7 Steps to Successful Negotiation in China

Michal Zieba


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Have you ever wondered why so many Westerners remain unsuccessful in negotiating and dealing with Chinese business people? What is the secret that opens the Chinese market to some and keeps this market inaccessible to others? The secret is simply an understanding of the Chinese negotiating culture…

It is often a huge challenge for foreigners to do business in China. Why? Because China is one of very few countries in which Western standards and rules are not accepted or adhered to. In response, the Chinese political system and traditions are often criticised and rejected by Westerners. In spite of Westeners reservations, (which have their roots in different cultural perspectives), China still tempts many foreign investors and business people.

The main attraction is the size of the Chinese market and also the fact that China may provide a gateway to other oriental nations. China is one of the oldest civilisations in the world. It is also a country where many cherished traditional values are still upheld today. While other civilisations were collapsing and new ones emerging, China has endured. In recent years, it has become a rapidly developing country as far as commercial, mental and social changes are concerned. When you want to do business in China, you need first to master the art of dealing with government officials.

Public officials must approve all the most important decisions affecting a particular region. You will have to build a strong relationship with the relevant officials and this is best achieved in a social setting. The way you deal with officials can determine whether you succeed or fail. Always try to identify the top regional authority and do your best to them on your side.

1. Negotiation Goal

For many nations the purpose of negotiation is a substantive outcome and material gain; for others what counts is the relationship. The latter is what you should be prepared for in China. This is what the deal is about – the relationship – and there is no other way to succeed in doing business than through a close partnership. You should first establish trust before moving on to doing business. For Americans and some Western & Northern Europeans, who are mostly interested in material outcomes, it can be difficult to deal with Chinese business people.

To get a contract takes time - time to get to know one another and to develop trust. If you plan on doing business in China, consider investing a lot of time in the pre-negotiation phase. The goal of negotiation is not the signed contract. For content focused cultures, as found in North America & Western & Northern Europe, the contract is a guideline in case of any unexpected circumstances and serves to govern the relationship.

In China, a context focused culture, unexpected circumstances, whenever they arise, are resolved through the relationship. The fact that you have signed a contract does not actually mean that the deal is closed: it means rather that a relationship has been established. Trust is the foundation of the contract and it is not advisable to rush Chinese business people into signing a contract. Examples of other context-focused countries are India, Argentina, and Mexico and it may be much easier for representatives of these cultures to deal with the Chinese.

2. Negotiation attitude

For some people negotiation is like a competition. The better the result you achieve, the more prestige you get. There are 5 basic approaches to business negotiation:

Competition
Avoidance
Accommodation
Compromise
Collaboration

The most straightforward to approach is often a competitive win-lose type negotiation. It requires us to be focused only on our own goals and interests. Will a purely competitive approach deliver the desired results in China? In settings which require a collaborative partnering approach, we would suggest not. The Chinese negotiation approach is one of collaboration and problem-solving whilst still focused on the bottom line. Negotiators from Mediterranean countries can often find it difficult to adjust their preference for a competitive only style to the Chinese way of mixing collaboration & competition when doing business.

3. Women in business

Although the government of the People's Republic have given many of the same rights to women as men, there are still many discriminatory practices taking place. Women are usually the first to be laid off from economically suffering businesses, and only a few business leaders are women.

Having said this, foreign businesswomen should not necessarily experience any discrimination. Women in China for business should act and dress in a formal manner and it would make sense to think very carefully about the positioning & roles of women within your negotiation team.

4. Communication style

Personal business communication style usually has a strong link to national or ethnic culture. Our communication style manifests itself in the way we interact with other Formality, which in China is considered appropriate, is expressed by using titles, following protocol and being highly respectful and aware in conversation. It is advisable to start with a formal approach and then, when it is deemed safe, to move on to a more informal approach, but only once we are sure that it will be reciprocated. In China using first names and an informal style unwisely can be considered offensive and can be interpreted as an act of disrespect.

In a direct communication style environment such as North America, the meaning of words is transparent; what is said conveys the exact meaning. When we negotiate with counterparts who prefer indirect communication, we need to read between the lines to determine the true meaning hidden “behind” the words - we need to analyse the context. Chinese culture is indirect in communication style. It is unusual to hear a direct “no”. You will more likely hear “it is difficult”- which in fact does mean that we have no chance of success. Do not expect to receive direct clear proposals or responses to your questions.

It is important to be aware of such nuances as it will help you not to get stuck on a problem which seems possible to solve when in fact it is not. When asking questions you should not insist on an immediate response. A typical mistake made by foreign businesspeople is to ask a lot of questions one after the other, without allowing their counterparty sufficient opportunity to consider their questions and response. Silence can also be utilised by Chinese to make foreigners feel uncomfortable and confused. We recommend you ask a question and wait patiently for the answer.

5. Time perception

Whilst for the Americans time is money, the Chinese believe that time is something to be spent very wisely and “slowly”. According to the Chinese approach, a lot of time needs to be invested in studying the other side’s goals and interests. Time is mostly spent in building up a relationship. The effort invested in creating a relationship is a sign of respect for one’s counterparts and this is expected to be reciprocated.

This is just one aspect or characteristic of the Chinese way of doing business. A newly initiated western negotiator will soon observe that in almost every aspect of the Chinese business culture, numerous things are done differently. When you negotiate in China, you need to be aware that you will have to adopt and follow the Chinese rules of doing business. A long, drawn-out pre-negotiation phase, at a stage when you are not even close to your substantive issues, should not be interpreted as your Chinese counterpart’s expression of bad faith. What may help is to agree to follow a written agenda and to summarise every single meeting in order to track the progress of negotiations. One can also try to put a deadline “set or dictated” by economic constraints, but be prepared to disclose its details. For Westerners time is sacred and the Chinese usually take advantage of this fact, especially bureaucrats and Chinese officials.

This is where your negotiation preparation comes into play. Have some alternatives prepared and let your counterpart know that he is not the only one who can walk away from the table. Bear in mind that “tomorrow” or “next week” often doesn’t literally mean the following day or week; instead this could mean “in the future”. This factor causes a lot of confusion for most Westerners and can weaken their willingness to move forward.

6. Negotiation style

The Chinese are known for wanting to get acquainted before doing business. China is probably one of the most hospitable countries in the world and its hospitality is what the Chinese want you to experience. What for most Westerners may appear to be innocent socialising is in fact their way of gathering information. China is a country of rituals and the way you behave, both in your everyday life and in business, reveals what kind of person you are. Chinese negotiators are well versed in the art of positioning & framing, the intricacies of pricing and the use of time as a negotiation tactic.

During negotiations, the Chinese will often use psychological tactics to embarrass or shame the other party in order to create pressure and gain the advantage. If a problem arises, expect to take the blame, whether or not you are in fact responsible. Do not react with anger or disrespect and try not to attach yourself emotionally to the situation. Although it may not be easy, this will prevent your Chinese partners from taking control of the situation. Simply step aside and acknowledge that this is simply one of the tactics used by the Chinese during negotiations. As far as possible, try to gather information about your counterpart’s competition and market so that you can base the negotiation process on objective criteria.

Don’t focus on local market prices as in China there is one price for the Chinese and another one for foreigners and you can not do anything to alter this. It is usually pointed out in discussion that rules applied by foreigners have no relevance and no reason to be used in China.

Boye Lafayette De Mente (2004,p.112) describes two negotiation phases when dealing with the Chinese, these are in turn:

Technical – focuses on details.
Commercial – focuses on terms and conditions.

Both phases are equally important and should be treated with patience. Your whole team, no matter who is included (technicians, executives, lawyers, interpreters) is advised to attend both phases. All of your Chinese counterparts will certainly do so.

It is advisable and very important to arrange for someone with a position of authority within your organisation to make the introductions when you arrive in China, and to accompany you during meetings. Without visible official support, you will be sending out the wrong message about how seriously you view both the negotiations and your counterparty, and as a result won’t have a great chance of success.

China is a one-leader orientated culture and the Chinese expect exactly the same approach from foreigners. A team of negotiators is welcome but the Chinese will want to establish the leader within it, who has the authority to make decisions. There is one more important difference between Chinese and Westerners in their way that they perceive the negotiation process. For the Chinese, negotiation is a three-dimensional process consisting of:

Social aspect – relationship building
The stage leading to the signing of the contract – Technical and Commercial focus
Relationship after the contract is signed

For Westerners the third stage doesn’t exist in such a form or hold the same importance as it does in China. For the Chinese, a contract is more a sign of the intent to do business together than a legally binding document. This means that how the business will be conducted depends on the relationship. The Chinese will always try to interpret a contract from their own point of view; to minimize this element; you should secure and clarify every possible detail included in a deal to avoid misunderstandings in the future. After signing a contract, you may find it useful to locate an agent in China to keep an eye on the business and be the first to know about any problems which may arise.

7. Team negotiation

The Chinese almost always negotiate in a team. It is not always clear who the leader is and who has complete authority to decide matters. Although decisions are made by consensus, there is usually one leading authority. Very often the person in authority may not be very active during negotiations. Gain the attention of their lead negotiator, usually the most senior, and direct your most persuasive and logical arguments towards them.

The rest of the team usually plays the role of an advisory body. As can be expected, negotiating with a team generally takes more time than negotiating with one person. Decision making and preparations are similarly more lengthy processes.

Chinese core beliefs have also strong consequences for business. It is useful to memorize some of the most meaningful rules and characteristics:

High power distance - power is not in the hands of the people within society; it is in the hands of individuals and therefore you can expect autocracy and centralization in management style.
Hierarchy is present in business and private life.
Age brings seniority – seniority must be obeyed.
Task is less important than relationship.
Consensus wins over confrontation.
Chinese prefer formality in meetings and negotiation.
Great respect and attention is expected to be shown towards senior participants.
The real decision is usually taken outside the meeting room.
The loss of face must be avoided at any cost.
‘No’ indicates difficulties.
Technical incompetence will indicate inexperience in business relations.
Mutual trust more important than a deal itself.

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The Negotiation Academy (TNA) – http://www.negotiationeurope.com - is a specialist business negotiation management consultancy headquartered in London. Committed to delivering both best and leading practice business negotiation solutions, TNA collaborates with clients to instil a world class negotiation capability. With deep industry experience in several market sectors, global resources and a proven track record, TNA is uniquely positioned to assist clients to avoid the losses associated with sub optimal negotiations. TNA has a core competency in sales negotiation training , purchasing negotiation training and executive negotiation training (mergers & acquisitions negotiation training, asset management negotiation training, corporate finance negotiation training etc.)