Negotiating in China: 11 Essential Tips to Securing Business
Navigate the Challenges of Contract Negotiations in the People’s Republic
A Fortune 200 executive once told me “No CEO wants it on his or her watch that they missed out on China.” It goes without saying that the world’s largest marketplace is a force to be reckoned with. Having recently returned from a trip to China as part of some large contract negotiations, watching sky scrapers pop up overnight and seeing its young workforce spend new money on luxury brands, I again thought about that executive’s remarks and the immense growth the country is seeing. And having spent two weeks there working out the details behind a $100M contract, I thought it would be good to share these 11 tips for negotiating in the People’s Republic.
1. Know Your Position
When negotiating in China – or anywhere for that matter – know your position before you go in. Spend time getting your negotiation team aligned and aware of the limitations and constraints behind the deal. Make sure the team members understand the sensitive issues, the giveaway items, and the non-negotiable conditions that will come up in your meetings. There are always ways of finding agreement. It is conceivable that the team will be split up at some point to ensure you have time to address multiple topics at hand. Preparing the team ahead of time will ensure everyone takes a consistent stance on multiple fronts.
2. Bring a Team Experienced in China
Nothing will make your business deal and negotiations in China go south faster than having your team strut in the room like a bunch of Texas cowboys. It’s all about relationships in China, so overly aggressive and hyper-direct tactics are damaging to getting things done. There is finesse to it. Having a team who knows how to engage with your Chinese counterparts and who is accustomed to working through a translator is highly advantageous to you. Case in point, a newcomer sent to join my team a few years ago quickly undermined progress we had made during a casual working lunch, by asking members of the Chinese constituent if they had siblings. (They were all only children, thanks to China’s one child policy.) She went home two weeks later to get reassigned. If you don’t have access to people with China experience in China, READ THIS, or CONTACT US and we can help.
Global Business Negotiations by Claude Cellich and Subhash Jain
Global Business Negotiations is a detailed, yet readable resource that can help you improve your negotiating skills for the global business environment. The book includes strategies, techniques and tips to help you approach, manage and close a negotiation.
3. Have a Translator Familiar with the Subject Matter
If it’s your first encounter with China, you may not realize how difficult communication can be, perhaps more so than any country in which you’ll do business. While the younger population speaks English, the older generation likely will not unless they were educated abroad. Further, even if they do speak English, they typically won’t as a means of saving face (also a big deal in China). To make your negotiations in China go more smoothly, make sure you bring a translator with you who is knowledgeable of the subject matter. You don’t need an expert , just someone who is able to understand the translation of the terms used in the negotiation. For example, if you’re talking through highly technical software matters, bring a software engineer who can speak Mandarin. If you’re talking financials, make sure you have someone who knows how to translate concepts like profit, ledgers, depreciation and other financial items. Avoid wasting valuable time educating your translator while in the negotiation room. Finally, be aware that some words literally do not translate, so you may need to get creative with your explanation.
4. Get There Early
When negotiating in China, face time is very important. Don’t try to negotiate over emails and through phone calls. Instead, get on a plane, and go sit down with the other party. Face to face meetings in China will likely reveal details you might not have otherwise understood. Also, when courting a potential Chinese client, know that they tend to select those businesses that are willing to work towards a relationship, not just a business deal. Having in-person sit downs starting from early on in your negotiation in China will help you gather important details and show that you are committed to the relationship.
5. Agreements Are Made at High Levels
What made my recent negotiation in China particularly interesting was that the dollar value of the contract had already been agreed to at very high levels in both companies. My challenge was to figure out what it was we would actually do for the agreed amount of funding. Sounds backwards, right? Because of the hierarchical manner in which business is conducted in China, though, agreements at very high levels can often outweigh the fundamental scoping and pricing exercise that we’re accustomed to in the West. Equally, when negotiating in China, it’s important to bring representation that mirrors the level of the company in China with whom you’re working. Again, doing so is a sign of the commitment you’re making to the Chinese company.
Getting to Yes by Roger Fisher, William L. Ury and Bruce Patton
Getting to Yes: Negotiating Agreement Without Giving In is an international best seller that provides practical approaches and strategies to negotiation. This is a good book for anyone in management and marketing, who has to work through conflict and reach agreements with another party. The skills and tips provided are valuable in day to day business, as well as negotiating a deal for a large scale contract.
