Warning Signs
10 Warning signs that your Chinese negotiations are off to a poor start:
1) There are representatives of different companies there without your prior knowledge.
2) The meeting is being held in a different company’s office from the one you are there to see.
3) Your counter-party is missing key facts or knowledge that anyone in his position would need to know to do his job.
4) He begins by telling you how difficult it is to do business in China.
5) He repeadtedly asks if you like Chinese food, culture, etc.
6) He asks for highly specific product information.
7) Operations people are present and financial people are not.
8 ) The answer to every business question revolves around his network of connections.
9) He introduces the fact that his wife has just returned from Australia.
10) He mentions the difficulty of finding capital in China – within the first 5 minutes.
In China, losing money is just one of the risks you run. You can also lose time, intellectual property and opportunities. This is a BRIEF list of red-flags, but the list is constantly growing. Some of these are getting a little outdated in Shanghai, but you may still run into them elsewhere in China.
Let’s take a look at these Red Flags:
Group 1: Window-dressing (#1 – 3)
You made this appointment because you were looking for a Chinese supplier or distributor. He made the appointment because he needs to look like he has international business deals. The reasons could vary – maybe he is starting a new business, this is a sideline of his, or he is trying to impress an associate for some reason. I’ve heard of westerners being introduced (in Chinese) as partners, investors, and colleagues. Whatever your counter-party’s motivations may be, negotiating YOUR deal is not among them. This is becoming less common in Shanghai, but it still happens.
Group 2 are simple Time-bandits (#4 & 5)
SOEs (State Owned Enterprises) used to be notorious for this one. Guys with lots of time on their hands were known to accept meetings from unwitting foreigners for nothing more than sheer entertainment value. Your Chinese counter-party knows his market is interesting to western investors, so he takes every opportunity to invite some funny-looking waiguoren (foreigner) in for a chat. If it involves you traveling long distances or finding inconvenient locations, so much the better.
Group 3: The Backwards Engineering ploy. (#6 & 7)
This one is a real danger, and high-tech companies need to be on the lookout for this one. I call this one the “Cisco Gambit”, since that company is said to have been stung particularly badly by this one. You thought you were there to sign a distribution deal, but you end up designing their new product. If you are a high-tech company, be very wary of early-stage meetings that include engineers under the age of 40.
Group 4: Fishing Trip (# 8 - 10)
Your counter-party has a completely different agenda from the one you are pursuing. He is looking for something specific from you, and the deal you’ve been discussing is just the bait. He may be looking for a job for his wife (becoming ore and more common, apparently), an investor, or help distributing HIS product in your market. None of this is inherently bad, but the fact that he used subterfuge and dishonesty to get you involved does not bode well.
The worst thing you can do is blindly hope that the situation will somehow rectify itself. If your counter-party has an agenda that is in conflict with yours or he shows himself to be dishonest in the early stages of a negotiation, get the hell out of there at once. There is not going to be a happy ending. Many western investors have found the China market so difficult and confusing that they started to grasp at straws and convince themselves that the frog may somehow turn into a prince. Sitting in your NY or London office, you readily acknowledge how silly that sounds. Now you have to remember that when you are 3½ days into your 5 day trip to Shandong and you still haven’t found a suitable Chinese partner – because that’s when western businessmen start puckering up for the amphibious types.
Be careful out there.