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The International Entrepreneur – Breaking Through Assumptions in Chinese Negotiations (Part 2)

In Part 1, I wrote about cultural assumptions in China. In the second half of this series, I have advice for entrepreneurs starting negotiations with their first client or partner in the Chinese market.

Prepare, Prepare, Prepare

One of the biggest mistakes that a company can make in international negotiations is to skip preparations. Americans in particular are notorious for “shooting from the hip”. The danger is walking into a negotiation where your Chinese counterparts know not only your company’s product information and history, but have researched the backgrounds of everyone on your negotiating team, your business culture, and likely any past business you have conducted in China. They will have planned out strategy, tactics and contingency plans. As your Chinese counterparts are socializing with you, they are also studying and testing you. They will also likely attempt to get you and your team drunk in order to collect more information that they can use in negotiations. I have written a checklist for international negotiations available from my site, if you want to see the detailed list.

Another part of preparations is carefully choosing your negotiating team. You’ll want to match the number of team members and their roles to your Chinese team. A CEO, VP of Production, Technical Engineer and Logistics Manager on one side should be matched as closely as possible by the other side. When socializing, the pairs of each role will often break off to discuss more specific information and form one-to-one business relationships. Be sure to consider the number of team members when deciding how many translators you might need if a pair does not share Chinese or English as a common language.

Time is NOT on Your Side

One the best-working negotiation tactics used against Westerners and particularly Americans is TIME. Americans like to strike a business deal as quickly as possible and then move on to the next deal. The Chinese and other Asian cultures know this. A common first question on a negotiations visit is: “how long are you staying?” Your Chinese counterparts know that if they avoid coming to agreement in the hours before your return flight, they can get deep concessions from you. The American is motivated by completing the transaction and reporting back to the home office that the deal is made as opposed to requiring further trips.

Time as a tactic can also be used by Chinese during negotiations (although this is actually a favorite tactic of Japanese). This is when your counterparts simply stop speaking and silence fills the room. Typically, Americans and other Westerners are not very comfortable with prolonged silence. In order to the conversation going again, the American will often give away concessions. But the best answer to this tactic is to meet silence with silence. Be prepared to stay quiet and very emotionally neutral for up to three minutes. If this tactic doesn’t work, the other side will stop trying to use it.

Negotiations are NEVER Finished

Americans use contractual agreements to define a business relationship. As long as the agreement terms are being carried out by all parties, Americans are generally satisfied. This is not how agreements are viewed in China. In Chinese business, the agreement puts into writing the verbal agreements that have been initially negotiated. But all terms can be renegotiated at any time. This can be frustrating to Americans who feel like negotiating once is enough. The typical reaction by Americans is that their Chinese counterparts cannot be trusted to uphold their side of the agreement. In reality, the strength of a Chinese business partnership is in the shared interest and flexibility of the relationship, not the contract terms.

For more information about doing business in China or how to troubleshoot existing relationships, please contact Becky DeStigter, The International Entrepreneur.

The International Entrepreneur – Breaking Through Assumptions in Chinese Negotiations – Part 1

Becky in Beijing

Becky in Beijing

I will never forget my first trip to China five years ago. Everything that I thought I knew about China and its culture was completely wrong. I had always interpreted the Chinese expression “don’t be polite” to mean that the Chinese didn’t value politeness. On the contrary, the Chinese professionals and even random people on the streets of Beijing and Nanjing were extremely courteous and helpful. Actually, that expression is mean to put people at ease and roughly translates to “you’re welcome”. With the exception of Dublin, Ireland, I have never been in such a large city where people treated me with such respect and courtesy.

Fast-forward to last week. I was attending a local event for international business executives accompanied by my Taiwanese client. As she and I made our rounds through the room talking with our international peers, we would frequently fall into Chinese cycle of giving and rejecting compliments (sometimes in English and sometimes in my broken Chinese). Ching-Yen would say how smart I was. I would, of course, deflect her compliment “oh no, you are much smarter than me”. Ching-Yen would deflect my compliment with something else and around we would go in the Chinese cultural pattern. While I will always consider myself a “wai-guo-ren” (foreigner) to Chinese culture, I am a student always eager to learn my experiences and those of others.

When any of us first interface with a new business culture, it is easy to look through our own cultural lens and make assumptions about the other culture. Obviously it helps to read up on the new culture or engage with someone who knows the culture and can advise you on how to navigate business in-country. But even with help, you are still bound to make some cultural errors. Nowhere does this surface more than in business negotiations. With this in mind, here are some tips for entrepreneurs conducting their first relationship and business negotiations with a Chinese partner or client:

Relationship First, Deal Second

One of the key differences between negotiating with Chinese nationals compared with Americans is that the Chinese want to build a relationship first, then do business second. In the U.S., we approach business in the opposite order. We negotiate the deal first and once the teams are formed we implement the deal while getting to know each other in the process. A relationship beyond the agreement’s deliverables is not even required. This means that your Chinese contacts will likely want to spend days showing you the local sights, taking you out to dinner, and having many non-business conversations before you ever begin any serious discussions about the business deal you are trying to close. It is very important to go through these relationship-building steps for a Chinese business person will feel comfortable enough with you to start the real business talks.