6. Be Prepared for Anything
Despite the importance of formalities in the country, what is unusual about doing business in China when compared with doing business in the West, is the lack of structure you’ll find in meetings. While in the West we are accustomed to things like agendas and expected outcomes, business meetings in China just start, and a long drifting conversation covering a broad range of topics will follow. Even if there is a preset agenda, do not assume it will hold beyond the first 5 minutes. These tendencies are especially true when dealing with state-owned companies, and less so with private firms. Thus, when working on a deal in China, it’s important to come prepared to talk about any number of adjacent topics. If you’re negotiating over the production of your product, for example, also be prepared to discuss things like shipping logistics, payment arrangements, order placement, and factory inspections.
7. Prepare for Fast, But Anticipate Slow
Because China is so hierarchical, high-level agreements can be made that seal the deal quickly. “We have agreed to our financial arrangement. The details will be worked out later.” For my recent contract negotiation in China, the financial side of the deal was agreed to before my team even arrived – the purpose of the visit was really to talk about what it was we would do for the customer for the price agreed. Even so, while lightning strike deals can happen at the highest levels overnight or at a dinner during with a lot of baiju (a potent Chinese spirit), you can also find yourself on a slow boat to an agreement just as often.
Operation China: From Strategy to Execution by Jimmy Hexter and Jonathan Woetzel
Operation China: From Strategy to Execution provides a more modern take on doing business to China. Written by two seasoned consultants at McKinsey & Company, the book provides tips and strategies that are applicable to a variety of businesses and organizations.
8. Clearly Align Payment Terms
Years ago, I sat next to a man on a flight to Beijing. He had lived in the country for nearly 10 years. As we talked about the usual things two business people talk about on a plane, we got to talking about payment strategies in China. When I told him my firm was struggling to obtain a milestone payment, he chuckled at the thought of it and said “that’s not really how it works. You’ll get your money, but the Chinese typically don’t like milestone payments because they want to make sure you’ll stick around until the end of the project.” An open action item can be used to say the work is not done yet, holding up a $2M payment. Be sure to tie any interim payments to completion of work, but include an alternate calendar-based deadline language in the contract that limits delays.
9. Showcase Your Strengths
Though many Chinese companies are loaded with cash, what they don’t always have is knowledge and experience. Thus, many companies in China hire Western businesses for their knowledge and connections, not necessarily their specific product or their service. They are masters of learning and often ask very good questions both to learn from you, as well as to assess your ability to bring them long-term value. So regardless of your type of business, be prepared to showcase your experience, your breadth of knowledge, your credentials and other supporting information. Your Chinese client will certainly consider this in their evaluation, and may even pay more to partner with the firm that offers them the most value.
10. Be Respectful of Seniors
Seniority and rank is big deal in Asia, and especially so in China. Case in point, when negotiating with a company several years ago, my team was asked to leave the room for half an hour while they captured a list of questions. When we returned, it was the lowest ranking person on the Chinese side who asked every question their team had identified. Though the junior member was asking the questions as if they were his own, many of the questions being asked may actually have been those of the highest ranking person their side of the table. Show respect for the all people you deal with and never put high-ranking individuals in an uncomfortable or embarrassing situation. Outwardly criticizing them will quickly end your chances of coming to an agreement.
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11. Remember, It’s Courtship
When negotiation in China, remember that the business environment is very much about relationships – or guanxi. Unless you have a long history of working with this particular company, you shouldn’t expect to spend a few days in a conference room ironing out a large contract. Upon your first arrival, plan on the fact that you’ll have to return, perhaps many times, before you ‘ll seal the deal. The bigger the deal, the longer the romance can take to develop. Pick and choose your battles carefully and be prepared to show patience and tolerance in your interactions.
If there is a central theme to negotiating in China, it’s that you and your team should be well-prepared and patient. Expect conversations to swing wildly between topics, and ensure you have a team with you that knows how to deal with the subtleties of working in China. Spending time in the People’s Republic is always an adventure, and so will be your negotiation. But rest assured, with patience and preparedness, you, too, can successfully secure business deals in China.