Negotiating with Chinese CompaniesIn the early 1980s the US Air Force commissioned Lucian Pye, an eminent sinologist, to write a report on how Chinese negotiate with foreigners. Published in 1982, it was called Chinese Commercial Negotiating Style.

A friend of mine recommended Pye’s work to me recently, saying he wished he had read it twenty years ago when he first started working in China. Based on extensive interviews with Americans engaged in China trade, Pye’s paper analyzes the negotiating style the Chinese use with American businesspeople. To control for American cultural bias, Japanese traders were also interviewed. Pye’s overall conclusion was that the way most Sino-American negotiations are initiated usually sets in motion a process that helps the Chinese side achieve its preferred strategies and tactics.

Though some of Pye’s political and economic observations are, quite understandably, now rather dated, I was nonetheless struck by his report’s enduring relevance and, like my friend, I now recommend it to anyone interested in doing business with China. To merely summarize his work would be to do it a disservice so I have attempted to draw out some of his major themes and look at them in a series of posts. A recurring theme is Chinese mastery of contractual preliminaries.

In Pye’s view, foreigners often follow the historical practice of coming as guests seeking permission to do business in China. This naturally casts them in the role of supplicants asking for Chinese beneficence. They are visitors from afar and their hosts call the tune on the procedures and the timing of meetings. Problems associated with visas, invitations and access to officials or business leaders contribute to foreign anxiety about “doing the wrong thing” when doing business in China. So when problems arise, the foreigners are prone to suspect they are somehow at fault. In this way, the Chinese hosts gain the advantages of surprise and uncertainty in agenda arrangements.

According to Pye, the Chinese tend to limit preliminary exchanges to generalities so as to size up the foreign party and to determine its vulnerabilities, especially any lack of patience. At the same time, foreign business leaders tend to jump straight in. The novelty and status associated with visiting China frequently compel foreign CEOs to be the first to engage in talks with the Chinese, without waiting for subordinates to prepare the ground. The graciousness and bountifulness of Chinese hospitality can make the foreign visitor feel awkward about being too businesslike. Consequently, foreign CEOs tend to be very obliging in following the Chinese practice of seeking initial agreement on very general principles, without clarification on the specific details. Much of what occurs at the preliminary stage has a tacit quality and foreigners frequently misjudge their progress. In taking this approach, Pye says, foreigners violate one of the first principles of negotiations and diplomacy — summit meetings should never take place without extensive preliminary spadework by subordinates.

When mid level executives are later sent in to work out the details of a contract they usually discover that the Chinese want to rely on the agreed “principles” that were put in place by the CEO. Such principles were often taken by the foreigners to be no more than ritual statements but the Chinese tend to use them to practical advantage by suggesting the other party has not lived up to their “spirit.” See China LOI and MOU: Don’t Let Them Happen to You. Instant authorities on China, these CEOs returned from their initial visits to report success, saying they found the Chinese to be cooperative and gracious. The mid level executives and others tasked with working out details then come under great pressure. They are constrained to avoid acting in ways that might irritate the Chinese and spoil relationships established by the boss. So, when the big guns are sent in first the foreigners lose the advantage of dispatching their highest people for critical negations at the consummation of the deal. Their second appearances must now be limited to generalities where civilities prevail.

I found Pye’s observations both persuasive and broadly consistent with my own experience. Having said that, he is clearly more concerned with the affairs of government and large corporations than he is with SMEs or creatives who may not have support available from a middle level of management or administration. The pitfalls Pye identifies can be minimized, he says, if foreigners recognize that in the initial stages of negotiations, the Chinese usually only want highly generalized in-principle agreement to the effect that a relationship is possible.

In my next post I will look at what Pye has to say about Chinese attitudes to contract formation.