Simon Fraser University at Harbour Centre

"Negotiating and Building Effective Working Relationships with People in China"

Summary by Lillian McClanaghan and Rosalie Tung

INTRODUCTION

Negotiating and building effective relationships is vital to the success of Westerners conducting business in China. The relationship cultivated during the course of negotiations is often more important than the negotiated document. In this discussion we examine the differing cultural and organizational constraints facing Chinese and Western managers. These constraints are evident in the divergent attitudes to profitability, "outsiders" and group identity, managerial autonomy, the Chinese manager's suspicions arising from inexperience, and general negotiating styles.

A good example of divergent perceptions relates to contract documentation. The Chinese may appear to accept a particular clause in a contract that is imposed on them during negotiations. Often, once the document is signed and negotiation pressure is removed, it will not be implemented. The type of negotiation that is successful and leads to implementation of the document is that in which both sides perceive that their needs and fundamental interests have been recognized.

BUSINESS ENVIRONMENT

Often when many American and Chinese companies negotiate with each other, each will perceive the other to be smug, arrogant, complacent, arbitrary, and difficult to deal with. In their suspicion of each other they are likely to be so preoccupied in their search for the other side's hidden agenda that they do not focus on issues at hand. One of the first tasks of negotiation is to identify and dispel these speculations or subjective barriers.

The Western manager soon discovers a dramatic difference between his Chinese partner's approach and his own in terms of culture, business goals, incentive and motivation. In addition, his Chinese negotiating partner may have limited or no decision-making power since approval of the project may rest with another authority.

The Western manager will also discover that he is going into an environment that is generally unfavourable for business investment. Therefore, it is necessary for him to do some "pioneering", that is he has to carve out a favourable micro environment within that unfavourable macro environment to make his project succeed.

Cultural Constraints

There are cultural differences that impinge on doing business in China.

A. Profit may be perceived as Western exploitation

Many Chinese perceive that it is immoral for a foreign businessman to make money in China. Despite their acknowledgement that they expect a foreign investor to make a profit, if he does make money he becomes a subject of scandal and rumour. The Chinese will cite previous foreign domination and their country's relative poverty to justify this view. We argue that unless foreign businessmen make a sufficient profit in China, the Chinese program to attract foreign investors will never work. Although there are thousands of joint ventures with some even operating at a profit, the amount of investment the Chinese have attracted thus far is only a tiny percentage of their goal.

During negotiations the Chinese will want to know the Western partner's actual cost of manufacturing or his cost of operation in order to reduce his share to the least possible amount. Upon achieving that goal they will feel that they've done a good job for their country morally and for their side of the enterprise.

Unfortunately, this attitude jeopardizes the success of joint venture investment. For example, a large American manufacturer sold 50 locomotives to China but in the end failed to make a profit from the operation. When the Chinese approached the American company for subsequent ventures, understandably its CEO was less than enthusiastic.

B. Group Identity

The distinction made between someone "in the group" and someone "outside the group" often determines how a Chinese individual behaves in his relationships with others. Different codes of conduct may apply to relationships within his immediate group consisting of family, friends and work unit or company and relationships with "outsiders" including foreigners as well as other Chinese.

C. Lack of Managerial Autonomy

Another barrier is the Chinese manager's fear that if a Western partner is financially successful he will be criticized for being overly generous, selling his national birthright, or accepting some form of bribe or favour for negotiating a ÒreasonableÓ agreement.

An example of this occurred when the CEO of a large American company hosted a banquet for a visiting Chinese Vice-Minister and his delegation to celebrate an agreement reached after a long week of negotiations. The Vice-Minister was noticeably glum and when he was asked why; he replied that he could already hear the comments that would be made upon his return. He would be accused of bowing to pressure and giving away more than necessary to the foreigners.

Therefore, in order to protect himself from potential criticism the Chinese partner will attempt to impose on his Western counterpart pre-set drafts of contracts and agreements. The Western manager should realize that he does not have to accept these pre-drafted documents.

D. Attitude toward success and failure

The Chinese manager has different motivations and incentives from his Western counterpart. The Chinese manager personally gains very little if his negotiations for a joint venture with a Western company are successful. Instead his success may increase his workload and cause potential problems to his office.

If negotiations for a joint venture fail, nothing happens to him either. He simply has to write a report to the authorities listing the factors involved in the failure. Therefore, he is not motivated by the same aims and incentives as his Western counterpart who may benefit or suffer substantially depending upon the joint venture's success or failure.

