China’s Business and Negotiating Culture: Good Luck with That

A client yesterday emailed me an article he had saved since 2007 and in his email he remarked how “when it comes to dealing dealing with Chinese businesspeople nothing ever changes.” I am not so sure nothing changes, but I am sure that what this article describes about dealing with China has not changed much, if at all.

The article is called Negotiations, Strategies, and Experiences and it was written by David Dayton, who has been working in and with Asia for 30+ years and who is fluent in Mandarin and has a PhD in Chinese Corporate Cultural Anthropology. So yeah, when it comes to China corporate cultures David is someone who knows whereof he speaks.

Dayton’s post starts out with him relaying that day’s complaint by a Chinese factory owner about Dayton’s being “too strict” on quality control and how Dayton’s actions were costing the Chinese factory more than it originally budgeted for. The rest of the post consists of Dayton listing out the cultural gems he was able to take away from this experience.

I am running it here after all these years because it still makes for a terrific primer on how to handle China manufacturing and how to do business with a Chinese company.

My favorites from David’s article, along with my own comments in italics are as follows:

  • Your negotiations, factory visits and dinners are all scripted. “Roles are defined, what can and can’t be offered is clear before negotiations start and who you will meet and what you will see is typically controlled to a large degree (as it is in the US and anywhere else).” You must learn to play the game and play your role in “the CHINESE script whether you speak Chinese or know their culture or not” and even though the “Western and Chinese scripts are radically different.” So true.
  • Talk with the people with authority to do something about the problem. True everywhere in the world but I cannot tell you how many times one of our clients will tell us that they worked out a deal with a Chinese company only for someone else from the Chinese company to step in and start trying to renegotiate the deal by claiming that the person who reached the deal did not have authority to do so. 
  • There is often both a cover story and the real story and “the only way to get to the real story is to ask a ton of questions and take copious notes.” Westerners often fall short by taking too many things at face value.
  • Do not push so hard on the inconsistencies that someone loses face. Your real goal “ought to be getting production done on spec and as close to on-time as possible” and pushing too hard can work against this goal. This is my favorite and we often tell our clients that if they are going to push their Chinese counter-party on something, to blame it on we lawyers so as to increase the odds of preserving the relationship. 
  • Good cop bad cop lives in China (like everywhere else). In China, the boss is usually the good cop, with the manager being the bad cop. This exists everywhere in the world and that’s because it can be incredibly effective. 
  • China loves the sacrificial lamb. When there is a problem, it is a common strategy in China to fire someone (or at least say that you have) even though that will do nothing to prevent future problems. So true. I swear that at least 90 percent of the time in China when something goes wrong the blame is put on someone else. 
  • Be prepared for the last second closing offer. Once everyone is friends again and all the issues are worked out there will invariably be a last issue that’s thrown in at the very end. Often literally on the way out the door. ”Oh, by the way, this material is going to cost more on the next order. We’ll eat it this time, but the price is now this much more.” My theory is that this happens because meetings between Chinese usually end with dinner or Karaoke so there is still time to work out issues. But foreigners usually have work meetings during the day and then go home. Whatever the reason, it’s almost comical to me. it’s something they have to bring up, but don’t want to so they wait until there is no possible way to procrastinate it any longer and then, just off the cuff, throw it out. Yes, but COVID has hampered this quite a lot. 
  • Time is on their side.  They know Westerners want instant gratification, so you must “learn to wait.” Agreed. See Negotiating with Chinese Companies: Patience Required. Or as one of our China lawyers used to love to say (pre-COVID, when people actually went to China), “if your CEO wants to go to China to finalize a deal, toss the keys to their car.”

Get Ready for Lose-Lose Negotiations

There’s an old joke about a Frenchman, an Englishman and a Russian who are told they have only one day until the end of the world. The Frenchman says he will spend his last day with a bottle of Bordeaux and a beautiful woman. The Englishman says he will take his favorite sheepdog for a walk across the moors. The Russian says he will burn down his neighbor’s house.

A couple years ago I told a Chinese attorney friend of mine who runs a Shanghai law firm what my firm looks for in all our hires. His response was that he does not like to hire attorneys “that good” because they will end up wanting to start their own firm because they will not be paid enough. My response was to suggest he pay his people more. His response was to look at me like I had two heads.

Businesses need to be prepared for burn your neighbor’s house down lose-lose negotiating in China

Classic negotiating theory divides all transactions into two categories – Distributive (Win-Lose deals), and Integrative (Win-Win). Traditional competitive deals are referred to as Distributed because the two parties split (or distribute) a fixed pool of assets. Integrative deals are often referred to as Win-Win or collaborative because the two sides cooperate to ‘enlarge the pie’ or increase the total value of assets beyond the initial scenario.

In China, however, where non-economic factors, such as face, guanxi, government diktats and nationalism can be important, you should prepare for a third type of scenario lose-lose negotiation, where your China counterparty chooses a situation where they lose a little if you lose a lot over an outcome where you gain a lot and they gain a little. This is most likely to occur when dealing with a State Owned Entity (SOE) because the representative of that company might not benefit directly from positive outcomes, but may be penalized for a negative outcome. As trade tensions rise between China and the West, Win-Win deals seem to be regarded with increasing suspicion and Chinese negotiators consider it increasingly advantageous to see you fail.

If you are doing business in or with China I urge you to go to David’s post for additional pointers and to gain the full flavor of those I cited. I also suggest you read Antidotes to Chinese Negotiating Tactics and Negotiating with Chinese Companies: The Long Version.