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Negotiating in China
With China's entry into the WTO last year, many multinational firms are increasing their focus on capturing business opportunities in the world's most populous nation. This has led to a rapid increase in both the number and complexity of business negotiations with Chinese organizations.
Negotiating in China can be a tremendous challenge. In this issue we present some useful suggestions for people negotiating with the Chinese. We'll take a brief look at the following five topics:
- Confidentiality in the negotiating context
- Effective openings: presenting your position
- Maintaining a continuous negotiating record
- Knowing your bottom line
- Making concessions
Confidentiality in the Negotiating Context
Westerners are often surprised when they learn that the Chinese do not view confidentiality the same way they do. U.S. business professionals generally have high standards in maintaining the confidentiality of negotiation proceedings. The Chinese view things differently. They see information as a commodity to be used for whatever commercial advantage it can bring. Sensitive information is thus shared widely among ministries, agencies, companies, and friends in a kind of "information barter economy," where a holder of valuable information trades it in return for new information of equal value. For the Chinese, information is simply too valuable to be kept secret.
Advice for Negotiators:
- Don't accuse the Chinese when they appear to violate confidentiality; this will only make them defensive and angry
- Protect yourself: assume anything you say, write, or do will be shared widely in China
- Know that concessions made in prior negotiations in China will most likely be known and will set the minimum expectation in future ones, even when dealing with new organizations
Effective Openings: Presenting Your Position
Most Western negotiators will begin a negotiation in China by "getting down to business" and presenting a list of the key items they wish to discuss. This reflects a general Western preference for focusing on tasks before relationships.
The Chinese, on the other hand, often prefer to agree first on broad principles that will form the framework for a relationship based on trust. These principles may include mutual respect, fairness, and flexibility. Only after they feel they have established trust will the Chinese get to the details. This reflects their preference for focusing first on human relationships rather than tasks.
Advice for Negotiators:
- Plan to spend time building a relationship with your Chinese counterparts; don’t rush to the details
- Prepare an opening statement of basic principles you feel should govern your relationship and ask the Chinese team to present theirs
- Don't hesitate to appeal to your "relationship based on trust and mutual respect" if you feel the Chinese demands are unrealistic; they will do the same to you
Maintaining a Continuous Negotiating Record
Maintenance of the negotiating record is an extremely important part of any successful negotiation in China. This means that a Western negotiation team must maintain a continuous record of: 1) the positions and principles of both sides, 2) commitments and agreements, and 3) issues that may have been postponed for later discussion.
The tenure of many U.S. and Western team members tends to be brief, and teams typically don't take notes. Chinese teams, however, tend to remain intact for as long as a negotiation takes; this makes it very easy for them to maintain not only a formal written record, but also a "team memory" of the entire negotiation.
Whenever there is ambiguity in a negotiation about what commitments have been made or implied, the Chinese will often gain the upper hand by referring to their meticulous records, knowing the U.S. or Western team has no similar record with which to counter their claims.
Advice for Negotiators:
- Assign an official "note taker" to record all negotiation proceedings for your team
- Create a computer data base to store the record for the benefit of future negotiations
- Be prepared to parry Chinese claims based on their records with counter claims based on yours
Knowing Your Bottom Line
Knowing one's bottom line is an essential part of any Chinese negotiation; it is the only way to protect oneself against the relentless pressure to make concessions, which in China can take many forms. And yet it is striking how often Western negotiators overlook this key step.
A Western negotiating team must devote the time it needs to think carefully about its bottom line position for each element of the deal before the negotiation starts. And the team must not worry about being forceful in signaling that it has reached its bottom line. Chinese negotiators typically want to assess exactly where their counterparts' interests really lie before coming to agreement; they see a "hard stop" as an important signal in this assessment.
Advice for Negotiators:
- Determine your "walkaway" position for each element of the deal before you start negotiating
- Appeal to hierarchy by reminding the Chinese of your need to satisfy your senior management's expectations of you
- Do not be afraid to signal a "hard stop"; the Chinese will generally respect you for it
Making Concessions
In keeping with a preference for linear, logical thinking, a Western negotiation team will typically first decide its best-case position, then determine its bottom "walkaway" position, and then structure a set of concessions that lie in between the two extremes.
This approach is dangerous in China, particularly when applied to price negotiations. When a Western team makes its first concession, say by moving from $10 to $8, it sends a signal that the first price is meaningless, and that there is a lot of negotiating room left. As extremely price-sensitive negotiators, the Chinese will apply tremendous pressure for more concessions.
A better approach is to offer a price with room for a token concession at the end of negotiations, and then offer concessions of a different kind, such as training or after-sales service, instead of additional "slices" off the price. This emphasizes the overall value of your offering and steers the discussion away from price alone.
Advice for Negotiators:
- Do not offer concessions "a slice at a time"; prefer instead to move "sideways" to concessions of a different kind, particularly when negotiating price
- Emphasize the value of non-price concessions as part of your total offering
- Always demand a concession in return for yours; never give a concession for free
Before you start business here or abroad, use our Lessons from the Road.
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