Will your negotiation skills back home equip you for negotiating in China? Well they're important, but they're not quite enough. You'll also need a good grasp of the cultural differences or you'll be mystified by unexpected responses and they'll run circles around you. So here are a few key principles for negotiating in the land of the dragon.
See PART I
1. Be Objective
2. Ease In Carefully
3. Work with the Right People
4. Seek Clarity
PART II
5. Bargain Strategically
To begin with, get control of the agenda. They may use their position as host to load you down with meetings and banquets, especially if they are old school - though in the modern centres they're more inclined to get straight down to business. Still, if you're spending the money, you're in charge. Determine if the meeting or banquet is important, if the officials you're meeting are really relevant to the discussion, or whether they are just window dressing to show off their connections and keep you tied to their agenda. You have to find a balance between receiving their hospitality graciously and getting down to business. Overall it's a polite power struggle right from the start, and you need to make it clear you want to negotiate the agenda. At the same time, remember that they want to deal with you and keep you away from their competitors, so leave the exit door open a little in case they're too inflexible. If you come in wide-eyed about making a China deal, you'll end up playing their game. Have a Plan B - an alternate source of supply will boost your confidence enormously.
Many western advisors will tell you to expect deception in China, but it's often just a different vision of what's legitimate and honourable in the competitive arena. It's only deception if the other party expects something different. That doesn't help you much. If you don't know the culture well, it's going to be deceptive in your eyes. So it's safer to follow the rule: expect deception. But don't express disrespect unless you catch them blatantly cheating or lying - and give them the benefit of the moral doubt if they're just backtracking because they got into trouble. It's a delicate game. Protect yourself without being offensive.
It's important not to automatically accept any claims at face value, without good reason. Are they really an old established company with a healthy market valuation, a strong market share, exclusive rights and patents, all the proper certifications, and plenty of orders from Europe? Better check these things out, since their definitions may be different from yours. Is the new plant they're preparing to build really going to bring dramatic improvement in quality and costs? You're putting up the money, so you should be allowed to see the books, though sometimes their claims of inadequate bookkeeping may be valid. You may need help here, since legitimate Chinese accounting practices are different from ours, and in some ways hard to fathom. And finally, don't accept the claim that they have the powerful connections that will make everything work out just fine in the end, because you have no way whatsoever of checking that out. Perhaps at this point they will throw the trust argument at you, claiming that your doubts are undermining a valued relationship. Don't fall for it.
If you're not picky, you'll leave holes they can drive a truck through. "Best effort" sales agreements are not enough. Get the details on their marketing network. Cash in advance is dangerous, no matter how much they throw the trust argument at you. Present it as a strict matter of policy, and point out safer payment vehicles which are readily available. If they can't get a bank to cooperate on a letter of credit, run for the hills. If you're a buyer, insist on a test order. They will talk about not doing test orders because they're building long-term relationships, but don't buy that argument. Chinese firms will do test orders when pressed. Look behind the facade to see if there's real brick and mortar and infrastructure in place. And remember that, if a firm is not very cooperative before the money has been transferred, they'll probably be even less cooperative afterwards. So get everything you can firmed up in advance, even if it threatens to sour the deal. The politeness and respect that you demonstrated from the beginning of the process will serve you well when you have to hold the line at the end.
Even when you reach an agreement, you'll find that many more things than you thought were unclear, or interpreted differently. Be prepared to renegotiate often, and get their agreement on a renegotiation process before you sign.
6. Learn the Price Game
In a country where they bargain for apples on the street, they're not shy about bargaining, and they bargain hard. Don't be put off by an outrageous initial price. It's all part of the game. Whether or not they move to a reasonable price in short order is a clear indication of whether or not they're ready to bargain seriously. Let the opening moves play out. With apples on the street, some will overcharge a foreigner just on principle, as well as to defend their national pride and to save face. So keep a clear eye on your own range of acceptable prices, and stick to it rigorously.
If you're putting up the money, don't let them talk you into quoting the first price. The first move should be theirs, though exceptions may be allowed if you already have a good relationship with them through past dealings. Present it as your firm's policy, and refer to proper procedures. It's a game of polite assertiveness, and this may be the opening power struggle. Insist they provide figures to back up their price, and eventually settle for just a first price offer. But keep up the demand for backup data as the price discussion progresses. Don't let them win this opening round, or they'll have the upper hand.
Be prepared to deal with an outrageous price, which will be especially outrageous if they've lost the battle over the first offer. Match an outrageous price with a fairly-outrageous counter, because they may only inch their way down and you need room to manoeuvre. Be prepared to walk if their moves are only tokens. Do your homework, and know the market, so that you can confidently hold the line until they bring it into the ballpark. Then the real bargaining begins.
Don't accept a high price on a promise that they'll lower the price in the near future,
"when we get the new technology online",
"when we move to the new facility",
"when we develop the new product",
"when we hire the new engineer",
"when we get approval from the government',
"when we finish the merger".
Maybe they're sincere. But maybe they're wishful thinking. Hold out for the price you need. Cut them off quickly. "Not a chance. We don't do speculation. We need to work with real prices right off the bat."
And you may have to leave your fancy management theory behind. It's quite fashionable in the west to seek win-win solutions. But China's a developing country, not long out of poverty, in a brutal marketplace. They're quite accustomed to win-lose, and they're quite happy to win. But again, you'll find them somewhat more refined in the major centres.
7. Understand Networking and Contracts
This is a tough one. Networking isn't the same in China. It's a much deeper and more complex phenomenon, with implications that we westerners cannot easily fathom. The potential for misunderstanding is enormous.
It can be simplied a little. Think again of a pre-market society. How would a pre-market society organize themselves without benefit of the marketplace? They organize themselves into trusted circles of family and friends, and they exchange favours. The rules are strict - if someone offers you a favour, you owe an equal favour in return. These circles overlap and interconnect into complex networks. Over time some of these circles become more important than others, and if you find yourself linked into an important circle, you have "connections". The Chinese call it "guanxi" (pronounced gwan-shee), and there are two main rules as far as you're concerned. One, any favour or gift is a debt which must be repaid in full measure, or more if the giver belongs to a more important circle. And two, people with the right guanxi can accomplish anything for you, but it won't be free. And it's not guaranteed. Do him a favour and he will owe you something. But don't count on him to spend his guanxi capital to repay you.
Connected with that is an attitude toward contracts. The guanxi circle is a relationship of trust among colleagues. To overstate the argument a little - it's a western aberration to demand that all relationships be reduced to an impersonal rats-nest of contracts, as if no one can be trusted. For civilized people, your word is your bond. While in the modern Chinese business centres they've come to appreciate the value of a contract, and will even initiate it, there are still some who will try to convince you to make a commitment (and transfer your money) without one. They may play the trust card, so know how to deal with it.
Recognize that a westerner like you will never become a full member of any Chinese guanxi circle. You will always be an outsider, and a second-class citizen, with no rights and no recourse. "My guanxi is your guanxi - don't worry, I can get it for you" is not in the slightest degree a commitment you can take to the bank. You need it explicitly detailed in black and white, no matter how much that may brand you as a western barbarian. But I hasten to repeat that, the more progressive Chinese managers are on the same page as you and I, fully appreciating the need for a water-tight contract. Those are the ones you should look for. But if you're in a more traditional centre, you may have to fight for it.
See PART III
8. Pay Attention to the Non-price Issues
9. Understand Indirectness and Face
10. Play the Game, but Cleanly
11. Do Your Due Diligence