Why every discussion is a form of negotiation in China
By Nick Henderson, Director, China Practice, Asialink Business
While waiting to board the flight home from a recent trip to Shanghai, I overheard a fellow business traveller speaking on the phone to his boss back in Australia. With a mix of anger and frustration, he reported that the company’s second round of negotiations with their prospective Chinese partner that week had not progressed well.
The man said he couldn’t understand it, especially as both sides had seemed to get off to a great start the previous month. In fact, the Australian team had been so positive, that they had promptly rushed back to China to clinch the deal.
Unfortunately, this scenario is an all too common experience amongst Australian businesses. In their eagerness to forge an agreement, many businesses still overlook the essential cultural drivers that shape relationships – and impact on outcomes - with Chinese counterparts.
Indeed, negotiations in a Chinese context is a complex art. But in the current environment, it is more important than ever to navigate your prospective partnerships with extra care.
So, how can businesses ensure their negotiations not only get off to a good start, but remain on course, and lead to long-term, mutually rewarding outcomes?
Understand cultural drivers
The Chinese word for negotiations, ‘tan pan,’ combines the characters meaning both ‘to discuss’ and ‘to judge.’
Negotiations in China is an ongoing and dynamic process. It’s essentially a process to build trust, so that both parties can achieve a common outcome.
Negotiating effectively in a Chinese context means understanding and accommodating your counterpart’s different approach, and devising a strategy that will deliver long-term benefits for both sides.
Whilst there is no one blueprint for success, it’s important to recognise the deep-seeded Chinese cultural practices, worldviews and behaviours that have a strong impact. These cultural norms are often rooted in the spiritual and philosophical codes of Confucianism (which underlines social relationships), Taoism (which emphasises wholistic thinking) and Buddhism (which encourages harmony).
Seek mutual gains
When we assist businesses with their Chinese negotiation strategy, it can be useful to apply the ‘mutual gains approach’ developed by the Consensus Building Institute. This framework helps inform a strategic approach, that can be adapted and nuanced to accommodate China’s distinct cultural, business and social environments.
Based on hundreds of real-world cases, the mutual gains model identifies four steps for negotiating better outcomes while protecting reputation and relationships – preparation, value creation, value distribution, and follow-through.
These steps are not just about achieving a ‘win-win’ outcome, but rather applying careful analysis and good process management. Obviously, each step in the process needs to be carefully nuanced to fit the Chinese context.
Prepare by building guanxi
From a Chinese perspective, relationship and trust are paramount.
It may seem cliched, but guanxi – which translates literally as ‘relationships’ - is the most covered topic in China negotiation literature, with literally hundreds of books and articles written on the topic.
Given the fundamental importance of guanxi, building a robust relationship with your Chinese counterpart at the beginning of a negotiation, should be one of the most important aspects of your preparation. In doing so, relationship building enables a better understanding of their business, commercial drivers and the key people involved. This will put you in good stead for both the negotiation itself and enabling commercial alignment. This cannot be rushed. Newcomers may be treated with a degree of caution and it’s important to invest time and effort - including travel and ‘face to face’ meetings - to understand your potential partner and develop trust. Intermediaries may also need to play a role.
As the CEO of a major Australian financial organisation commented to me, it took him ten years to build a strong relationship, but when the time came for negotiating a multi-million-dollar deal, the negotiation was completed within three weeks and implementation was very smooth.
Create value
Creating value is about uncovering shared interest and creating value prior to committing. This phase is about exploring questions like ‘What issues do we value differently’, ‘What options are we prepared to propose?’
In a Chinese context, several common barriers during this phase often arise.
For example, Chinese negotiators are often particularly sensitive to the concept of face, and will work hard to avoid direct conflict. Making a negotiator ‘lose face’ will be very detrimental.
Rather than raising it at the negotiation table, to get to the bottom of tricky or sensitive issues, it can be useful to leverage informal opportunities, such as dinners or social gatherings, private conversations or trusted intermediaries, to find a solution.
Other challenges can arise around differing communication styles and approaches to hierarchy, and the level of detail which the Chinese side may request.
Focus on the means not just the ends
When it comes to distributing value and achieving follow through, building trust is key to achieving successful outcomes. Almost all Chinese or Australian executives that have clinched a successful partnership will tell you that a business deal in China should be a long-term deal, not a quick one-off.
Having a local Chinese colleague in your negotiating team can help build this trust, by fostering relationships and buffering confrontations or discomforts.
And even after the deal is signed, its crucial to continue to build trust. Many deals have fallen apart because the leaders negotiated hard, signed the deal, and then handed it over.
In fact, in many cases in China, a contract is just a starting point. Some Chinese counterparts may see the contract more as a ‘symbol’ of partnership and will look to renegotiate the wording even after the contract has been signed.
This can lead to misunderstanding, for instance, with the Western side viewing Chinese counterparts as ‘unreliable’, and the Chinese side perceiving their Western partners as ‘inflexible.’ Creating good guanxi, reciprocity and investing in relationships will help minimise this misunderstanding.
Get support when you need it
Obviously, navigating business negotiations in China’s dynamic, evolving and volatile environment is fraught with challenges.
But the highly complementary nature of the Australian and Chinese economies and business interests stands most organisations in good stead to unearth and leverage mutual gains in their negotiations and partnerships.
And the good news is that as the Australia-China economic relationship matures, support, resources and training are available, as well as the opportunity to learn from other business success stories.
By carefully managing cultural differences, you can achieve mutually beneficial business outcomes at the negotiating table.
Where to now?
Our highly interactive 'Negotiations and influence in an Asian context' one-day program will run in May and November 2019, in Melbourne, Sydney, Brisbane and Perth. Tailored programs will focus separately on the key markets of China, India and Southeast Asia. For more information and to register for the negotiations and influence program, click here
The China Country Starter Pack provides information for businesses at a pre-entry or early set up phase of operations, who are trying to gain a better understanding of the fundamentals of their new business environment in China. It is a comprehensive resource, offering valuable information on the different market opportunities for Australian businesses, essential tips and case studies and key risks and challenges. Download your free copy now