Enhanced negotiation

When Anil Srivastav, chief trader for British metals giant Goldarrow Metals, visited Ningbo last October to collect payments owed by a local scrap metals firm, he got more than he bargained for. Representatives of the company, Ningbo Yibao, demanded he surrender his passport and told him he would not be allowed to leave until he renegotiated the US$350,000 the Chinese firm owed Goldarrow to a lower figure – namely zero.

Srivastav escaped to the airport, but his relief was temporary. He was accosted by five company representatives in the departure lounge and forcibly hauled back to Ningbo, where he was held in a small hotel for several days until he signed a revised contract. Once he did, he was allowed to leave unharmed.

Kidnappings and similar forcible (if temporary) detentions in China are on the rise in tandem with souring business relationships. Last year in Guangdong province alone there were 300 reported kidnappings. However, while Chinese law distinguishes between kidnappings for ransom – a death-penalty offence – and kidnapping for "business reasons," the statistics aggregate both kinds.

Nor do the statistics capture the use of other forms of duress: One foreign manager reported being threatened with a bicycle chain if he did not pay an outstanding debt. Another firm had to negotiate with an employee who threatened public suicide if it proceeded with planned layoffs.

Regardless of what the statistics are, they are high enough to make a market; American International Assurance, for example, has been offering kidnapping insurance in Guangdong since 2006. Detaining owners, managers and their representatives in order to influence their decisions occurs at a fairly regular pace in China, explained Jay Hoenig, chief operating officer for Hill & Associates (PRC), a risk management consultancy. "We’re seeing it every week," he said.

In many cases, the person is kidnapped for use as bargaining chip and is thus held responsible for an issue that he may know nothing about or have no authority over. Usually local law enforcement is reluctant to get involved – which has the unfortunate effect of encouraging the tactic.

Undiscriminating
While those who complain loudest (or whose complaints are aired in foreign media) tend to be foreign executives, Dane Chamorro, managing director for greater China and North Asia at Control Risks said these tactics are applied to local and foreign business leaders alike.

"Citizens’ detentions" have a long history in China, where the lack of an effective legal system often meant people would take the law into their own hands in frequently dramatic fashion. A recent contract dispute between an amusement park and an investment company (both Chinese) in Guangdong province came to a head in April when the investment company sent 40 employees armed with guns, knives and a large harpoon to attack the park and scare away customers.

Fortunately, such unpleasantries are usually avoidable. Detention, kidnappings or other threats are generally made in reaction to bad news like cutbacks, layoffs or bankruptcies, and the reaction can therefore be anticipated. If downsizing is on the agenda, for example, Hoenig advises taking a look at the plant’s labor history and scouting for any previous disciplinary problems to get any idea of what the local reaction may be like.

Managers should also consider the ripple effects of downsizing. Local business owners, the labor bureau, the noodle shop owner down the street who feeds the employees at lunch hour, and extended family members will all have a stake in the future of the company – and may also try creative forms of negotiation to get managers to reconsider.

Choosing an appropriate location is also important. "Never, ever have an on-site meeting in a plant or large office space," said Hoenig. Instead, head to neutral territory: a meeting hall, hotel, or government building.

In case you may need support from local law enforcement or other community institutions, it’s best to cultivate these relationships in advance, in particular with local labor bureaus and police officers, said Chamorro. "You need to have relationships with these people before you need them," he said.

If handled improperly, these events can quickly escalate. Once the police are involved, the state-owned press may arrive; neither party is likely to be sympathetic to foreign managers. Even if they are, the damage to your company’s reputation is already done, Hoenig noted.

"There’s nothing you can do once it’s happening," he said. "You have to prevent it before it happens."

Stockholm syndrome

In case you find yourself detained, experts recommend a few best practices:

• Remain calm. The less stress you show, the less leverage your captors have.

• Consider the detention a business meeting: Find out what your captors want and get them to put it in writing.

• Make sure you get enough to eat and drink, and make sure your captors do, too. Hungry captors are cranky captors.

• No matter what your actual position, insist that you have no authority to make decisions on the matter and must communicate with your superiors. Use the opportunity to communicate your whereabouts.

• If you are a foreign citizen, discuss the possibility of consular intervention.

• Don’t do anything violent, even if provoked, or the subject of the negotiations will turn to hospital fees and how to stay out of jail.