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Gee, there are lots of good and bad books about
negotiating in China. What could we possibly add?
Plenty.
Boring Definition
Negotiating discussions occurs between the western party
and Chinese party before a business transaction can be
completed. There are two main types of negotiations:
sale/purchase term negotiations and investment negotiations.
The following comments apply to both types.
Chinese Strategy
Forget everything you learned about "Getting To Yes" and
all that other touchy feely crap about both sides working
together to reach a win-win solution. The goal of the
Chinese in any negotiation with westerners is to steal as
much money from the westerner as possible. This "money" can
take the form of cash or other benefits. In some cases, what
Chinese negotiators will steal from you is completely
worthless to them. So why would they want to steal it?
Simply put, in order to screw you and take revenge for
something Marco Polo said in his book about China. In other
words, we don't know why.
Building Your Strategy
Faced with the above noted Chinese strategy, what
strategy should you use? If you try the win-win strategy
approach, you will get cut to pieces and be lucky to escape
alive WITHOUT a contract. At worst, you will get butchered
and tricked into signing a terrible contract, be fired by
your employer, and end up homeless on the streets of
Shanghai. Take our word for it, there ain't no homeless
shelters or soup kitchens to fall back on in China. So get
some good advice and make a plan long before you get
involved in negotiating in China.
Face The Facts In Advance: The Chinese Will Kick Your
Western Ass In Most Negotiations
Keep in mind that the Chinese are negotiating machines
from the moment they are born. They negotiate for every
scrap of food, every stitch of clothing, every drop of
loyalty...everything tangible or intangible they ever touch
or need throughout their entire lives. On top of that, they
have a totally different ethical system from westerners.
They have no qualms at all about lying, stealing, cheating,
etc. as long as it is good for themselves and helps them
achieve their goal. In fact, they don't even have a good way
of describing something as "ethically and morally correct"
in the Chinese language. If you ever ask a Chinese person to
describe this concept in Chinese, they will only use Chinese
words like "correct or incorrect" and "should and should
not" which have no foundation in ethics or morality. They
are 100% focussed on the results i.e. if something was
unsuccessful, then it was "incorrect" or "should not " have
been done. (We are getting a little deep here, we know. Just
wait until you get to China and see for yourself. You'll
understand our meaning then much more clearly). These two
cultural traits combine to make the Chinese negotiating
machines that you will face well primed to chew you up and
spit you out. Scared yet? You should be.
Advice On Negotiating Strategy
So now you need to come up with your own strategy that
will protect you from the Chinese negotiating machine. You
need to do some research. Get some advice. Who should you
listen to for advice about formulating such a strategy?
First of all, you should listen to the geniuses at Western
Guerillas. Secondly, buy an old book call "Chinese
Commercial Negotiating Strategy" by Lucian Pye. Read it 5
times and memorize every page. Thirdly, do not listen to any
Ph.D. or college professor, and certainly don't listen to
the cultural wimps at the US State Department or Commercial
Service. None of these people know anything about real
business negotiating. In fact, they would prefer if you got
your ass handed to you by the Chinese since this coincides
with their view that the Chinese are superior to
westerners.
Should you listen to an "Old China Hand Consultant?"
First of all, if they call themselves an "Old China Hand"
then stop listening immediately, pretend to hear your mother
calling you to go home, and run to the nearest exit. If they
don't call themselves an "Old China Hand," there is still
some hope. Hit them with a series of test questions as
follows:
- Do they know the normal tip given to a karaoke
hostess?
- Correct Answer: RMB100-200
- Can they name 20 provinces?
- Correct Answer: They should refuse this stupid
request.
- Are their Chinese language skills good enough to fool
people on the phone into thinking they are Chinese?
- Correct Answer: Yes. But you should have somebody
test them.
- Can they sing Yi Wu Suo You by Cui Jian?
- Correct Answer: "...ke ni que zong shi xiao wo, yi
wu suo you..."
- Where can you get the best Caesar salad in Beijing?
If they pass this test with flying colors, then you may
have a good advisor on your hands. Using a Japanese sword,
cut their head off to see what good info they have inside
that might help you in your upcoming negotiation.
Step By Step Guide To Your Strategy
- Make a detailed description of what ultimate contract
terms you would like to achieve. Be fair. Think win-win.
But never tell this plan to the Chinese. Ever! Call these
terms your Real Goal Terms.
- Take your Real Goal Terms and discount them by 40%
i.e. if you are selling, then raise prices 40%. If
buying, then lower your bid 40%. Call these terms your
Inflated Goal Terms.
- Schedule the negotiation.
- Bring several support staff members. Lie to them
about your Real Goal Terms. Tell them "in confidence"
that your ultimate goal is 20% higher (or lower as
appropriate) than your Inflated Goal Terms.
