Written in 1982, a report by China expert Lucian Pye found that the way American businesses approached commercial negotiations with Chinese partners tended to ultimately favor the Chinese company. Tactics such as sending senior figures to China too early, and being too impatient, tended to favor the Chinese side.
Is your business taking the same ill-advised approach? It’s important to take the right stance from the outset when negotiating with Chinese contacts, in order to achieve a workable deal. Pye’s work is still extremely relevant today and well worth reading if you are considering a Chinese venture.
Western companies need to appreciate the importance of relationships, understand Chinese business hierarchies, withstand stalling behaviours, and find ways to appreciate the Sino approach that ignores fine detail in favour of the ‘spirit’ of the deal.
Establishing personal relationships is one of the cornerstones of doing business in China. You can expect any part of deal-making to start with investing time in getting to know your contacts. But when senior executives go racing over to China at the first whiff of a venture, it can disadvantage negotiations in the long term. It’s often more helpful to send more junior team members first to prepare the ground. This also helps both sides to save face.
Many western businesses getting into deal-making with Chinese partners will use a go-between for the process, but they’ll still need to do some leg work – especially in terms of relationship-building. Building trust through relationships is a really important part of the process of doing business in China.
It’s highly likely that there will be some business dining, particularly between the more senior players. Even if they’re not involved in the day-to-day negotiating, it’s important that senior figures work on building good relations with partners.
As hosts, Chinese partners are better able to control the negotiations. This may include arranging very long meetings late into the night to wear down their opponents. There’s also a feeling that foreigners who go to China are essentially asking for favors – being on Chinese soil immediately puts foreigners at a disadvantage. It’s important to remember this as you prepare to begin the negotiations.
What’s a good deal?
Perhaps the core difference in negotiating style is that Chinese businesses tend to be keen to identify any mutual interests, which the deal is then constructed around. Details are seen as less important than the overall principle of partnership. Western companies tend to focus on the details of the negotiations and may later find themselves disappointed when their partner fails to stick to them.
But Chinese partners may feel that westerners don’t appreciate the spirit of the agreement when they obsess too much over the detail. Your negotiations need to find a way to bridge these differing viewpoints so no-one is ultimately disappointed.
Western businesses often tend to focus more on compromise and conciliation; on having an outcome that’s equitable to both parties rather than focusing on mutual benefit. Chinese partners may feel it’s reasonable to push for an ‘unjust’ agreement which a western partner finds unfair, but one firmly founded on mutual interest.
If you’re negotiating with a manufacturer, you may find them more interested in offers that will lead to long-term working opportunities rather than one-off deals. Although your partner will probably be interested in lucrative short-term deals, they are likely to be more interested in ongoing ones.
That’s pretty logical, as it makes it easier to manage ongoing costs of their business. If you’re surprised to have what you think is a good deal turned down, it may be because they are after longer-term opportunities.
Sometimes negotiations with Chinese partners can seem to be extremely slow. Building relationships is an important part of the process, and this isn’t something that can be rushed. You may also find your partner occasionally has to break off in order to discuss things internally. Your impatience may play to your partner’s advantage, as this can be exploited to rush through a deal that favors them. Be aware of this as you set any timelines for the discussions.
One tactic you may not be prepared for is your partner trying to shame you. Chinese culture does use shame as a way to influence people, and it can be alarming when it happens as part of negotiations. Be resistant to moralistic appeals to your better side and try not to resent this tactic, which is culturally ingrained.
Delicate negotiations hinge on precise cultural understanding. It’s usually a good idea to find a local ally who can negotiate on your behalf. Not only will they be more fluent and able to negotiate in the local language, but they’ll also be able to understand cultural factors. It can be hard for foreigners to be accepted on equal terms, so using a go-between that has high standing may be helpful to raise your credibility.
Understanding your partner
One of the difficulties of doing business with potential Chinese partners is to understand who is the real decision-maker. It isn’t always clear who is really controlling the final outcome, as this isn’t always clear from their hierarchy. Your immediate negotiating partner may not be the best guide to how things are going, as they are likely to be reporting back to the real decision-makers behind the scenes.
Those involved in the negotiation may not be able to represent the real decision process and they may not have a clear view of how their superiors are inclined. As such, they may not be the best guide to how things are going at any point.
Even if you have a good understanding of the organisational hierarchy at your partner organisation, this may not be a good guide to authority. Power is not always tied to responsibility, and it can be hard to track down the real decision-maker.
If you’re personally involved in any aspect of the negotiations, it’s important to understand the appropriate etiquette. Concepts such as saving face are really critical and deals can be scuppered by a lack of sensitivity in these areas. It’s vital not to insult someone or criticize them or their ideas in front of others. You should also respect peoples’ status in the business and not treat them as more junior than they are.
Pye’s ultimate set of rules for negotiating with Chinese partners is to practice patience, accept periods without progress being made, discount any rhetoric and exaggerated expectations your hear from your partner, expect them to try to use shame to influence you and don’t assume difficulties are caused by your own mistakes.
His final piece of advice is that you should aim to understand Chinese culture but also accept that you’ll never really manage to do so – ultimately you’re at a disadvantage as a foreigner and it’s best to accept that.