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How To Handle Chinese Negotiating Tactics. Part Four Of Three.

Posted in China Business

This is part four of our three part series on how to negotiate with Chinese companies.  Yes, you read it right. Part four of three. How To Handle Chinese Negotiating Tactics, part one is here, part two is here, and part three is here. We originally planned a three part series, but when a reader alerted me to a post by Andrew Hupert on how American negotiators are viewed by their Chinese counterparts, I could not resist piling on a part four.  So here goes.

In Hupert’s post, entitled American Negotiating Culture – Through the Eyes of the Chinese Counterparty, Hupert writes on how Chinese companies see their American negotiating counterparts. Hupert has taught Chinese negotiating tactics at NYU’s Business School, conducted extensive research on the subject, and recently wrote a book on it, entitled, The Fragile Bridge: Conflict Management in Chinese Business. In other words, when it comes to negotiating with Chinese companies, he knows whereof he speaks.  And his speaking says that how Chinese companies view American companies influences negotiations between them.  So if American companies can better understand their own negotiating tendencies, and more importantly, how their negotiating tendencies play out to a Chinese audience, they can better handle negotiating with Chinese companies.

Hupert’s article sets out the “American cultural quirks” with which Chinese companies have to deal when negotiating.  Remember that the below is how Chinese companies view American negotiating tactics; it does not mean that their views are accurate.

  • “First and foremost – we are the only negotiating culture that leads with the lawyers. Europeans consider negotiation to be an exercise in diplomacy while Asians consider it the province of paternalistic company leaders to build lasting relationships. American negotiators – even when they are salesmen or purchasing managers – are fixated on contracts and legal institutions (like courts and regulations). Whereas traditional Asian negotiators feel that relationships are the key to business and that contracts are merely written records of agreements between individuals, Americans put more weight on the document than on the human bonds between business leaders.”  We wrote about this in The Lawyer’s Role In China Business Transactions.
  • We are the only negotiating culture that believes that liability can be assigned in advance through a contract. This is one of the many aspects of international negotiation that has become “normal,” but it still strikes traditional Asian negotiators as crazy that Americans consider contracts binding even as the market environment changes. Asian negotiators in general, and Chinese in particular, feel that as the external situation evolves, so must a business relationship. Many Chinese partners have been bewildered and disappointed when their American partner stated waving a piece of paper in their face instead of responding fairly and maturely to new market realities.
  • Americans believe that negotiations end. To Chinese, the negotiation is part-and-parcel of the business relationship. As long as the counterparties are still engaged in business, the negotiation is supposed to continue. What’s the point of taking the time to build a connection if you aren’t going to grow the relationship through continuous give and take?
  • Americans want to decide everything in advance and put procedures ahead of human decisions. Chinese (and most other Asian) negotiators understand that conflict and differences of opinion are inevitable, and their business agreements usually assume that the leaders or concerned parties from each side will work things out informally. American contracts, with their penalty clauses and rigid requirements, are not only insulting and arbitrary, but seem designed to undermine any kind of positive relationship.
  • Americans love deadlines, timetables and schedules, even when there is no business rationale for them. They can be arbitrary and illogical.
  • Most disturbing of all, American negotiators are adversarial and rude. We insist on running everything and taking control of situations that we don’t understand. We are famous for coming to China and trying to sell inappropriate products or services at ridiculous prices. Our technology and designs are nice enough, but we expect people to pay over and over for the same thing – even after their people have figured out how to make the same thing.

According to Hupert, American companies should at least recognize that Chinese companies are “struggling just as hard as you are to successfully manage the yawning gap between your cultures.” Okay….

What do you think?

  • KD

    I’ve certainly seen adversarial and rude Americans in China, but I think the opposite is normally the case. Most come here determined to be culturally sensitive and end up making bad deals because they don’t want to rock the boat and don’t want to come across as ugly Americans. Sometimes they insult the Chinese despite themselves, but more frequently they let things go because they want to make a good impression. By that I mean things like allowing Chinese companies to put in amendments at the last minute that completely contradict the schedule in the contract, and only offering a token questioning of something that major.

