briefcase.” When negotiations reach a critical point and she needs to signal to the other side that they are really asking for too much, in the middle of the meeting she snaps her briefcase shut, slams the top of it with her fist, and marches out of the meeting room. In most cases, the Chinese side eventually makes a concession in order to re-start the meeting and get the negotiations back on track.
While Western businesspeople may be uncomfortable in displaying such calculated emotional outbursts, Chinese negotiators consider this to be part of the game. One important factor is that such displays are planned, rather than a real loss of emotional control. Software entrepreneur Eric Rongley points out that bluffing and brinkmanship are common in Chinese negotiations, even at the level of bargaining for clothing in a street-market. “If you go to a marketplace [in China] to bargain with street vendor, you have to haggle and then walk away in disgust. Then the vendor calls you back because he sees that he has reached your limit. It’s exhausting if you have to do it all the time.”
Learn to “bang the briefcase” when your opponent is asking for too much. This strategy, which involves walking out of the negotiation in disgust, sends a clear signal to the other side that you have reached your bottom line. Your Chinese counterpart will usually offer a concession to re-start the discussion.
Even after 11 years in China, American delivery service entrepreneur Mark Secchia is still uncomfortable with the “acting” employed in some negotiations. “The ability to be enemies one minute and best friends the following minute is very difficult for me to understand—that two people sitting across the table could be yelling and screaming at each other and then, 10 minutes later, walk to the elevator arm in arm. I can’t emotionally go up and down that quickly. In Chinese negotiations, there are a lot of emotional ups and downs.”
Entrepreneurs from cultures in which bargaining is accepted and normal, such as Turkey, tend to feel more comfortable with the theatrics of Chinese-style negotiating. Building materials supplier Onder Oztunali explains, “Actually, as a Turk, I really don’t feel any difference between my country and other Asian countries because we are pretty Asian ourselves, even if we want to get into the EU. Turkish people are great negotiators as well. My mom is a great negotiator.”
When negotiating on price, Oztunali says the discussion with Chinese opponents always includes a dispute over numbers. “The first lesson you learn is that the Chinese will never accept your first price—they will always say it is too expensive. But I always know that my prices actually are not too high, because I know the prices other guys are charging and I know the retail price for my product in China. I think, ‘I am not going to listen to BS from this guy.”’ By knowing the going wholesale and retail prices, Oztunali can set limits for the negotiation. “You have to set a limit, such as: ‘I cannot sell below this price.’ As long as it is a seller’s market, and as long as they can still make 20% profit, buyers will be fine with that. They don’t want to lose time—time is definitely money for them.”
As a final tip, consultant Josep Giro advises foreign clients to hold back several key concessions, to offer at the very end, if needed. “When Spanish clients come to the negotiation table in China, I tell them, ‘You need to have some weapons. When the Chinese side throws you something, you need to have a weapon in your hand.’ ”
A good Translator is critical for a good negotiation. An interpreter in China who is truly fluent in both languages and knowledgeable about your industry is rare and extremely valuable.
Rule #6: Use a Good Translator
For foreign entrepreneurs who don’t speak Chinese, a good translator is critical during negotiation. Ideally, that means finding someone fluent in the language and knowledgeable about your industry—often a tough match to make.
Says negotiations expert Gene Slusiewicz: “You can’t have a general interpreter trying to interpret during a technical discussion. You need someone who really knows the technology, the engineering. You need to have some industry knowledge. You will have to pay for an interpreter with the right experience.” Because the translator must know your business and must know the nuances of both languages being used, the value of a good translator is extremely high.
Says Slusiewicz: “There is value in using a translator who can translate the meaning behind a set of words or a comment—who can understand the body language—because what is meant may not match what is literally being said. If an interpreter can smooth things out, he or she is a kind of negotiator, too. That’s very valuable.” Slusiewicz’s solution: when he finds a really qualified interpreter, he hires the person full-time.
Rule #7: Double-check the Agreement before You Sign
In some cases, contracts or agreements will be written in Chinese. If so, take the time and effort to have all the terms translated into English or your native language, warns French fashion wholesaler Valerie Touya. She describes a recent case in which she unknowingly signed a contract (written in Chinese) with a clothing retailer that included terms she had verbally rejected. In her original contract with the retailer, Touya had agreed to a 50:50 split of all profits from the sale of garments she had supplied. When the first contract with that retailer expired, Touya insisted on the same terms for the second contract. “The Chinese side agreed verbally, but after I signed, I found out that the terms in the contract were not 50:50 but 60:40 in his favor.” Touya describes her frustration: “I couldn’t read the contract; it was in Chinese! I sent an email to the retailer saying, ‘This is not fair. You have abused me. Our agreement is to a 50:50 split.’ ”‘ The issue ended in a dispute.
Gene Slusiewicz has had similar experiences. “We have to watch Chinese companies, because they sometimes make changes to the terms and they don’t bother to tell you. They might not even do it on purpose. They think that an alternative material has the same effect and don’t think it matters.” His solution is to make it very clear that no changes to the terms are acceptable without discussion. “They need to be informed that they are not allowed to change anything without my prior approval.”
Have a trusted Chinese speaker double-check the final agreement. The document that is legally binding in China is the Chinese one, not a version written in another language.
Post-agreement: After the Contract is Signed
The major difference between Chinese and non-Chinese negotiators is that, in China, the signed contract is considered as just one step in a continuing and fluid process of working together as partners. It is understood by the Chinese side that the contract spells out guidelines, but that these terms can and will still be discussed as the partnership operates. Marjorie Woo explains the differences between the East and the West: “Negotiating with Westerners means you discuss with them and sometimes you argue with them; then, once you reach an agreement, you sign the contract. After that, for the most part, you follow the contract.”
