Excellent post on negotiating in China at the new China business Blog, Chinese Negotiation/Negotiating in China [link no longer exists]. The is entitled, “Negotiating in China — Trust is just the beginning [link no longer exists] and it is geared to the foreign company  doing its first deal in China.

The post rightly posits that in any negotiation with a Chinese business, “TRUST is going to come up early and often.” But the “trust” that must be discerned actually involves the following:

  • Can you trust their intentions?
  • Can you trust their ability?
  • Can you trust their judgment?

The post then goes on to explain each of these three questions.

Intentions. Do they plan to fulfill the terms of the contract or not? Are they honest and reliable? This is the most basic type of due diligence in China, and it’s relatively easy to spot those with bad intentions: they are the ones who can’t give you references from past satisfied customers or partners. Make sure you get current referrals, and check them carefully.  Be sure that you are discussing the same individuals, not just companies or associations.  You also have to make a value judgment about the people giving you the reference, so don’t cut any corners here.

Ability. This is equally important. There are plenty of China businesses and China consultants who are completely honest and completely incompetent. Good intentions are great, but don’t mean a thing if the person you are negotiating with doesn’t have the ability to do the job you need done. Chinese counter-parties often underestimate the complexity of the task they are agreeing to or misunderstand your standards. Get very specific very fast about jobs they have done in the past. Make sure you are clear about their experience. Did they actually do the work you are discussing, or were they part of the team that did it? Beware of generalists when you need a specialist. Talk about deadlines and schedules, and be wary of unrealistic estimates. Find out what they WON’T or CAN’T do. A competent supplier or consultant will know their limits, and won’t take an assignment that they can’t handle.

Judgment.  Standards are different in China, and your idea of an adequate solution may be very different than your potential partner. Expats in China often complain about jobs that they consider to be 75% finished. You need to establish a “meeting of the minds” with your counter-party. Don’t be satisfied with vague statements or simple agreement. Drill down to details, and pose scenario-type questions. It is notoriously difficult to draw out the true opinions and feelings of Chinese business people, but that doesn’t mean they are being dishonest or evasive.

The post goes on to discuss how Chinese companies spend way more time than Westerners in getting to know those with whom they are doing business and though you “may walk away from your initial meeting with lots of simple answers and agreements” those “don’t really mean as much as you think they do.”  The post’s wise advice on this is not to be “afraid to ask naive questions or rephrase the same idea several times”:

If anything doesn’t sound 100% right, then take the time to explore it thoroughly. Experienced China negotiators know that what seems simple and clear at the beginning can quickly turn complex and confusing after money changes hands ‘ even if it is only a relatively small deposit or up-front payment.

All good advice, to which we add the following:

  • Go into your negotiations prepared. Far too often our China lawyers have had Western clients who insist on a particular term from their Chinese counterparts that no Chinese company can give or ever gives. If every manufacturer of widgets in China requires at least a 60 days turnaround time, you are wasting your own time and money by insisting on 10 days for you.
  • As a corollary to the above recommendation, we are big fans of using an already tested contract to gauge the bona fides or good faith of a Chinese company. For instance, my law firm has been using the same China NDA (non-disclosure agreement) for so long that we can in large measure assess the legitimacy of Chinese manufacturers just by how they react to it. Legitimate Chinese companies always eventually agree to it (usually rather quickly, but sometimes with reasonable modifications). The illegitimate Chinese company refuses to sign, usually claiming such agreements are “never” signed in China or are “illegal.”

For more on negotiating in China, check out the following: