To an American negotiator the phrase ‘it’s very complicated’ carries a negative connotation. Americans view this statement as qualifying, foreboding, concealing, warning, dangerous, opaque, dishonest, tricky – and yeah, a little girly. Americans like straight-forward, transparent deals – and straight-forward, transparent deal partners.

To a Chinese negotiator this is a neutral qualification of value. If a situation is complicated then it enhances the Chinese side’s position as a partner and guide. Chinese view complexity as a sign of maturity, opportunity, comprehensiveness and sophistication. Chinese like complex, multi-faceted agreements that provide a range of opportunities and the ability to change with the circumstances of the moment. Chinese expect their deals to contain a good deal more flexibility and ‘wiggle room’ than Americans do, so a certain amount of complexity is desirable.

Chinese synonyms for ‘complex’ – special, deep, valuable, sublime, rich in opportunity and potential.

American synonyms – cumbersome, unclear, mysterious, confused, poorly planned.

In American management, the ability to ‘lay things out in a straight line’ and get right to the heart of the matter is considered the highest form of business communication. Your Chinese counter-parties, however, tend to consider this brutish and unsophisticated. To him the ability to re-visit and reinterpret statements is an important risk-control technique, and Chinese negotiators will sometimes intentionally inject a bit of vagueness or ambiguity into the conversation.

American negotiators coming to China (and more and more, hosting Chinese negotiators in the US) sometimes miss this cultural disconnect because it is a little subtle and doesn’t usually appear until fairly late in the conversation. If you find that you and your Chinese counter-party start out agreeing on big-picture goals but never seem to drill down to specific points, then this divergent view of the nature of complexity may be a contributor. Remember – it’s not a language or translation issue. Chinese and Americans have different mindsets and values. You may have to work a bit to overcome this – and to avoid unintentionally pissing one another off.

Put another way – you want to nail down your deal, but he doesn’t want to get pinned down to a commitment that may hurt him later.

Hope that’s clear and simple enough for y’all now.

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Are you still in the China business?

Chinese deals don’t die – they just fade away.
In the bureaucratic, harmony-oriented world of Chinese business, your potential partners may find it abrupt and unnecessarily rude to say “this deal is dead”. You are supposed to be able to figure that out from the context of the situation. From the Chinese perspective, it is much safer and kinder to just allow potential deals to just kind of wind down into a semi-permanent stasis. Who knows – maybe things will change or the environment will shift, and that sleepy worm of an idea will emerge as a beautiful soaring butterfly of profit. But if the deal isn’t meant to be, then the most politic and harmonious resolution is just to let it quietly fade away.

Closure is an American concept
You, on the other hand, have an entry on your To Do list that isn’t ticked off or crossed out. For American deal-makers, this is an itch you can’t scratch. You know that at some meeting in the not-too-distant-future, your boss – or his boss – will point that icy stare at you and demand a status update on the company’s great Chinese hope – the Shanghai Deal. You need to know exactly where you are, what needs to be done and most of all, WHEN THE DEAL WILL BE SIGNED. Anyone can see that, right? Well, no – not really. In much of the world, business deals don’t follow a linear progression from A to B to C. Many Chinese deal-makers find it pointless to kill off a negotiation – and the relationship that has grown up around it - just because it isn’t moving forward at this particular moment in time.

A 1% chance is still a chance.
Remember – your Chinese counter-party has the home-court advantage and knows how to use it. He considers his opportunity cost to be ZERO, so even a slim chance of pulling out a profitable deal still has economic potential. What about HIS boss or boss’ boss? Well, he’s probably the one who wanted the deal put on the back-burner in the first place. As far as the Chinese organization is concerned, this is appropriate and sensible. Every once in while one of those comatose deals perks up and starts working. If not, there are plenty of fish in the sea – and plenty of Americans on China-bound flights. They’re not losing sleep over this go-nowhere negotiation – you are.

Whose risk is it?
Risk has shifted to your side of the table, and so has the pressure to make concessions or offer new approaches. This is particularly true if you have A) talked up the potential of this potential deal to impress your bosses, B) spend time, money and resources to develop things this far, and C) have been so busy negotiating this individual deal that you don’t have anything else in the pipeline. By managing expectations and time, your Chinese counter-party has shifted risk and the balance of power in his favor.

Sometimes it’s up to you to put down a sick deal.
If a Chinese negotiator doesn’t give you a flat ‘NO’ at the initial meeting then there’s a good chance he never will. A key decision-maker at a private business may look you right in the eye and tell you that further negotiation would be a waste of everyone’s time. A bureaucrat or middle manager is much more likely to keep you on the hook and let you figure things out for yourself. If you are looking for a definite answer, then you may have to force the issue. Just remember, though, that a Chinese counter-party is likely to let you walk away even if he feels there is still a chance of doing business. Chinese deal-makers have been brought up to believe that there is always another opportunity around coming down the road – and that a bad deal is worse than no deal at all.

Always have fresh options in the pipeline.
Your first and last line of defense is always the same – have alternative deals in various stages of development. One of the worst things you can do in China is to get tied down to a single counter-party. The best – and sometimes the only – way to bring pressure to bear on a Chinese deal-maker is to let him think that a local competitor may be the one to shear his sheep.

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As China moves away from a privatization model towards a Statist model – characterized by increased regulatory and bureaucratic influence – decision-making within Chinese organizations becomes even more complicated. For a brief time in the earlier part of the decade it seemed that decision-making in China was becoming more streamlined and transparent as private companies emulated their western counter-parts and partners.

Now, however, Chinese corporates seem to be reverting to an hour-glass shaped organization chart that most westerners access just below the thinnest part. Newcomers looking for a standard A-shaped structure only focus on the immediate chain of command and think that they will be successful if they can win over the decision-makers in the room. Unfortunately, there is often a wide range of other decision-makers, stakeholders and veto-powers that have all have to grant explicit or tacit approval. This is particularly problematic since many of these powers have no need, interest or desire to engage in active negotiations. Their power is derived from ambiguity and limited access.

Who are these mysterious powers? In China, there are four general types of power that have veto power over your deal.

Private – The power structure within your counter-party may have recently grown more diffused and murkier. As Chinese companies shift and react to tougher economic times, they may have sought out new partners, supporters or investors. Everyone has a voice – which means everyone gets a veto. If you are trying to buy something at generous terms, than you probably won’t run into too much resistance. But if you are selling, then expect to face a series of uphill battles. Hint: Don’t even bother trying to sit down and pitch everyone involved. You are best off boiling your main deal-points down to a single simple presentation that YOU have translated into Chinese. Make sure that your supporter on the other team is comfortable working with this presentation and that the Chinese is accurate and appropriate. This guy may be your champion or he may merely be a messenger – but he will not act as your guide. You have to rely on him to act on your behalf – and the more tools and ammunition you can give him the better. Remember – the people who say “no” may not be experts in your field or understand the benefits of your offering, so make things as clear as possible.

Bureaucratic – Don’t confuse Chinese bureaucracy with the Chinese government. Chinese bureaucrats are about compliance with rules and regulations. Don’t even start looking for approvals until ALL your paperwork is in order. In other words, you have to find out what you need and how to get it. In years past things were relatively more relaxed in Chinese bureaucracy, but now you can expect your entire deal to come to dead stop the moment one stamp looks a bit crooked. These folks can not say “yes” to your deal, but they can certainly say “no” – or worse, they can say “maybe later”.

Governmental - National, Provincial and Municipal. The key here is to steer as clear of them as possible. Western business is not in favor right now. Even when Chinese officialdom felt that overseas deals were good for China, dealing with the government was difficult and time consuming. Right now the process is opaque and adversarial. The best advice is to avoid trying anything that doesn’t have well-established precedents in the jurisdictions you care about. Be very wary of deals that involve investment or up-front payments before all the approvals are secured. If you build a factory or hire a team first and try to comply with the law later, you will lose. Your private counter-parties may tell you not to worry about dealing with the Chinese government, and I agree. If it isn’t 100% locked down and approved in advance then you don’t have to worry – you have to forget about it completely and finally.

Party – Dealing directly with the Party may be a formality, or it may be a serious negotiation. If you are holding a banquet or entertaining a group of bureaucrats, then the appearance of a Party representative is not unusual. Be polite, respectful – and maintain a safe distance. Let your Chinese partners or representatives deal with it. If there is any more than casual, pro-forma involvement by the Party then you are probably in over your head. The only good news is that attention by the Party is usually a very clear warning that your deal is problematic, and you know to cut your losses and look for simpler or less sensitive opportunities.

While this type of firm has always been around in China, their new prominence – and new agenda – makes them formidable negotiation counter-parties. They are particularly important in China-Western negotiating since their new power and scope will likely set the tone for negotiations even between pure-privates. For the last decade or so, Statists have had to mimic the negotiating style of pure private firms. We are now seeing the pendulum swing the other way - and pure privates will have to start making accommodations to Statist negotiating styles.

New power.
Who are these people? Think of them as private, profit-seeking bureaucrats. They are different from NGOs and traditional government agencies in that they are ostensibly private, profit seeking — but they are built and bred to thrive in policy environments. American negotiators tend to come to China looking to deal exclusively with private businesses. The danger here is that Chinese Statist firms look private -
and can even be listed on overseas stock exchanges — but are basically policy organs. Post-stimulus China has become a Statist economy, and even independent entrepreneurs will fall more directly into Beijing’s bureaucratic orbit.

New agendas.
Like large organizations everywhere, these firms have an institutional imperative to survive and grow. They like profit – but aren’t comfortable in openly competitive environments. These firms thrive on complexity, policy and back-room wrangling over regulations and approvals. These companies would rather shut out potential competitors by manipulating procedural approvals than go head-to-head in the marketplace. Statist negotiators tend to be sub-zero-sum gamers – they are lose-lose negotiators who would rather see the entire system shrink than give up their quasi-monopolistic position. Statists are the incumbents who view new competitors as existential threats - and place a premium on blocking entrance to the market. These actors find it much more cost effective to entertain government officials than to invest in R&D or new product development.

New variables.
These negotiators are determined to earn profit as an end goal — but whereas traditional profit-seekers see government regulations as an obstacle or interference, Statists view regulators and bureaucrats as clients or partners. They tend to measure success not only by sales and profit, but also by headcount, access to government or policy decision-makers, input to the regulatory process, and ability to master the approval process. Be very sensitive to the fact that these people are concerned with more than just securing their own approvals – they also work to block the approval of their competitors. In China, where regulations are not consistent or evenly applied, this becomes a very potent negotiating variable.

New tactics.
Chinese Statist negotiators are highly sensitive to balance of power and tend to behave like monopolists. They attempt build ‘the People’ or ‘the Nation’ into an external source of power — not just a neutral part of the deal-making environment. Their first priority is to enhance and leverage their ’special relationship’ with power structures and institutions. Statist negotiators magnify the role as ‘insiders’ or ‘guanxi’ — which marginalizes outsiders and westerners. Their main tactic is to control & limit access of outsiders to power structures– which serves to manipulate the process and make structures more opaque. Cooptation is more favored than conflict — head to head conflict is discouraged.

New counter-tactics.
Avoidance is the best approach — you are advised to develop plans that don’t involve them directly. This is a great time to consider partnerships with downstream players who have already gone through the time-consuming process of developing Statist relationships BEFORE they consolidated their power. If you have to deal with these Statist organizations directly, you are best off at cooptation (even it feels like YOU are the one being co-opted) rather than conflict or attempts at dominance. One way is to develop your own constituency or populist claims. If you can make it work, try an end-run around the Statist counter-party to appeal directly to their government sponsor/client. What we will probably end up doing it waiting for environmental shifts — or for corruption or new developments to weaken their position. The bad news is that Statists are very effective at blocking new entrants from accessing the marketplace. The good news is that they tend to sow the seeds of their own destruction by making the entire system less efficient and competitive – ultimately undermining their own power base.

While the rise of the Statist is not solely a Chinese phenomenon, the implications for American negotiators in China are profound. The re-emergence of Statist negotiating in China has been triggered by the collapse of external demand for Chinese manufactured goods and the size & composition of the Chinese stimulus package which favors infrastructure building and easy money distributed by policy banks. We are seeing a return to an older — and less efficient - form of Chinese governance that will be more ideological and less technocratic. Since this type of negotiation is better suited to conditions of shortage rather than surplus — those that can create shortage-type environments will benefit most. This is a classic definition of lose-lose negotiating – and American deal-makers have to reexamine their basic assumptions about China’s new business environment.
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What is the profile of a bureaucrat-negotiator in China?

Adversarial, Win-Lose & Competitive
Bureaucratic negotiators in China take their cues from pre-reform managers who operated in an environment of shortage and opacity. Expect your official relationship to be a bit more adversarial and competitive than your dealings with pure-private Chinese firms. These are zero-sum-gamers – any gain of yours is perceived as a loss to them. They tend to be more suspicious and nationalistic than sole-owners, and will end up following the official agenda very closely. These negotiators firmly believe that the balance of power favors them – so don’t be surprised if they negotiate “down” to you. No matter what the title on their business-card, you can expect SOE or bureaucratic Chinese negotiators to behave like executives at a monopoly – representatives of a powerful firm who are carrying out the goals and strategies of a committee.

Adjust your variables
Time has less value to Chinese bureaucrats than it does to private negotiators. Information has more – and they will tend to play their cards very close to their vest. Chinese bureaucratic negotiators view ‘relationship’ as both a negotiating tool and a bargaining point. This is the kind of counter-party that expects to be banqueted and entertained. The key here is that he believes you are scoring points when he agrees to your invitations, so behave accordingly. His attitude is that by allowing you to develop a relationship he is making a concession.

Goals are not flexible
Their goals have been developed somewhere higher up the ladder, so you are best off determining their true objectives early and then making a decision about whether or not it is worthwhile to continue. You are not going to get them to change their goals at the table – even if they lead you to believe that it is possible. This kind of Chinese negotiator is difficult – but surprisingly honest. They will stay true to their initial position – even if during your discussions they suggest options or lead you to believe that they have the power to change deal fundamentals. The only real negotiation about goals is INTERNAL – and it won’t involve you. If you can’t live with their initial statement of goals, then consider breaking off discussions early.

Negotiating styles – Avoidance and Competitiveness
They tend to believe that they are the only game in town – which is their main weakness. You may not be able to directly force or pressure these guys to do anything, but you can win major concessions by playing off their fear of loss RELATIVE TO OTHER SOEs or Chinese bureaucracies. This type of negotiator doesn’t want to see you win – but he lives in mortal terror that another Chinese competitor (from a different bureaucracy or network) will gain an advantage. Don’t overplay a weak hand, though. Chinese bureaucrats have incredibly long memories.

Tactics and counter-tactics.
Bureaucrats will attempt to intimidate with the brute force of their organization and wear you down using ‘broken record’ techniques. (For those of you who don’t know what a vinyl record is, the expression “broken record” means to keep saying the same thing over and over). They will frequently appeal to a higher authority – but you will never meet the real decision-maker or even know who it is.

There are a few effective counter-tactics that you may employ. The first is to make your initial negotiation about information – not the final deal terms. Learn as much as you can about market conditions, pricing, organizational structure, competitors (both yours and theirs) and what they consider to be key variables. Once you have learned a bit more about the lay of the land, try your best to develop a second (or even third) counter-party. If you can play one side off the other, then a viable counter-tactic is the ‘take-away’ where you apply pressure by subtly threatening to take your deal elsewhere.

Remember to be subtle and polite, even as you are trying to stick a knife between one another’s ribs. This type of negotiator sometimes considers Americans to be impatient and brutish, and if your behavior bears this out you will find that many doors are closed to you in the future.

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Americans see contracts as independent constructs that put limitations and obligations on both signatories. Chinese negotiators see contracts as snapshots of agreements at a specific moment under specific circumstances. Americans view contracts as a destination, while Chinese view them as milestones.

This isn’t a matter of semantics or rhetoric. It’s a completely different orientation to the deal-making process. The upshot is that many American negotiators get on a plane with a signed contract and a wholly erroneous belief that they are doing business in China. Their Chinese counter-party heads back to his office believing that he has begun a long process of starting to do business with an American. While the situation isn’t necessarily going to end badly, there is certainly a disconnect between the two sides that has the potential for disaster.

Americans doing business in China have to differentiate between doing deals and doing business. Chinese negotiators tend to see business agreements as far more fluid and flexible than Americans. These

Execution: Americans tend to equate a signed contract with deal execution. In China, many agreements simply never progress to the actual business stage. Chinese counter-parties often have to ‘sell’ their deal internally – even after a contract is signed. They expect their new American contact to assist – or at least show flexibility – as Chinese work to secure internal approval and buy-in. When the American side displays impatience at the delay or re-negotiation, deals quickly fall apart. Many American deal-makers find that their hard-won concessions and horse-trading amount to nothing in the end.

Renegotiation: Be prepared for ongoing negotiation and haggling over deal-points you thought were already settled. Experienced expats warn newcomers to China that nothing is really settled until the money is in the bank. Negotiation never really ends in China – and waving a piece of paper in front of your Chinese counter-party accomplishes very little. Make sure to build sufficient slack into your timetables to allow for re-renegotiation.

Conflict resolution: Lawsuits are rarely a viable solution in China. Even arbitration is a long-shot. It’s ok to point out to your Chinese counter-party that the matters in question are explicitly covered in the contract – but this works much better as a starting point than as a final argument.

Exit strategies: It’s a very good idea to discuss how and when your deal will end – unless you want it to end badly. Even if you don’t plan on including this in the contract document, you should at least broach the subject of how the relationship will end early in the negotiation process. Americans assume that one successful deal will automatically lead to subsequent deals with the same terms and conditions. Your Chinese counter-party may not object to more business – but he may want to change the deal.

Put away the calculator and take out your calendar. If you want to make it in China, you have to play a longer game. Three areas where Westerners need to think about their planning horizon are:

1) Timetable for entry. When you say fast, they hear expensive. Trying to fast-track your first China deal is like mashing down the accelerator when you have no idea where you are driving. You’ll probably get lost in a hurry. You need a schedule for research, network-building, registration and business entry. There are few certainties when doing China business but here is something you can count on: If you don’t have time to do the research and prep-work, then you don’t have time to do business in China. When it comes to China business entry, speed kills. If you plan on going from first meet to WOFE in less than 6 months, then you probably need to revisit your planning process.

2) No deadlines on signing deals. Chinese dealmakers equate patience with intelligence. If your Chinese counter-party hears that you absolutely must have a signed deal by 2:00 on Friday, then he will make damned sure that substantive conversations don’t start until 1:00 that day – no matter how long your trip is. Believing that your deadline is his problem is a classic mistake Westerners make when dealing with Chinese counter-parties. If you want to look like a serious player to the Chinese, you tell them you want to start doing business as soon as you understand the situation and are certain about how to proceed. Even if you are lying, this is the kind of statement that Chinese counter-parties respect.

3) Exit strategy. What if things go wrong? What if things go right? Americans in China tend to see ‘The Deal’ as their sole concern. All too often, process, operations and compliance issues get glossed over in favor of price and timetables. You should be thinking about how and when you are getting out of this arrangement – no matter what the contingency. Getting out of a bad deal in China is relatively simple, albeit expensive and aggravating. Experienced Western business-people in China will tell you, however, that the successful deals are often the stickiest because now there are profits, sales, and valuable assets to fight over.