- Start the negotiation. Do not be the first person to
mention any business topic. Simply chatter away about
non-business issues and ask lots of questions about
Chinese culture. If the Chinese ever bring up business
issues, avoid them and change the subject back to
non-business issues.
- Break for lunch. Drink
heavily.
- Pretend to be too sleepy in the afternoon to
negotiate. Drink soda and tea and eat sunflower seeds. Do
not discuss business at all.
- Tour the factory in a stupor. Don't say anything
about the factory. Check out the rustic country girls
working on the production line. Ooo, la, la!
- Break for dinner. Drink
heavily.
- Go to karaoke parlor to sing. See
our karaoke instructions.
- Say good-bye. Shake hands, get in the car, and wave
as your car pulls away. Continue waving good-bye until
your hosts are a small speck on the horizon.
- The next afternoon, send a low level staff person
over to the Chinese side's offices with a hastily
scribbled proposal according to your Inflated Goal
Terms.
- Wait for the Chinese to contact you to schedule the
next negotiation.
- Follow the above steps again but this time give in 5%
on your scribbled proposal. Repeat this cycle and give in
4%, then 3%, and so on until you reach a 15% discount
from your original proposal.
- Now send in your flunkies on informal chats to tell
the Chinese how you only have 5% more to give before
reaching your "absolute best offer." They'll do a great
job at this since they truly believe this based on your
previous "in confidence" comments to them.
- At the same time, you should start complaining long
and loud about how you are getting killed on this deal,
you are losing money, the Chinese don't understand you,
your company, or your product, etc.
- Finally send an informal flunky to make one final
offer at a level 20% from your starting point. The
Chinese will delay a while, make one last feeble attempt
to push further whereupon you go through the ceiling, and
then finally they will agree. You will then go eat
a banquet at which you should act slightly subdued
since you got such a bad deal.
- Now the real negotiating begins. Don't worry, you
still have another 20% hidden in your pocket to give away
if needed.
- Put together the final contract terms. See
our joint venture contract page for more about this step
if you are negotiating an investment. They will try
other indirect ways to squeeze you during this stage.
Make them really work for every 0.1% you give them.
Complain incessantly. Get more and more unpredictable and
lose your temper at the slightest provocation. This is a
sign to the Chinese that you are at your limit. And they
expect this from westerners anyways. This is the only way
you will ever get them to conclude the negotiation and
finalize the contract.
- Ultimately you will reach an agreement. But be sure
to have a least 10% "fat" left over. You will need this
for further negotiation during the execution stage. Plus
you can use the extra profit margin as a cushion to make
your boss happy after all the money-wasting screw ups
that occur because of the Chinese being unorganized or
not knowing how to handle their own business.
Simple, wasn't it? What's the big deal?
Westerners normally hate this sort of long, pointless,
"dishonest" price negotiating. But when in China, it is best
to play this game with them. If you don't, and you try
instead to play "win-win," they will take every concession
you offer, carve it in stone, and not give one scrap in
return. So take our advice and stick with the old-fashioned
vegetable market bargaining skills that are the true
cornerstone of China's 5000 year history.
Some Final Miscellaneous Suggestions About Negotiating
Business In China
- Always quote prices in odd, unround numbers. For
example, never quote US$15,000; instead quote
US$15,318.69. This makes the Chinese think you have
really worked your prices to the last cent i.e. you have
not rounded up and added some "fat".
- Never try to charge for "consulting", "installation
supervision", "design"...anything intangible. They will
never agree to pay for this and will cut it out even if
it means that they will never be able to produce a single
widget. Instead spread the cost of these services equally
amongst the other contract items. But be careful you know
where you spread it. You don't want them to cut out a
certain piece of machinery and forget that they are also
cutting a part of your "intangible" fees.
- Even if you include the intangibles in the price of
the tangibles, make sure to list the intangibles on the
contract and show their price as "free of charge." Don't
know why, but the Chinese always seem to go for this
obvious crap. Something to do with "face" and getting
something for free from the stupid westerners.
- See our Book Review
Page for suggestions on bad books about negotiating
in China. Sometimes reading these books can give you a
good idea about what not to do.
- Don't be overawed by the Chinese negotiating protocol
and politeness routine. It is all a big act and really is
just a big waste of time when you get right down to it.
Politely put up with it, brush it off, and then
concentrate on your business at hand.
- And don't forget the most basic of negotiating
principles: you can always walk away. Don't stay at the
table and continue discussions if what they are asking is
unreasonable. Just say "sorry, can't do it", smile, go to
dinner and karaoke, and stop contacting them for a month.
Wait for them to call and if they don't, laugh it off.
You will be glad you did.
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