Chinese Negotiation 101
By now we’ve all heard the good news and bad news about negotiating for goods and services in China. Price levels are low. You can purchase goods and services for a fraction of the cost that you would have to pay in Sidney or San Francisco. The other side of the coin is that China is a difficult market. Quality is low, and promises aren’t kept.
Which one of these scenarios is accurate? They both are. That’s the problem you face. What’s the solution? Use your head, and don’t get drawn in to silly deals. Know the lay of the land before you start throwing money around. Invest the time to find a few key players who you think you can trust. Does this advice sound familiar? It is the same advice you would give me if I wanted to start a business in your city. The basic rules are always the same – but in China the details are a little different.
It will probably take you 3 or 4 transactions to get a feel for negotiating in China, so make those early deals low-value and low-priority. You can always spot the Westerners who have US$ 150,000 burning a hole in their pocket – the “no bullshit guys” who are here to do serious business. They are the ones spending way too much time talking to the wrong people in the wrong places about the wrong things.
Beware of a few red-flags. If a potential partner or supplier starts off by telling you that he has done business with many Westerners (and is therefore more trustworthy), get names and numbers – and make the call. And remember – no one ever gets more honest or reliable when the amount of money on the table goes up. If you are being lied to about basic details, then you are most certainly dealing with a dishonest guy. You are going to walk away with nothing – so do it BEFORE you hand over your cash.
Don’t talk yourself into a signing a bad deal because it was hard to set up!
Some other things a lot of people wish they had known:
- 1) You really do get what you pay for, so understand the market.
a. Ask 3 times. This sounds basic, but you would be shocked to know just how many overseas businessmen come to Shanghai and get bogged down with one potential partner. Locals like to load up your schedule with endless meetings and introductions that give you the illusion of meeting a whole “network” of local players. Beware of this. You are much better off meeting a range of different people at different levels of the market. Don’t neglect those expensive foreign experts, either. Those are the guys you will end up doing business with. As a general rule, you want to avoid being a local partner’s first “overseas” trade. He will try to rip you off as a matter of principle. Your best bet is a Foreign Invested firm that has both westerners and locals involved at HIGH LEVELS of management. Don’t be fooled by western actors and English teachers with vague titles.
b. If you are buying, they give you a price first. There is an ugly tendency in for people to insist that you offer a number first. Don’t fall for this until you have made three good deals and know the market well. They should structure the deal (in writing would be nice, but very unlikely), and be able to explain all the numbers.
c. Just because they give you a price doesn’t mean the negotiation has begun. Another tried and true tactic for local negotiators is to start out outrageously high and then get beaten down to a 300% profit margin. Keep asking around until you understand the market. Don’t engage in serious negotiation until they quote you a figure that is at least in the ballpark.
d. Have multiple suppliers. It sounds like you are getting your intelligence insulted, but just wait.
- 2) Negotiating services is more challenging than negotiating for products.
The higher level the value-added, the more difficult the negotiation is. A lot of Chinese business owners don’t understand the logic of paying for business research & services, and will helpfully offer to let you provide them for free. In exchange, they use their connections to help you establish some kind of trade-related business that they understand.
- 3) You are a big fish here.
There are people who would kill to have your business. Just make sure they want to kill someone else. Try to have alternate possibilities for partners, suppliers, customers etc… waiting in the wings at all times. Things have a way of spinning out of control for no apparent reason here. Have a Plan B.
The concept of “Face” is a relatively recent invention used to cheat stupid Western partners. It is a punch-line in Chinese jokes about foreigners. It will never, ever work to your advantage. As soon as it enters the conversation, RUN AWAY. Don’t even make an excuse. “You will make me lose face” is Chinese-English for “You have too much money and too few brains”.
- 4) Know their pedigree
a. Check references. Do your best to find out if your potential partner or service provider has any experience in the SPECIFIC type of transaction that you need help with, and has dealt with other overseas clients. You don’t want to be a Chinese business’ first international deal – that’s a sure-fire recipe for disaster. Get detailed references, and check them out thoroughly.
b. Where did they learn the business? What is their professional experience? Whose shop are they sneaking out the back door of? If they just left an expensive international agency as a group to set up their own shop – that’s great. Or are they a bunch of university wonks? Beware the university people, unless your business is education. Sometimes, even then.
- 5) You need professional help
One of the more positive developments of the Great Opening of China (and the Great Underemployment of the Chinese) is that you can buy access to all kinds of services that were impossible to find just a few years ago. If you don’t know what Business Entry Consultants do, then start figuring it out. Hint – All that stuff that used to require shadowy “connections” a while back are not itemized. Still pricey, but now you have a nice office environment and a receipt.
- 6) China has laws for most things now.
If you want to set up a business, get a license, or do some other type of STANDARD business, you are dealing with normal amounts of red-tape and paperwork. Sure, it will be inconvenient and time consuming. Just like in NY or London. And a good, plugged-in lawyer or consultant will be able to take most of the burden off of your shoulders – for a price. But if someone tells you that the only way to get approval for your core business is to pay someone off, you should be very, very wary. Business in China isn’t USUALLY done like that any more and very few overseas businesspeople have happy stories about bribes and red envelopes.