Next: Doing the Deal vs. Doing the Business

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Next: Doing the Deal vs. Doing the Business

Westerners coming to China have a habit of seeing numbers as an international language that can paper over cultural and linguistic differences. Those of us from the US are particularly susceptible to this misconception. Mainland Chinese negotiators used to consider this ‘show me the money’ attitude rude and abrupt – but now I think they find it funny. They’ve certainly learned to use it to their advantage in business.

Negotiating with Mainland Chinese counter-parties about numbers before you have reached a big-picture meeting of the minds is simply suicidal. Westerners whose deals run aground in China usually find their real troubles start AFTER the contract is signed. The biggest problems aren’t about quality, delivery or costs (those are common problems – but really are just symptoms). The REAL problem is when you can’t get your Chinese counter-party on the phone to try fixing the problem. While you were doing complex calculations about profit margins and non-compliance penalties, the Chinese counter-party was doing a much simpler kind of math – ‘Is this going to be a one-time deal or is there a real opportunity for a long-term relationship?’

3 Kinds of China Deals

One-time deals (or ‘one-offs’). Pay money, get something in return. If the numbers work then there’s absolutely nothing wrong with one-off deals. We do them all the time. They are simple, clean and can be mutually beneficial. The only problem here is that you may think you are starting a long-term relationship – so you don’t take the trouble to find alternative sources or counter-parties. Remember – building trust through successful transactions is a Western notion. Chinese negotiators prefer to build a trusting relationship FIRST, and then start doing transactions.

Long-term business. If you take the time to build a relationship first, you’ll find that the numbers part of the conversation with your Mainland Chinese counter-party go a little smoother – and can carry more weight in the event of problems (though there are no guarantees). A long-term partnership in China is a possibility – but it’s certainly not easy or convenient for those of you based in the US. The process of building a real relationship with a Chinese counter-party can be long, time-consuming and tends to focus on non-business issues. In other words, by NY standards it’s a huge waste of time. It’s supposed to be. Relationship-building is the Chinese version of due diligence. They are trying to gain insights into your character. If you roll into Shanghai or Beijing and immediately start asking indiscreet questions about earnings and profit margins and prices, then you are giving your counter-parties a great deal of information about who you really are. Their verdict may be that you are an astute business-person – but a shallow and untrustworthy human being. They’ll sell you stuff and take your money, but you don’t have a real relationship.

Many one-off deals. I often hear Americans say something like, “but Mr. Chen and I have had a relationship for years”… and then tell how badly things suddenly went on the last deal. There was never any long-term relationship – there was a long string of one-off deals. The Chinese side of the arrangement was happy enough to keep doing business when it was advantageous to them, but when the situation changed then their choice of counter-party changed as well. Many westerners think that because they have been doing business for a long time that they “have guanxi” with their partner, supplier or client. It doesn’t necessarily work that way.

Westerners who come to China with a ‘numbers only’ approach will do OK if they are buying materials from a source with a good track record and relevant references. But if you want to sell into the China market or form any kind of long-term relationship with a Mainland counter-party, then you should worry more about relationships – and less about the math.

Next: Calendars first, calculators last.

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Managing time across cultures is always challenging, but part of the problem in China is the way business people get to know each other. In the US, you’ll have a few conversations with a potential supplier or client – but usually there is very little real trust until after a few small preliminary orders. Transactions lead to a relationship in the West.

In China, the sequence is reversed. They have to know you and trust you before there is any business at all – even a test order. In China, relationships lead to transactions.

