Strategy
Are Chinese negotiating tactics an integral part of the new normal, or are is China still the exception making its own rules?
Western negotiators in China for a one-time purchase or transaction don’t have to worry about cultural misunderstandings or local business custom as much as they would have 10 years ago. Commercial centers in China are as sophisticated as any in the world. Those looking to crack the Chinese consumer market or resolve a dispute, however, will find that the Middle Kingdom is the same as it ever was.
Westerners negotiating in China have never had it so easy, and never faced such high risks. Understanding China is about reconciling opposites, and for dealmakers and managers the new bi-polar issue concerns speed of operation and bottlenecks. Before 2008, American and European managers who made mistakes in China had to worry about losing orders or investments. Now they are losing brands and strategic initiatives. Groupon (entry stalling) and Yahoo (asset transfer) are both finding that once the bad times start rolling in China you can lose control of your global strategy and even your brand.
One of the biggest challenges western negotiators face in China is understanding how easy things can be versus how hard they can get. Getting money into China has never been more straight-forward, but once a deal goes off the rails it is often a total loss. Far from making life easier for newcomers, the polarized nature of Chinese deal making has raised the stakes and made China more dangerous. At least before 2008 you knew how weird it was going to be.
The simple stuff is getting easier…
China has always been hospitable to visitors, and after almost three decades of dealing with westerners a lot of the rough edges have worn down. No more embarrassing questions about your age, weight or income. The international hotels and western restaurants are pretty much the same as the ones back home. Chinese counterparties can talk about IP protection, product liability and third party mediation as smoothly as managers anywhere in the world. If you are coming to China to move funds and assets in, then it is a 21st century dream.
But the hard stuff is harder
Rising prices and costs, adverse regulatory practices and a fierce local competition have made China an extremely competitive negotiating environment. As Chinese companies improve their ability to provide international-level service and design on their own, international operators are wearing out their welcome earlier and earlier. That means that the aspects of Chinese negotiation that have always been hard – conflict resolution and power sharing – have become even more challenging. China has always had the desire to protect its domestic markets, but for the first time it has the technology and infrastructure to service home markets profitably. Once western companies have built a market or transferred technology, there really isn’t that much left for them to contribute. Westerners in China have seen their negotiating position within Mainland market getting weaker and weaker. As local companies get better at servicing customers, international marketers in China have lost their most natural ally – the Chinese middle class demanding products and services only foreigners were good at.
10 years ago a local Chinese operation needed funding. Westerners had both financial and technological leverage. 3 years ago local operators needed design and services. International firms were losing their financial edge, but still held power in terms of technology, branding and IP. Now local operators need markets and customers. Unless international firms can find other ways to add value in the local Chinese market, their negotiating position will continue to weaken.
This article was kindly supplied by Andrew Hupert of Chinese Negotiation.
Aug 15, 2011