China Economic Review article by Andrew Hupert, When Chinese dreams meet the real world: Western negotiators in China need to keep their heads out of the clouds, gives five great tips for negotiating with Chinese companies. Hupert’s first two are my favorites:
1. Plans and dreams are different. I always ask clients and students what they want out from their China negotiation, and the answers can be disturbingly vague. A deal-maker in New York or London will be able to give highly detailed predictions about the outcome of a domestic negotiation, and describe his goals, expectations and bottom line in specific amounts and time-frames. Novice negotiators in China tend to say things like, “I just want a signed a contract,” “I want the best deal I can get” or even “I want to make a lot of money.” Chinese counter-parties can hardly be blamed for helping themselves to gifts presented on a silver platter.
Far too often, I have had clients tell me that the home office sent someone to China to “do a deal” and that person feels that after a certain number of China trips or months in China, a deal must be done at any cost.
2. Western deal makers with highly specific goals are the most likely to succeed in China. Experience counts and sophisticated negotiators in China know what to request Amateurs demand onerous penalty clauses get inserted into English-language contracts that don’t mean anything in local courts. Pros want the right to pick the financial controller who keeps the company chops in his office safe. It takes experience and research to know what to ask for in China because success is measured differently. If you want to do American deals, go to the
US. When you come to China, make sure you know what to ask for and how to measure success.
Hupert’s example of not getting the company chops is a classic example that comes up when doing Chinese joint ventures. The American company wrongly thinks that by getting 51% ownership in the joint venture it will control it. In reality, the party that gets to pick key personnel (and that is not necessarily the majority owner!) and gets to maintain the chops ends up in control.
Hupert goes on to rightly note how Chinese dealmakers are experts at creating phantom deal points to exchange for real assets, intellectual property and hard currency. The American who does not know what matters in China just goes along.
For Hupert’s other three tips, go here.