That leads to a very common disconnect in Chinese contract or deal negotiating. The western party tends to feel confident that it is on track for a final order just as the Chinese party is starting to feel that it knows who those westerners really are. Potential problems are compounded by the fact that to westerners, a signed contract is the finish line – while the Chinese consider it a written summary of terms and conditions at one particular moment in time. Western deal-makers frequently complain that Chinese counter-parties are constantly promising one thing and delivering another, stalling, or changing terms and conditions after the deal is signed. But to the Chinese side, this is all a normal process of getting to know who you are and what you want. And that’s where trouble starts.

Chinese counter-parties: Getting to know you.

This is the process your Mainland Chinese counter-party goes through between the time he first meets you and the time the first deal is concluded:

I know who you are
I know what you want.
I know what I want.

‘I know who you are’ is slightly different in China- both in terms of variables and methodology. They want to know who you are, what you do, who you represent and how important you are. If you someplace modern and international like Shanghai, then they’ll probably just Google you and check out your corporate site. If you’re not quite as lucky, this first phase could involve long nights of drinking bad baijiu. Plan early.

The main take-away for western negotiators is to not jump the gun and think you’re going to walk out of your first meeting or two with a signed deal. I’m still hearing stories about novice negotiators believing their Chinese counter-party was agreeing to deal terms when he was merely indicating that he understood the statement. Early-stage negotiations in China usually take a while – if yours is speeding along in a smooth, frictionless arc, then maybe things are too good to be true. One of the reasons ‘guanxi’ is such an important part of Chinese business culture is because they are NOT natural networkers and backslapping hand-shakers. Getting to know you is supposed to take a while. If your guys are too friendly too fast, it’s a red flag. In some international areas like Shanghai and Shenzhen, you may in fact move more at international speed. But beware of disreputable counter-parties who prey upon frazzled, overscheduled western execs by offering to ‘facilitate’.

‘I know what you want‘ can take a very, very long time in China. It can, in fact, take MUCH longer than you think it should. Westerners are always jumping the gun here, and assuming that their deal terms are crystal clear. If you are buying a container full of shower enclosures then this one won’t be too tricky (in theory). But if you are doing anything with marketing, sales, profit splits, IP or any other service-related terms, this could end up taking a very long time. Just a few years ago, any westerner in an IPR or service related business was advised by Chinese partners to switch to a ‘real product’ because no one in China paid for services. This wasn’t some kind of double-reverse fake or subterfuge on the part of the local partner – they just didn’t understand the western firm’s business model. Even well-meaning Americans tend to have this notion that if we speak slowly and clearly and repeat ourselves enough that others will understand our meaning. In China, just because they can repeat back the same words doesn’t mean you have achieved a meeting of the minds. This is a very common source of problems or westerners negotiating in China. Assume nothing.

‘I know what I want from you’. This is a tricky one since Americans usually know this walking in. It never even occurs to many westerners that their Chinese counter-party hasn’t figured out all the angles of the deal until pretty lat in the process. In some cases, they are still deciding what they want well after the contract document has been signed. It’s not always dishonest or unscrupulous, either. I have been in plenty of high-level meetings between Chinese parties where they signed contracts that were extremely vague in terms of pricing and deliverables. Remember – to the average Chinese business person, a contract is just a declaration of intent. They give it as much weight as an MOU (memorandum of understanding) in the US – they’ll do their best, but if conditions change then so must the arrangement. Of course, unscrupulous Chinese counter-parties abound, and this ongoing “what we want from you” phase can be a huge headache.

Most Americans will try to head off these problems by insisting that their Chinese counter-party nods in solemn agreement and repeats back the key terms and phrases. All you are really doing is pushing the discussion back until after you have already left and have to unravel a mess of incoherent faxes and conflicting emails. You can’t rush the Chinese process, but you can facilitate it through better communication skills. When these guys are taking you out for lunch or drinks, they are dropping hints about what they consider to be outstanding issues. (Why they can’t just write them down in a memo so you can tick them off one by one is a subject of much contention – but it aint’ gonna start happening soon.) Pay attention to their continuing concerns about matters you thought were already “dealt with”. There’s a good chance you’ll be revisiting those issues once you are back home and telling everyone about your killer China deal.

