Negotiating With Chinese Companies. In Real Life.

Excellent article by Andrew Hupert (of China Solved fame) in a recent issue of the China Economic Review. The article is entitled, "When Chinese dreams meet the real world: Western negotiators in China need to keep their heads out of the clouds, and it gives five great tips for negotiating with Chinese companies, of which his first two are my two favorites:

1. Plans and dreams are different. I always ask clients and students what they want out from their China negotiation, and the answers can be disturbingly vague. A deal-maker in New York or London will be able to give highly detailed predictions about the outcome of a domestic negotiation, and describe his goals, expectations and bottom line in specific amounts and time-frames. Novice negotiators in China tend to say things like, "I just want a signed a contract," "I want the best deal I can get" or even "I want to make a lot of money." Chinese counter-parties can hardly be blamed for helping themselves to gifts presented on a silver platter.

I have had clients say similar. Far too often, the home office sends someone to China to "do a deal" and that person feels that after a certain number of China trips or months in China, a deal must be done at any cost. They are almost invariably wrong.

2. There is a Chinese metric system - how do you measure a "win"? Western deal makers who have highly specific goal systems are the most successful in China. Experience counts and sophisticated negotiators in China know what to ask for. Amateurs demand that onerous penalty clauses get inserted into English-language contracts that don't mean anything in local courts. Pros want the right to pick the financial controller who keeps the company chops in his office safe. It takes experience and research to know what to ask for in China because success is measured differently here. If you want to do American deals, then go to the US. When you come to China, make sure you know what to ask for and how to measure success.

Andrew's example of not getting the company chops is a classic example that comes up when doing Chinese joint ventures. The American company wrongly thinks that by getting 51% ownership in the joint venture it will control it. In reality, the party who gets to pick key personnel (and that is not necessarily the majority owner!) and gets to maintain the chops ends up in control. Andrew goes on to rightly note how Chinese dealmakers are experts at creating phantom deal points to exchange for real assets, intellectual property and hard currency. The American who does not know what matters in China just goes along.

For Andrew's other three tips, go here.