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 PARTS I and II
1. Be Objective
2. Ease In Carefully
3. Work with the Right People
4. Seek Clarity
5. Bargain Strategically
6. Learn the Price Game
7. Understand Networking and Contracts
PART III
8. Pay Attention to the Non-price Issues
Many traders will tell you that Chinese are motivated by price alone. They will attach little importance to issues of quality or delivery or service, assuming these are secondary issues that can be put aside. That view of Chinese negotiators is someone outdated. A narrow price orientation is not as prevalent as it used to be, but you will still run into it often enough, and you may need to insist that the price is contingent on the whole package. Insist that the price agreement will be void if certain conditions are not met. Price cannot be negotiated in isolation. Some may try to brush that off, figuring that you won't push it. Push it. Be picky. Insist on engineering specs on the useful life of the product. Have them explain their quality control procedures, and their warrantee policy. Get a pricise definition of how satisfactory performance is specified, and what constitutes a completed project.
9. Understand Indirectness and Face
China is a relationship based society, developed long before the market turned our European ancestors into disjointed individuals competing with each other in the marketplace. Again to overstate for the sake of argument - we have no need for relationships. Market contracts regulate our lives and how we interact with each other. But for the Chinese, relationships are everything.
So how have the Chinese kept it all functioning smoothly? We have civil order based on a system of contract law to keep us in line. How have they kept people in line for thousands of years without that? They have established a mature and stable hierarchy of status relationships, and they maintain certain strict norms of behaviour. Chief amongst these behavioral norms, essential for maintaining order in a relationship-based society, are the following two. First, never provoke a confrontation by issuing direct challenges to others - which results in the famous Chinese indirectness. Second, never undermine someone's status in society by causing them to lose face. Understand how these rules lies at the root of the Chinese psyche, if you want to understand their reaction to our western brutishness.
So don't wonder why sometimes they seem to be running around in circles, and never seeming to get to the point. Bluntness is insensitive and uncivilized. A way must be found to press the point gently. You're just not understanding the language of indirectness. And don't wonder why they seem so concerned about losing face. Humiliating others is insensitive and uncivilized. Actually they are insensitive and uncivilized, when you come to think of it. In the midst of a frustrating negotiation session, take a moment to look at it from their point of view. Then look for a way out of the impasse which will not put them on the defensive, and which will grant them face. In fact, face-giving is the key to success. Find ways to make them happy, and they'll make you happy.
10. Play the Game, but Cleanly
China has a sophisticated set of laws. She's come into the market only recently, but she's done a remarkable job of setting up a legal framework for commerce in such a short time. However, there's a Chinese way of doing everthing, reflected in those laws and regulations, and you would do well to learn to play the game. At the same time, China still has a long way to go, and not everything is fully covered by laws and procedures. There's a lot of leeway everywhere, in the gap between the socialist regulation of society and the law of the market.
Corruption ranges from black to shades of grey. There are many kinds of activities which anyone, east or west, would call corruption. And China's come a long way in routing out real corruption in the major centres. At the same time, there are many activities which fall into a grey area - they're not strictly illegal but not quite legitimate. Or the paperwork is lax, and nobody really knows what's going on. How do we deal with those?
It's often not so simple. The guanxi system runs by different rules, and it may be unclear what's legitimate and what's not - in their terms. What do we do when something is perfectly legitimate and honourable in Chinese eyes, but outright corruption in ours? After all, exchanging money for various considerations among in-groups is the essence of sound relationship economics, but we tend to view it in a market context as unethical. Do we call it corruption? Here's where we have to find a balance. Don't insult your adversaries by denouncing every favour that facilitates a transaction. But don't agree to anything illegal or clearly unethical. You'll have lot's of company. In modern Chinese society, there is a strong sentiment for rooting out corruption.
It's hard to know the prevalence of corruption. The government is probably correct to say that their anti-corruption campaigns have been effective, and there's a critical mass of influential people who pride themselves on clean practice. In that view, widespread corruption is old news, and you may well get caught. But there are also people in many places who still credibly claim they can't do a day's business without passing the red envelope under the table, and you just have to play along if you want to get anywhere.
So you'll have to play it by ear. Your general stance should be that you refuse to pay bribes. You run a clean ship with a clear set of transparent practices, and you want to keep it that way. At the same time, you may feel some need to look the other way when discretion dictates. But if you find yourself in a situation where bribes and kickbacks are the only game in town, you'll have to make your own decision whether to hold your nose or bail out.
11. Do Your Due Diligence
Any economy like China, rapidly pulling out of underdevelopment, is going to be a contradiction containing many advanced firms with high standards alongside a significant still-backwards sector. So your primary due-diligence task is to sort them out. If you deal with a firm which is still trying to remain back in the lawless days, not only will you be propping up regressive forces, but you'll get ripped off. And you may get in trouble with the authorities. In recent years, Chinese authorities have been pretty effective in using enhanced enforcement and professional peer pressure to shift the centre of gravity toward ethical practices in the major centres. If you're working in the less developed areas, you'd better be on your guard.
In either case, you need to check their references rigorously. Conditions vary in China, and that dictates process. As a still-developing country, you can still expect to find many firms functioning at low levels with low standards. The days of poor quality, deadlines not honoured, work not finished, inappropriate substitutions, financial rip-offs, etc. are still alive in some quarters. It's true enough that the famous Chinese national pride is impelling them to develop higher standards and join the world community of top-level professionalism. So don't underestimate them, or the rapidity of their progress. Just don't get caught with a dud.
Of course there is the matter of the language and culture gap, which is why you need to work with knowledgable consultants. But these consultants themselves will vary in quality, so there's the first item for strict reference checking. Who have they worked for? Contact past clients and ask how satisfied they've been. These are probably people who speak English, so you can readily get a useful reference. Stick to professional references, not just friends and colleagues, and look for a track record of successful international deals.
When checking out Chinese firms, specialize in naive questions and keep asking until you're satisfied. Don't let them deflect you with embarassment. There's no such thing as a stupid question, and there's no shame in questioning repeatedly until you understand. Persistence may be effective in breaking through a runaround, and it's helpful if you know how to use indirect language in a passive-aggressive manner. But you'll do best when you can deal with the higher-quality firms that will be straight with you and won't give you the runaround in the first place.
Got this all down? Done your homework? You're ready to meet. Good luck.