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“Which is better – a bad decision or no decision?”

Every single western student said, “Bad decision”.
Every single student who grew up in a Chinese household (in US or Mainland) said, “No decision”.

This is an old Harvard Business School koan that has achieved the status of proverb in the US –and the orthodox answer is “a bad decision is better – because it leads to more information and progress”. It reinforces an American notion that inertia and indecision lead to failure.

Chinese households teach their kids a different lesson. When confronted with a confusing, dangerous array of options, the best course is to delay action until the situation becomes clearer.

Which is better? Well, that depends on which side of the table you’re seated at – and what the environment is like. But the real point is that Americans and Chinese are walking into negotiating situations with VERY different assumptions about risk and decision-making. This particular cultural disconnect is very dangerous because both sides have internalized their behavior and don’t even consider that their counter-party may see the world differently.

Attitude towards risk: Chinese vs. Western traditions

Risk vs. Uncertainty
When Americans use the word ‘risk’ they are combining two concepts. First is the possibility of negative outcome – the chance of loss. The second is the degree of uncertainty – how much do we know about the possible outcome? Americans tend to treat them as opposite sides of the same coin. Chinese decision-makers have no problem with risk as ‘chance of loss’, but they are seriously bothered by uncertainty. We see the manifestation of this in negotiations all the time. When your Chinese counter-party asks for more and more information - or wants to review the same facts many times it may indicate that they still feel unclear about some basic point. (It may be a delaying tactic as well – more on that another time).

American negotiators tend to dive in to deal discussions and try to get at the “real meat” of the discussion – numbers, projections and deal points. This is sometimes off-putting to Chinese negotiators, who like to spend more time on background and big-picture issues. If you find your discussions hitting a snag on a very basic point – or your Chinese counter-parties ‘just don’t seem to get it’ – then the problem may be that they are uncomfortable with environmental factors. It’s important not to tense-up or get hostile here. Back off a bit, and lighten the conversation. If your Chinese counter-party drifts the conversation back to some big-picture market or operational issue, you may have an indication of what the blockage is about. They may want more information – or may have already made their decision. Either way, it is worth exploring.

Failure vs. non-success
To a western manager losing and not-winning are pretty much the same thing. If you didn’t get the deal, then it is your shame and disgrace. It doesn’t matter if you tried your hardest or missed the lead completely. Chinese organizations don’t have the same orientation. If you stick your head up and accept responsibility for something, then you now own that problem. Remember – commissions and bonuses and profit sharing are all relatively new in China. The Chinese worker who had to stamp his name on the bricks used to build the Great Wall didn’t get a bonus for the section that stayed up – but he was sure going to have a bad day if his name was on the brick that crumbled.

This is one of the many reasons why it’s so important to make sure your counter-party actually has the organizational buy-in or personal authority to execute the deals you are discussing. When dealing with Chinese organizations, don’t look for champions who are going to fight to get your deals approved. You are better off with a counter-party who will introduce you to the next level of the decision making unit. If you are having repeated meetings with a Chinese manager who is clearly taking orders from someone you still haven’t met, then you may want to investigate. You may simply be furnishing your guy with market and product information.

Opportunity costs
Chinese deal-makers tend to assume that there is always another opportunity coming down the road. Many western negotiators have been surprised to find that their ‘take it or leave it’ offers get left – often with no further discussion or bargaining. Taking a bad deal is illogical when it’s likely a better deal is about to walk through the door. Even when business is slow, Chinese negotiators tend to be more passive and reactive than their western counterparts. When facing an uncertain or dangerous situation, they will delay and wait for clarity.

If your counter-party is convinced that there is a better offer waiting in the wings, then you are going to have a hard time gaining concessions or controlling the pace of that deal. Your best option here is to maintain simultaneous discussions with multiple counter-parties and play one off against another. The same Chinese negotiator who is happy to see you slink away in defeat will be significantly less happy if one of his competitor’s ends up taking your money.

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