    There’s misunderstanding on both sides, but I’ve tended to see the Chinese use their home court advantage and communication issues to get better deals for themselves. They can so that’s what it is, but I don’t think it’s from a lack on understanding Americans. I think they understand them pretty well, better than Americans understand Chinese.

    A lot of his points seem like a way to put a nice face on the fact that when you lock in longer term agreements sometimes one side wins and the other loses and the Chinese often don’t believe a contract is a valid reason to be on the losing end. I’ve never seen them especially keen on pointing out the human factor and changing circumstances to renegotiate contracts that are heavily in their favor.

    • bystander

      I agree with everything you write. I’d only add that for someone who is new to the whole business of contracts in China, the thing to remember is that Chinese businessmen are much more canny about what can be enforced by whom and what can’t be. Most Americans think something like: ok, if this were enforced, I would get X and you would get Y. But a Chinese businessman is much more likely to think: I get X if this is enforced to my benefit and Y if the it is unenforced; and I can probably get it to be unenforced by doing A or B or C. The chances of it being enforced against me are very small because of D and E and F. I’ve negotiated quite a few contracts in the US but I don’t think I’ve ever run into a case where I thought the other party was actually negotiating in bad faith, i.e., counting on failure of enforcement as a primary strategy. But I’ve run into *more often than not* in China. It’s standard operating procedure here. This is why contracts are “fluid” and not something cultural about evolving relationships, in my opinion. (As you said.)

    • InTouch Quality

      KD – I have to agree with you. So true.

  • http://ChinaSolved.com/ Andrew

    Hi Dan — Thanks for the mention. First link to the article “Americans
    Through the Eyes of Chinese Negotiators” seems broken. Here is the link: http://www.chinesenegotiation.com/2012/01/american-negotiating-culture-through-the-eyes-of-the-chinese-counterparty/ -a

  • http://twitter.com/IPDraughts Mark Anderson

    Very interesting and very credible. The parts that resonate most with me (as a commercial lawyer in Europe who has experience of negotiating with US parties) are the lawyer-driven approach and the desire to button everything down. Usually involving very lengthy contracts.

  • Jack Charlton

    Is Hupert a lawyer, a businessman or an academic? Some of his points appear whimsical to say the least.

  • Cynical Observer

    Of course the “external situation” can evolve … that’s obvious to anyone, and it’s the whole point of a contract, to give both/all parties some certainty. I think that Chinese understand that concept perfectly well, but citing “cultural differences” works for them when they want it to, so they use it.

    My personal experience in China (having lived and worked there for 5 years) does not extend to “big commercial deals” but only to things like employment contracts and apartment leases. However, what I observe from my experience and that of friends and colleagues is, they make the contract as vague as possible regarding their obligations and penalties and as specific as possible regarding yours.

    If they feel the situation has changed “not to their advantage” they’ve no hesitation in trying every possible loophole, “forgetting” “misunderstanding” and telling you that this is a “special case” (these seem to be incredibly frequent), even downright ignoring the contract. But if you try to do the same, you usually find that there are very firm and non-negotiable penalties for you.

    You have to take the possibility of change into consideration when negotiating, what you think might plausibly happen and how that should be reflected in the contract. If you do a lot of business, you’re likely going to do well on some deals and not so well on others. But Chinese feel they have to “win” every time.

  • djm

    Does anyone know if Japanese negotiating tactics are similar to tactics employed by Chinese? Or are Japanese more westernized in this respect?

  • http://www.chinavortex.com pdenlinger

    The problem with the American way of using lawyers to lead negotiations is that the attorneys aren’t rewarded if the business relationships develop on a healthy keel, but are the first to be called in if something shows signs of going wrong.

    From the perspective of the Chinese, and many others, this creates a self-perpetuating situation where the legals benefit from the relationship turning sour, regardless of how business conditions may have changed in the meantime. This is because many legal specialists bill by the hour. The more crises, the more billable hours they can book.

  • InTouch Quality

    In regard to negotiations that involve product quality expectations; this is one area where contracts and expectations can very much so be set in documentation. Although, as pointed out in this article series, negotiations in China should be focused on building long-term relationships, when it comes to product quality specifications and expectations there is nothing wrong with documenting and holding your Chinese counterparts to strict and well-documented standards, such as those clarified in your QC Checklist.