Negotiations in China Are Unavoidably Long
The Chinese deliberately make negotiations painful and lengthy for their counterparties. After far too many hours of going around in logical circles and inhaling others’ cigarette smoke during one particular negotiation, I thought about how I could efficiently get us to the signing stage. We had been telling the Chinese side (truthfully) that we were at our bottom line. But, they were unwilling to take us at our word. I wondered whether, if I set myself on fire, they would take our claim more seriously.
Corporate Lease Negotiation
At the beginning, this discussion had seemed straightforward – in fact, it was almost a love fest. The landlord wanted us; we wanted the lease. Before beginning discussions, the landlord gave us the asking price. It was within our budget, although pretty close to the top. The landlord then quickly agreed to a list of items that were particular to our needs. At that point, my team and I were thinking that this discussion might actually break the rule – that we might be able to sign the lease with a minimum of wasted time.
In China negotiations, optimistic assumptions can die quickly. Once we thought we had agreed to the lease price, the landlord told us that there were additional services for which we would have to pay. The landlord also presented a size calculation of the facility that was much larger than it should have been. (In China, the convention is to pay for the “construction size”, which is usually about 25% larger than the interior gross floor area. In our case, the landlord was attempting to use a construction size that was 45% larger than the GFA.) We were immediately outside of our budget. This was all just part of the usual game the Chinese play. To Westerners, the game is exasperating. To Chinese, it is necessary.
Why is it so difficult?
The Chinese make negotiations interminable for three reasons: China is a “face”-based culture, Chinese businesspeople typically are not sophisticated in business strategy and certain tactical areas, and there is a prevalence of a “zero sum” business mentality in China. The purpose of negotiations from the Chinese side is to attrite you into making all possible price concessions.
The Chinese preoccupation with face means that the Chinese will not allow themselves to be perceived as having made a mistake in their deal with you. “Face” is similar to honor. One can lose face (among other ways) by being taken advantage of. This is particularly true if the “winning” party is non-Chinese. Chinese businesspeople are extremely sensitive to issues of face. Losing face in front of their subordinates invites challenges, theft, and defections. Losing face among peers will lead to ridicule.
The problem is that Chinese generally care more about not losing face than about gaining it through entering into a potentially lucrative arrangement.
Chinese businesspersons’ lack of sophistication in strategy and certain tactical areas compounds the face issue. Many Chinese do not understand long-term strategy very well. In China’s boom, so much money has been made almost overnight. In school, Chinese were educated in Maoist and Deng thought. Therefore, considerations of how supply and demand behave are literally foreign to many Chinese.
Price is the most important issue
What the Chinese do understand is price. Any trip to the markets in China will reinforce this point – even wealthy Chinese will haggle endlessly over the price of an item as mundane as a yam. If you attempt to give the Chinese side strategic benefits in return for price concessions, do not be surprised when they reject the offer.
The Chinese side is usually unable to understand the economics of your business, and thus what you are able to pay or receive. Very few Chinese businesspeople know how to use Excel or how to analyze another business’ finances. Because they cannot assume what your bottom line pricing is, they have to find another way. Attrition is the primary tool.
Note that even if the boss on the other side does understand the strategic benefits, and can figure out what your bottom line probably is, his subordinates and peers cannot. For face reasons, the decision maker needs to make a show of flogging the best price out of you.
The need to receive the best possible price is often exacerbated by the “zero sum” business mentality that is prevalent in China. Many Chinese companies made money in manufacturing highly commoditized products. In order to be successful, the manufacturer had to wring concessions out of suppliers and customers. For the manufacturer to make a yuan, somebody had to lose a yuan. To people versed in this way of doing business, the concept of adding value, i.e., that one plus one can equal three, does not exist. People who come from the zero sum school of business may desire to ensure that you are not profitable. Any negotiation with them will be more arduous.
Face requires that Chinese businesspeople demonstrate that they wore you down in negotiations. The Chinese side’s lack of sophistication means that they will focus on pricing. The people with zero sum mentalities will play this game for a particularly long time. Therefore, do not schedule a trip to China thinking that you need only a few days for negotiations – be prepared to talk for a long time. Also know that no matter how you try to sweeten the pot, price will almost always be the issue. The Chinese side will not relent until they are comfortable you have reached your bottom line.
For more comprehensive information about Chinese Negotiation, see Chapter 6: Getting Business Going through Successful Negotiation in the book, Doing Business in China for Dummies.
Related Article:
Why Dealing with Chinese Companies is so Difficult
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