E. Inexperience may lead to suspicion

The Chinese manager's inexperience in international business and/or lack of knowledge of technology and business professionalism may lead to feelings of insecurity and vulnerability.

Hence, the Chinese manager will try to compensate for those feelings of inadequacy by "encircling and disarming" the Westerner in order to reduce his perceived unfair advantage. We call this the "CEO Syndrome" where the foreigner receives special treatment and is made to believe that he belongs to the "in-group". He is met at the airport, taken to a luxurious hotel, wined and dined and informed that he is receiving preferential treatment because he is a special friend of China. In the course of this "treatment" he is likely to agree to all sorts of grandiose schemes. And because he is convinced that he has a special relationship with the Chinese, it is unlikely that he will pay attention to anyone who tells him about problems in China. Upon his return to corporate headquarters he will assign some manager to China to implement those plans. When that happens, the Western company is already operating at a disadvantage because it may be impossible for the manager to implement what the senior executive has promised.

F. Western perceptions may hamper effective negotiations

Perceptual barriers that originate with the Westerner may put him at a disadvantage. For example, the Westerner may overcompensate for his fear of committing a cultural blunder by not saying anything. While it is good to have an awareness of Chinese social norms, it is better to be direct. The Chinese are capable of discerning whether the foreigner is acting in good faith and whether he is a person of good will.

An understanding of cultural differences goes a long way in eliminating these barriers to effective communication. The key to successful negotiation lies in recognizing that beneath these cultural constraints both sides have the same fundamental needs and interests.

Basics of Negotiating

It is important to be very firm on principle, including business ethics, issues related to profitability and corporate policy during negotiations. This provides some guarantee of the business venture's success and helps teach the Chinese contemporary business methods. In terms of negotiating style, courtesy, respect and patience should be the rule at all times.

Do not listen to people who minimize problems. Almost every project will appear to have no problems on the first day of negotiations but issues will begin to surface during the course of meetings. When people state that it is impossible to achieve one's stated objectives, take a close look to determine the feasibility of those goals. If one's company is sound, has staying power and possesses goods or services that China needs, or if it can use China as a manufacturing base to export to other countries, there is a great likelihood of success if done in the right manner. Even if it is impossible to achieve one's original objectives, it still may be possible to craft something that is workable.

Contract Essentials

The following components are essential in a contract and should not be compromised:

1) Method of payment and repatriation of profits.

2) A deadline for the two parties' investment contribution and the form the investment will take (this is very important because many joint venture partners end up with the realization that the Chinese are not going to put up money).

3) Guarantees for financing, supplies, transportation facilities, quality control and access to the market because of basic problems in the infrastructure, e.g., power shortages, etc. It is necessary to check out each of these points independently and obtain assurances from the people actually in charge.

4) Type of goods and services to be produced or provided .

5) Feasibility study including cost of production, expenses and method of dividend distribution and exchange rate to be used (several exchange rates now exist in China).

6) Respective responsibility of management of the two parties.

7) Provisions to recover trademark and patents, and protection of technology after termination.

8) Trademark and patent protection.

Tips for a Successful Project

Finding the right Chinese partner in the right location is the key to a successful joint project. It is ideal to find someone who is motivated by a genuine desire to accomplish something for his country or for future generations. This powerful motive exists in the minds of Chinese entrepreneurs, managers and progressive reformers who approve these projects and should not be underestimated.

Establish a clear understanding with that Chinese partner about the nature of partnerships. Each participant must work in his own interests, but at the same time considers his partner's legitimate interests and avoids putting him in an untenable position.

It is important to submit one's proposal to the actual approval authority as quickly as possible. Typically, one meets with negotiators and managers who are not the final decision-makers. Determine the network of approval agencies and authorities that is appropriate for your project. Then contact the key person in each of those agencies and cultivate his understanding and acceptance of your project.

Send in the appropriate people. Professionalism is important, knowledge of technology is good but what is more important is someone who understands people and has good interpersonal skills.

Start small with something practical and learn how to do business successfully in China before tackling larger projects.

Conclusion

Doing business in China is worthwhile despite the difficulties because China is the largest undeveloped market in the world. It is a market in which Canadians and Americans have a distinct advantage because they are liked and welcomed in China. It is a market that will take a long time to develop but if people are there early they will gain a tremendous advantage over others who arrive later.