Negotiating with Chinese companiesThis is the second in a series of posts in response to emails and comments asking us to expound upon how Western companies can better negotiate with Chinese companies on technology deals.

In part one, Negotiating With Chinese Companies: Be The Rabbit, I talked about using the Zen technique of “being the rabbit,” which in Western terms translates mostly into just being patient, hanging back and letting the Chinese side start negotiating with itself. In response to that post, I received the following email from a China business consultant I greatly respect who has been in China for at least twenty years:

I liked the post on negotiating with Chinese companies. I found the best trick is to lay out terms and when the Chinese side balks, be super polite and say when you can agree to these terms please, email, call or text me. Then give them your card and leave. I always tell people the mentality of bargaining in China is the same whether buying fruit on the street, clothing in a market or doing mega deals in the boardroom. A lot of people act like they are dealing with a Japanese company. They are not. You have to have a walking away point in place before you start so that you don’t lose your cool.

Most of the negotiating techniques we are seeing Chinese technology companies employ are similar to those we have seen Chinese companies employ for decades. A classic example of an old tactic Chinese technology companies seem to constantly employ is to “lure” in Western companies to do a deal by promising the moon and then backing down from nearly every promise with each new contract draft. The best response to this tactic is usually a simple statement that you will not agree to the change and then to wait. In other words, be patient and be prepared to walk.

We are also seeing massive Chinese technology companies agreeing to a do deals with Western companies and then at some subsequent point in the negotiations substituting in some other “related” company as the signatory for the contract instead of the massive Chinese technology company. The company substituted in for the massive company is usually a brand new company created just for this one deal. When we explain that our client wants to do the deal with the massive and well-funded company and not the newly created one, we get pushback and excuses.

The Chinese technology company will claim that it “needs” to do it this way for IPO purposes or for investor purposes or because it will be able to move quicker this way. They will sometimes mouth platitudes about how “it doesn’t matter because the big company will be behind it all anyway,” but when we ask them to have the big company give its own guarantees on the deal, the big company balks. The only way to handle this sort of company switch is to be patient and 1) be willing to convey from day one that you are willing to walk and 2) actually be willing to walk.