Tune in to my next article (Part 2) where I will give more advice about negotiating with the Chinese.

The International Entrepreneur – Tips for Avoiding Chinese Bribe Requests

BribeThe issue of Chinese corruption has been making headlines again lately. According to Transparency International, China is seen as a moderately corrupt country compared with the likes of places like Afganistan and Paraguay. But corruption is still an issue for Westerners wanting to enter the Chinese market. Steve Barru of China Business Hand recently wrote about Xi Jinping’s Anti-Corruption Drive and that while China’s leadership will likely continue to round up various corrupt officials, corruption won’t really change since this campaign doesn’t address the root causes of the issue, including the lack of checks and balances. Steve also shared insights from his 25 years living in China about the Culture of Corruption in China. It is vital that international business professionals in all disciplines understand the complexities of corruption issues and in particular, how to handle bribe requests.

Like many American entrepreneurs, I find the U.S. Foreign Corrupt Practices Act overly stringent. I feel like my own government does not trust me to be honest and ethical. It leaves no room for cultural traditions of gift exchange in business relationships. Most cultures do not appreciate the American government judging business traditions dating back before the United States became a sovereign country. Michael Black recently wrote a blog post about Gifts, Guanxi and Corruption in China that’s definitely worth reading on this subject. Given the severe penalties, it is vital to know the FCPA and understand how to avoid any violations. Here’s what I recommend:

Expect to Hear Bribe Requests in Their Many Forms

Bribe requests come in many forms and at various points in the relationship. Oftentimes a bribe is asked for during initial negotiations. It is done normally in one-on-one conversations. It is often delivered as a strong suggestion instead of a direct request. The request could be for money or for a special favor like admissions to a prestigious school for a son or daughter. It can also come at a key point of a working relationship to help expedite a certain action. Government officials are often the most common bribe requesters, promising either a faster process, a permit, etc. or plenty of red tape if the bribe is refused. Do not be caught off guard by a request without having time to counteract. The risk is accepting the bribe request without thinking or else rejecting the bribe outright and derailing a key relationship. You can buy time with “I will consider what you ask”.

Do Not Delegate Bribing to In-Country Partners

This used to be the preferred way around direct bribing by American companies. A special “consulting fee” would be given to the local partner to carry out bribes on behalf of the American company. The American government now tracks these types of payments very closely and if caught, the American managers will serve time in prison. It’s not worth the risk.

Here’s a Way to Turn Bribing into a Legitimate Opportunity

American companies and others following stricter corruption laws are at a disadvantage in a sales process when others bribe without great risks. To successfully compete takes some creativity. Is there anything that your company can legitimately give to sweeten the deal without significant cost to your company? For instance, there may be previously developed online product training modules that you normally charge for. Could it be given away to counterbalance the bribe? Could your company donate children’s playground equipment at a nearby school in honor of your business relationship with the local Chinese government? Look for high-value/low-cost giveaways and goodwill-building opportunities that keep you free and clear of any FCPA violations. Keep in mind that the rest of the world understands American businesses’ restrictions and this may be a test to see what you will offer in lieu of the bribe.

The International Entrepreneur – Leveraging American Business Strengths in International Negotiations

Americans have been active in international business since before the United States was founded. As a people, there are several of our business cultural characteristics that we can leverage for better outcomes in international negotiations. Here are some traits to use to your advantage:

Friendly and Open

Most Americans doing business internationally use friendliness as a tool to start new business relationships. Overall, Americans tend to see everyone as equal. Meeting people of varying social status and backgrounds comes easier for Americans than for many other cultures. And even though this characteristic can clash with other cultures, it is often overlooked because it is seen as almost naive and endearing. This friendliness serves the useful business purpose of starting business relationships more quickly, which is normally an American business objective. Knowing that this is a strong American characteristic, it is best not to judge other cultures when they appear less openly friendly. When trust is built over time, it is much stronger than any initial enthusiasm.

Americans tend to be more open than many other cultures when negotiating. That is not to say that American won’t sometimes omit mentioning details which are not in their favor. But generally, Americans don’t hide much information. This again makes it easier to build trust when negotiating with a new international client, partner or supplier. Australians and New Zealanders typically prize openness and honesty above all other cultural traits, making Americans natural business allies with both Aussies and Kiwis. While it is easier for Americans to negotiate with similarly open business cultures, openness can build in many places over time and cumulative business dealings.

Confidence and Initiative

When Americans show confidence in their own abilities, it helps to strengthen their negotiating position in most international transactions. In win-lose business negotiation cultures (ex. Russia, Arab cultures, Israel) should confidence falter the other side will seek deep and unfair concessions. Building on American self-confidence is our ability to take initiative and steps forward in the negotiations. Americans are likely to follow up on outstanding issues in the talks as well as confront any issues that will likely derail the negotiations early on. Americans like to summarize negotiations’ progress in written form to ensure that both sides understand points that have been agreed upon. All of this serves American interests of a faster negotiation, saving money and time spent to close the deal.

