Why Dealing with Chinese Companies is So Difficult

- Carson Block, China Primer

Dealing with privately-owned (non-SOE) Chinese companies is very difficult because many successful Chinese business owners have either made their money through the use of tough “zero sum” business tactics, or through too little effort. Private Chinese companies tend to be autocratic, with the owner making all decisions. Therefore, understanding whether the owner of the company fits into either of the categories below will be helpful in formulating your negotiation strategy.

The Zero Sum Mentality in Chinese Business

One common type of successful Chinese businessperson made their money by winning wars of wills with suppliers and customers. In order for this businessperson to earn money, somebody else had to lose it. In other words, their business is a zero sum game – they “beat up” their suppliers and customers over prices and terms, thereby preserving their own margins. Zero sum businesspeople are particularly common among manufacturers of commoditized products.

A Chinese Zero Sum businessperson will almost always be able to attrite a Western businessperson into submission. Unfortunately, they are often unable to fully grasp potential strategic benefits – according to this type of person’s world view, one plus one cannot equal three.

Although lip service may be paid to a wide range of issues, your deal will proceed (or fall apart) based on the most fundamental terms – often pricing. When dealing with a Zero Sum person, be prepared to have to ultimately meet their price requirement. Also, expect lengthy discussions and to receive the occasional ridiculous demand.

Finally, do not confuse a Zero Sum person’s penchant for spending money in pursuit of a lavish lifestyle with their attitude toward money and business. The person with three Mercedes, several houses, and Steinways that nobody knows how to play, is unlikely to cut you any slack – even over small amounts of money.

Easy Money

There are a number of wealthy Chinese businesspeople who have made money without much effort. There are two ways in which the money has come to them easily: 1) they purchased assets from the government at bargain prices, and / or 2) they made huge sums of money speculating on China’s real estate boom. Most of these people have no idea what a business downturn is, or even believe that one is possible.

The problem is that Easy Money people they think they do not need to do business with you. Even if the deal you are presenting makes all of the sense in the world for them to pursue, they very well may not. When dealing with Easy Money people, issues of “face” are particularly acute. If you cause such an Easy Money person to lose face, they will almost never consider doing business with you – even if their business depends on it. However, the flip side of the coin is that there is always a chance that appealing to an Easy Money person’s ego may create an opportunity for you to receive favorable terms.

 

Related Article:

Negotiations in China are unavoidably long

 

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