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How To Negotiate With Chinese Companies.

By Dan Harris on Posted in China Business, Recommended Reading

Just read a really good International Herald Tribune article, entitled, “Avoiding Pitfalls, and Forging Success, in East-West Contract Negotiations.” The article concisely sets out the basic underpinnings of what it takes to succeed in negotiating with Chinese companies. 

It starts out by emphasizing how Westerners need to be patient: 

“The first lesson is to understand that the negotiation process is considered to be part of the fun for Chinese — an expected challenge,” says Laurie Underwood of China Europe International Business School. “In an East-West business negotiation, the Chinese side will generally expect a long, complicated negotiation process, during which both sides must work hard to discover what the other side really wants. This is the challenge.”

“Chinese will not come to the negotiation table with a clear list of goals,” she continues. “They will instead plan on a long, convoluted discussion, during which both sides will get to know each other better and both sides will work hard to uncover the actual goals of their counterpart.”

Seeking to shorten the process is a mistake:

Eric Olander, who has spent years in China, says: “So what ends up happening — as Americans try to take shortcuts to get to the results they’re tasked with, it gives the Chinese the upper hand in doing business. So one of the common negotiating tactics for the Chinese is to agree to almost everything in the initial stage of a negotiation.”

“As the process goes on, the Chinese will start introducing a delay or a wrinkle or another element that slows it down. What the Chinese are doing is evaluating the Westerner’s response,” he explains. “It’s a negotiating tactic. As the Westerner becomes more impatient, the Chinese gain the upper hand in negotiation.”

The article contains a number of other negotiating tips, but my favorite involved the role of meal invitations:  

“But if you don’t invite them or they don’t invite you, that can send a very strong message. But you have to be very careful with that play, because that’s maybe making people lose face,” he adds.

I liked this tip so much because many many years ago, I was representing a very large Korean company in a settlement negotiation with a very large American company. On the first day, the talks were tough, but going fairly well and at lunch time, the lead in-house lawyer for the Korean company invited the American side to join us for lunch. The Americans declined. We went to lunch (the Korean company representatives and me) and then negotiated the rest of the afternoon.

The next day, we made tremendous progress and a full settlement was completely in the bag when the lead in-house lawyer for the Korean company again invited the American side to join us for lunch. Again, however, the American side stressed the need to work through lunch.

So again, I went to lunch with my Korean client, but this lunch was very different from the previous day. My usually very light-hearted and sober client had a number of drinks during lunch and made clear early on that he was not in a joking mood. After lunch, we returned to negotiate and one of the more junior lawyers on the American side made some completely innocuous suggestion. I do not remember the suggestion, but for effect when I tell this story, I say that he suggested the agreement be signed in blue, not black — it really was nearly that inconsequential.

In response to the young lawyer’s comment, the lead in-house lawyer for the Korean company slammed his notebook shut and proclaimed that we were “done here” and instructed all of us to walk out. The Americans looked at me for an explanation and I had none.

Only a few weeks later did my client tell me what had transpired. 

On the first day, he had invited the American company to lunch and they had turned him down in front of “his people.” The next day, the American company should have invited all of us to lunch but they didn’t. So in an incredibly magnanimous act, the lead in-house lawyer for the Korean company had invited them. Again though they declined, which made him lose tremendous face in front of “his people.” 

in the end, we did eventually settle, but it took another month and a lot of lawyer time and a highly choreographed trip to Korea by the CEO of the big American company and all because of a declined invitation for lunch .

Anyway, I highly recommend the article and would love to hear what you think about it.  Do you have any additional negotiating tips?

  • stewart

    I have negotiated maybe a dozen deals with Chinese companies and what I have found is that they sometimes start out with the most ridiculous demands and that it can take longer than one would think to get them off those demands. I have gotten the feeling that they are doing this to test me as a negotiator and so whereas it used to anger me, I now take it in stride.

  • Matthew H.

    I went and read the whole article and I found it very helpful. Thanks for the link.

  • Fusheng Wang

    I have negotiated on behalf of US companies with the Chinese companies many times. Although I agree with the article, I firmly believe that the business basics are the same in both countries and cultures. You need to do your homework and understand what exactly the Chinese wants and how good is your product and your offer in this highly competitive World market. Of cause, you will also need to have a good understanding in both cultures and shape up your negotiation skills.
    A few examples of negotiation skills that may be different from a typical negotiation in the US are that you need to know who is the real decision maker which is not so apparent in a negotiation table, you need to be careful not to cause a loose-face situation for your counterpart, you need to wine and dine with your counterparts, if you can not drink you may consider to bring someone who can, of cause, you need to take the advise of this article and do not turn down lunch invitation twice no matter how busy you are, etc…….

