For more than three years, Marec Bela Steffens was a commercial sales manager at a Sino-German joint venture in Shanghai. He and the local staff he trained have negotiated the commercial conditions of contracts worth more than US$700m. Here, he passes on some of his experiences, starting with mental preparation.
-Do not believe everything you learnt at the intercultural training. You may still present your business cards with both hands and a slight bow, but you will find few Chinese actually do that. Harmony, modesty and other ‘Asian values' do have their role within a certain ‘in-group' but usually not towards foreigners.
-Be open to the culture but do not show exaggerated humility. Be aware that most Chinese regard all aspects of their culture as superior to the outside world, without ever having had an opportunity to compare.
-Do not be taken in by first impressions. The facade plays a much bigger role in China than in the West.
-Do not overestimate the Chinese side. Like foreigners, they are not all as sage as Confucius or the reincarnation of Sun Zu.
-Yardsticks differ. An ‘AAA' rating may only mean a company has good relations with the local rating organisation.
-Do not let others lose face except, and after due consideration, to achieve a certain goal. However, this does not mean you may never contradict or disagree, as some Chinese are all too eager to suggest. Do not be surprised if the other side is trying to get you to lose face. Show that you know the concept and try to establish a relationship where the other side will understand and accept that a certain thing they want you to do is unacceptable because you would lose face within your company.
Setting the stage
-Although it is tempting to negotiate in your own country, it is usually better that meetings take place at the customer's location. You will never be able to gather at your office all necessary decision-makers and other people who need to be consulted. And if they stay in their hometown, they are more likely to be available for negotiations and not spend the time sightseeing or shopping. Better to invite them after the signing.
-Find out as early as possible the professional and technical competence of individuals on the other side and adjust your whole behaviour accordingly. It will be taken ill if you explain basic concepts to experienced people, or vice versa.
-Study the track record of the customer in detail. It is a standard tactic to be told what your company has done wrong during the business relationship. If you know the facts (and can prove them, for sometimes the other side's selective memory is genuine) you can respond accordingly. For example, explain that you delivered late only because the down payment came late, or because the customer changed its order requirements so often. Then you should leave these topics and talk about current and future issues.
-It is a Chinese habit to leave matters unresolved and subject to further negotiation. This approach requires no contract. Explain why it is much easier to set rules in advance so that there is no need for a big dispute when a certain issue arises. Better to have the dispute now when the case is hypothetical and no actual losses are at stake. But don't try to cover all eventualities – only the likeliest and most dangerous ones. Otherwise you will frighten away the Chinese who are not used to such exposure.
-Very often the other side will try to brush aside your concepts by saying that, while you are right, other rules apply in China. Respond by explaining calmly that you do not wish to impose on your Chinese partners the habits and rules of your own country but that there are certain international standards which both sides should follow. Accordingly, use third-country law and arbitration instead of those of your home country.
-Remember the Chinese have a deep aversion to unequal treaties like those forced upon them by Western nations in the age of imperialism. Make contract clauses reciprocal wherever possible, but be ready to explain why this cannot apply to every clause.
-Never accept double standards. For example, it would be iniquitous to fulfill your obligations to the letter because that is the well-known habit of your country, only to allow the Chinese to do it their way. Likewise it would be foolish to adopt a policy of not shouting because you were taught it was impolite in China, while the Chinese shout at you as they shout to each other.
-Respect the rules of the game. Offering a price invites the other side to state their idea of a price and implies almost an obligation to compromise. If you are not ready for that, you must not start the process.
Hierarchy and teams
-It is common to deal with departments or institutions at different levels within the same organisation and they will often have conflicting or even contradictory interests. It takes diplomacy to cope with this situation. Explain that you cannot fulfill contradictory requirements and point out to each level that, while you recognise that they are very important, in order to stay in business you cannot directly oppose the other levels.
-Each hierarchical level on the other side will expect concessions from you. Keep something in reserve for the highest level but also give the other ones face. The top leader will make the ultimate decision but will need the support of most of his deputies. He will endanger his position if he makes a deal with you to which the others object.
-Carefully plan the use of your own hierarchy. If you are negotiating, you can take a break by saying you need to ask your big boss a big boss negotiating himself can-not do this. With careful preparation, high levels may be used for opening and maintaining a good customer relationship and – very important – to overcome stalemates. Do not get the top hierarchy involved in details which you can settle yourself. Big bosses should not travel too often, as on such occasions customers tend to expect major concessions. In your own negotiations, instead of conceding something yourself, you may leave the matter open so that your boss can make this concession. But be careful that the big bosses maintain your own team's credibility; the customer should not expect that whatever they did not get from you, they will get from your boss.
-Sometimes you can say your company policy does not allow you to give in on a particular matter. But leave no doubt that you have the necessary influence within your own organisation and support the other side wherever possible within the boundaries of your loyalty.
-Enforce your own team loyalty. Stop at once any internal dispute in front of the customer. Take a break if you need to talk internally. The other side may try to touch the patriotic feelings of your Chinese staff. If needed, explain to your staff in private this is not a game of ‘China versus the outside world' but a business negotiation and that their salary is a reflection of the role which they play.
-Some of your staff might have heard that, in a market economy, the customer is king. Explain the limits and dangers of this attitude.
-If you find some people on the other side more constructive than others, do not show your appreciation too much. That would endanger their position in their team. It does not help to discredit those who are supportive.
Rules and fair play
-A personal relationship is very important but does not mean the other side's commitment to fair play according to our own standards. Chinese standards are different. Social behaviour rules apply only to people within the same 'in-group'. The behaviour the Chinese fear from you might tell you something about their own attitude towards people outside their 'in-group.' Chinese belonging to different in-groups have similar problems and fears concerning each other as they all have concerning foreigners. The common distrust is indeed a major constraint for co-operation with and among the Chinese – not only in China. The only ways out are time (trust needs several years to develop) and connections (where A and B belong to different in-groups, finding a third person who belongs to both may help).
-Grey channels and measures which might usually be regarded as fraud are widespread, even among levels within the same organisation. Often you will be urged to design price summaries and invoices in a way that your customer will receive more government subsidies and/or pay less taxes. There is some leeway for interpretation but explain to the customer that you cannot go too far, otherwise the authorities might turn on you. Your entitlement to contractual payments and your future prices must not suffer. Asking the other side to submit formal requirements and to indemnify you from any consequences will often help.
-Be aware that, although Chinese can be very flexible in the application of rules, they are at times highly bureaucratic. It all depends on whether they have the necessary competence and trust. If the head of an authority feels unsafe about the details and has no basic trust in the applicant, the decision will be exactly to the rule, or the problem will be solved' by adjournment.
-Watch Chinese motorists and cyclists who often block others even if it benefits no one. The concept of minimising losses in a conflict is not often understood. There are cases that like that of the brand-new building which was not rented out for a year because the different parts of the owner's organisation could not agree on who was entitled to the revenues. Do not always expect a rationality which you can understand.
-Do not be surprised if someone behaves with a seeming lack of self respect. Self respect is defined differently, as is politeness.
-Respond cordially to the other side's speeches on trust and co-operation but do not believe them any more than they do themselves.
-Be reliable (even if you do not trust the other side), but not predictable in your moves.
-Should you be fair under all circumstances? Should you point out a calculation mistake which the other side has made in your favour? If you do so, you may be considered naive. But if on other occasions you prove that you are not naive, the other side might respect you more for your honesty. Remember you will want to face the other side many more times. Your fair play will not guarantee the other side's fair play.
A German version of this article first appeared in the publication Harvard Business Manager. The editors kindly consented to this publication in English.