The process is quite different in China, however. Woo says: “With Chinese business partners, once you develop the relationship and sign a contract, they will stay with you longer than without one, because they consider signing a contract as forming a closer personal relationship, rather than conducting a business transaction. This is the good side.” Therefore, if the partnership is good—like a good marriage—both sides will adapt to new situations in ways that continue the success of both sides. If the partnership is bad—like a bad marriage—the tendency to renegotiate contract terms can be extremely frustrating to the foreign side, who believed the deal was done when the contract was signed.
Rule #1: The Contract is a Formality
Meal delivery entrepreneur Mark Secchia has come to consider contracts as more of a formality than a useful document. “In our business, contracts are meaningless. It’s a piece of paper that I sign; but in the end, it’s about having a good relationship, not a contract.” Far more valuable than reviewing and updating the contract, he says, is for his team to maintain frequent, open communication with the restaurants he supplies with Sherpa’s delivery service. Secchia sends employees to each restaurant regularly to check in. “These restaurants stay with us not because of the contracts, because contracts can expire or can be broken. In our policy, we say that our managers have to visit each restaurant every two months, and each time they go, they can spend RMB200 [US$28] eating there. They don’t take free meals. We want the restaurants to see us spending money in their establishments. We work with 140 restaurants, and we have to visit them every two or three months and pay RMB200 each. That’s almost RMB100,000 [US$14,300] that we are spending per year just to keep the relationship strong.”
“[Chinese businesses people] consider signing a contract as forming a closer personal relationship, rather than conducting a business transaction.”
Marjorie Woo (USA), Founder and Chairwoman, Leadership Management International (China)
Import and distribution entrepreneur Winston Ling says he de-emphasizes the importance of contracts for his China-based business deals. “The value of a contract in China is just the value of the paper. I used to be accustomed to working with a contract. When I arrived here, I spent so much time on contracts. In the end, what matters is trust. The Chinese aren’t accustomed to working with contracts. After the contract is signed, they forget everything. I still do contracts, but I don’t pay much attention to them anymore.”
Rule #2: Adapt the Contract Terms to Prevailing Business Conditions
Investment entrepreneur Aviel Zilber offers further insight into the differences in mindset: “Westerners like to respect contracts, but they look all the time at the contract to see whether they are able to do something that isn’t according to the spirit of the contract. In Chinese culture, the contract reflects what happened on the day of the signature, according to what was going on at that time. The Chinese don’t think it’s a big deal to change the agreement terms according to how conditions change. It’s part of their business culture, and you have to know this in advance.” This flexible mindset makes it more critical to maintain good relations so that both sides can work together through evolving terms. Says Zilber: “It’s much more difficult and challenging, because it’s not about reading the words on the contract but about maintaining a win-win situation. Only if you are able to work with your partner, are you able to say: ‘I want to change [the terms] because the conditions have changed.’ ”
Consultant Jan Borgonjon says that his clients who come from cultures in which business relationships are valued over written terms tend to understand the Chinese mindset faster. “Southern Europeans have fewer problems in accepting this. You see more problems with Anglo-Saxons and Northern Europeans.”
Think of the contract as an intention by both parties to work together. In the end, trust and a good relationship are worth more than any document.
Our veteran China hands conceded that there is some logic in the Chinese concept of contracts, especially since business conditions in China change frequently and drastically. Says Gene Slusiewicz: “Even if you sign a contract, there are always opportunities to ask for something else. For instance, the government may change the duties, making it cheaper to import—in that case, you can ask for a price reduction.” He says there is more willingness on both sides to alter the terms as conditions in China change. “Of course, you can say, ‘This is the agreement and this is your signature. You have to do it the way we agreed.’ But what is the use of that if the supplier goes bankrupt?”
China veteran and ChinaVest founder Robert Theleen also advises foreign businesspeople that if they want the terms of a contract to be implemented, they must work hard after the signing to make it a living, breathing part of the business operations. Too often, he says, the contract is signed and then forgotten and ignored as the business evolves. He explains: “Westerners, especially Americans, negotiate these 50-page contracts, and when the contract is signed, the American says, ‘OK, let’s get on with business.’ But if you put the contract away, if you don’t go and implement the key stipulated points immediately, the Chinese will assume that the contract has disappeared because you are not enforcing it.” Theleen warns that once the Chinese side has the impression that the contract is being ignored, then it is “almost impossible” to revive and implement the terms. He explains: “When you want to bring the contract back, then it’s very difficult—if not impossible—because the contract is now seen as separate from the running of the business.”
A common mistake among Western businesspeople, Theleen adds, is to adopt a complacent attitude after the contract is signed. “The Western view would be to say, ‘The contract governs the business.’ Nonsense—it’s only a frame of reference,” he says. “After [signing], unless you constantly implement the agreement, the business is going to be run as it evolves.” In other words, if any of the terms aren’t actually followed, and the situation is allowed to continue, the Chinese side will consider the entire contract to be non-binding. To avoid that scenario, Theleen advises monitoring the operational terms and referring often to the contract.
“The Chinese don’t think it’s a big deal to change the agreement terms according to how conditions change. It’s part of their business culture, and you have to know this in advance.”
Aviel Zilber (Israel), Chairman, Sheng Enterprises
Conclusion
Conducting a successful negotiation in China is not an easy endeavor. The Chinese are master negotiators. They expect long, convoluted negotiations with hide-and-seek tactics and changing of terms—even on the points that had previously been agreed upon. Chinese-style business negotiations use a loose, open process that can be confusing and frustrating for foreigners. Furthermore, the negotiation process frequently doesn’t end with the signing of the contract. In the mind of the Chinese, if business conditions change, agreements must change. On the positive side, those companies that successfully form an agreement to do business stand a high chance of developing a strong, supportive, and long-lasting partnership.