  • Stephen DeMoss

    It sounds like the keys to negotiating cross culturally requires more patience than most of us Westerners are used to. Also, common courtesy and politeness seems like it will go a long way. When I was in Africa on business, I remember walking briskly by groups of people waving ‘good morning, good morning, good morning’ only later to find out i had offended people left and right by not taking time greeting them.
    These articles are very important for westerners like me! SD

  • anon this time

    I would like to hear/read more about how often face is given by those who feel so strongly that they receive it. I find, as a foreigner, that Chinese are much less likely to give face at the same rate they’d like to receive it, and in fact many times someone’s “foreign-ness” is used as a reason to get out of giving the face that they require. I have seen people ask “won’t you give me face” in what seems to be a feeble (to a western POV) way but is actually a fairly considerable show of humility… but however graceful they are about asking for face, the Chinese can be equally graceless in giving it.
    And, when everything is some nuanced shade of cultural exchange, where does individual personality and just plain bad behavior come in? Or nationalism? is face as likely to be demanded from another Chinese as from, say a Japanese, or a Frenchman?
    What I have noticed recently is more and more mainland raised Chinese imploring westerners to back off the declarations of face/guanxi, and more and more westerners convincingly swearing by it/adhering to it. Is that cultural exchange?

  • confused

    I would like to ask about how Chinese actually value assets. I have lived in Beijing for 7 years and have lived in 3 apartments. I know from personal exprience at the end of the lease period our landlord asks for a raise in the lease price (only 5% increase) even though the going rate in the complex is not raised or in fact has gone down. Furthermore, the lease price we were already paying was at the top of the range. So out of principle we decided to move to another apartment in the complex, which was the same layout but cheaper price. Then, we know the landlord let the property we left to sit for 12 months without any renters. Finally, after 12 months the landlord has rented out the apartment. We then became friends with the new tenants and we know that the rent amount was the same that we were paying 12 months earlier.
    This is one example of many we know. It makes no economic sense. And it happens frequently. They could have been collecting income for 12 months at the original rate, instead, they risk the loss of income over 5% increase in rental price. This is not logical or smart…..but it happens all the time. Can anyone explain the Chinese psychology behind this? While I understand the issue of “Face”, most Chinese are more logical than that

  • Chip

    @confused,
    I don’t see your experience as reflective of Chinese psychology, it’s more reflective of a stupid landlord. Every country has stupid landlords.

  • Twofish

    confused: This is one example of many we know. It makes no economic sense. And it happens frequently. They could have been collecting income for 12 months at the original rate, instead, they risk the loss of income over 5% increase in rental price. This is not logical or smart…..but it happens all the time. Can anyone explain the Chinese psychology behind this?
    It’s not psychology but economics. Chinese landlords don’t pay property tax, they usually have paid off any loans, and the value of the apartment may increase anyway even if empty. So if they ask for more money, and you say no, and leave the apartment empty, the landlord is still out ahead. Also most landlords don’t make that much money from the apartment anyway, so rent is a minor source of income.
    This is a problem because even with high property prices there are a lot of empty apartments in China.

  • Eloise

    Is this really all that different from negotiating with anyone who is not Chinese?

  • Carlos M.

    I’ve been negotiating with Chinese companies for twenty years and I have to say that the strangest thing about them is that they so often negotiate without having any clue at all about their own positions. For instance, I cannot tell you how many times they have agreed to sell me something for less than their costs and then the next day they come back and tell me that they have done that and would I please change things. For all their vaunted negotiating skills, they have a real tendency to be unprepared.

  • George C

    Generally, I believe that Westerners and their advisors spend way too much time worrying about offending the Chinese and the possible “face” they might lose. This timidity is often viewed as a weakness and used to its full advantage during negotiations. Instead, if you come to the table with clearly articulated goals and a road map that is not ridiculous, negotiations with Chinese firms are not often highly contentious like western deals. As a bilingual Chinese American deal professional, I have worked extensively in US/European transactions and compared that to Chinese deals that I have worked on, the Western deals are significantly more contentious with a lot of yelling and disagreements. There is a Western saying that a deal happens when both sides are unhappy. If you take that attitude to China then the deal is doomed. Often enough I see colleagues going in with a take no prisoner attitude. This usually results in the Asian firms saying yes up front and non-executions shortly after. Chinese companies may be somewhat driven by short term profits, but they also value long term relationships. They don’t want this deal to be their last deal with you….

  • http://www.newviewit.com Derek

    My favorite is when you’re negotiating a long, tough deal and it turns out that these people didn’t have the authority… 6 months later a new group is brought in to finalize the deal under new terms. Psychological warfare.
    Face it, there is little legal recourse while in China so the deal is only as good as someones word. It’s far better to spend time in the beginning really understanding the personal attitudes/goals behind management before jumping into anything. Unfortunately singing a contract in China means very little for a lot of smaller to medium sized business.

  • CT

    George C. is right on the money, many Westerners are way too timid and focused on not offending anyone. You need to tell the Chinese side clearly what you want, rather than beating around the bush and offering a lot of artificial friendliness. They often see it as weakness rather than politeness. Just be firm and clear about what you want, like you would be in your own country. You can be courteous, but if you speak much less and more to the point, they’ll respect you a lot more as a serious businessman.
    It is helpful to be non-emotional if things don’t go your way. I’ve often gotten good results by just telling them the terms proposed don’t allow us to make enough to make the business worth doing long-term, then they sweetened the offer. My biggest mistake was to be overly friendly and timid, rather than businesslike.