Win-Win Outcomes

Americans generally prefer a fair business arrangement. Few want to risk a negative business reputation since this could deter future business from the same market. Americans like to approach business negotiations as a joint problem-solving exercise, including negotiations for sales to clients. Since win-win outcomes are more likely to lead to client referrals, repeat business and client testimonials, this trait can definitely pay off in international markets. For business cultures who also seek out win-win long-term business relationships (ex. most of Asia, Europe and Latin America), this makes for smoother negotiations. Even for those cultures who prefer to win while the other side loses, structuring a deal for a win-win still yields healthier long-term business dealings.

I hope this article was helpful to you. I welcome your comments. If you would like more information about international negotiations, please click here.

The International Entrepreneur: Ready for your First International Negotiations?

You have engaged with your first potential overseas partner or large client. Both of you want to do business and you will be starting negotiations soon. But aren’t negotiations the same around the world? Definitely not. Particularly those used to the American negotiation style will do very poorly trying to make that style work negotiating with other cultures.

Prepare, Prepare, and then Prepare More

My fellow Americans typically come to the negotiations table with minimal preparation. This is a BIG mistake. The other side will know a great deal about your company, your product, and each member of your negotiating team in order to find advantage. They will have planned a detailed strategy. Do your homework so that your team is not coming in at a disadvantage. Your own negotiations strategy should include the boundaries of what you can afford to offer and what you can accept, plans for how to deal with common negotiation techniques from your counterpart’s culture, alternatives you can offer as part of the deal to counteroffer anything the other side wants and you are unable to give, everyone’s specific role on your negotiation team, and background information about the other side. Do all that and you will be prepared!

Location, Location, Location

Where will your negotiations be held? Your offices? The offices of your counterpart? Offsite? At a location in a neutral country? Most would say that they hold advantage if negotiations are held in their own offices. This is true for controlling the environment: schedule, food, breaks, temperature, level of overall comfort, etc. But there are advantages to visiting the other side’s location, seeing how they work and learning more about their operations. In some cases, it may be optimal to hold series of negotiation talks that rotate between the two company locations. That way both sides can learn about their counterpart. Whatever you decide, please understand that this is an important decision that can affect the outcome of the negotiations.

Time Frame

Whatever your time frame is for completing negotiations, it is probably too short by at least half. International negotiations take time. I once received an excellent piece of advice from a seasoned negotiator who had negotiated many agreements between Western and Asian companies (and governments). She said to never communicate a specific time/date of your return flight. Always leave this open because there may need to be a period of time when both sides are getting to know each other before negotiations even being. Often if a Western team is in Asia for negotiations there may be several days of local site seeing before negotiations even begin. If there is a specific return date, the other side will take advantage of this to stall up until right before the flight and then ask for large concessions in order to close the deal. Plan on spending a few weeks in-country during negotiations. Likewise, play tour guide to your visiting negotiation team if you are hosting at your offices.

The International Entrepreneur: A Sampling of International Negotiating

Recently, my friend Arlene Marom from Tel Aviv, Israel asked about what kinds of negotiating techniques to expect in non-American markets. Negotiating can vary greatly from person to person and culture to culture. Generally, there are several categories of negotiating techniques: Pressure, Emotional, Defensive, Aggressive/Adversarial, and Deceptive. My favorite class in MBA school was International Business Negotiations and the best book I know of on this subject is Negotiating International Business by Lothar Katz. I need to credit both of these sources for much of what I know. Since school, I’m amazed at how often I see some of these techniques being used. But regardless of the technique, the motivation is to get the most value out of the negotiation, even if it is only for your side of the deal. Here is a sampling:

Opening with Best Offer

This may not even seem like a negotiating technique since the presenter of the best offer may be trying to bypass negotiations altogether. Some cultures such as Germans, Swiss and Scandinavians might not like the bargaining process and so this is their way of not negotiating. But it does not build the relationship that serves as the foundation to most business partnerships and sales around the world. It also requires that you are in a position of power where “take it or leave it” is an option. Normally it leaves value for both sides off the table, which is bad. Some cultures such as Russians and Ukrainians may use this technique as an opener and a bluff.

Appeals to Personal Relationship

It doesn’t take long in international markets to run into this technique. It is very common in the Middle East and Central Europe. You might hear “If you value our relationship, you’ll give me xxxx.” It puts the other side at a disadvantage because it equates rejecting the request rejection with rejecting the entire relationship. Interestingly, it is more common in situations where relationships are not well developed and by people who do not necessarily value the relationship. You’ll rarely find it used in China, Malaysia, or Indonesia.

Changing the Subject

This can be an effect negotiating technique in order to take the other side off a systemic strategy with a set agenda. It is a way to avoid giving away something you are not comfortable giving. It is face saving when negotiations are tense and going in the wrong direction. In polychronic cultures (where time is not taken chronologically), frequent subject changes are normal and expected. This includes the Middle East, France and most of Latin America. But don’t use this in monochromic cultures such as the United States, Canada, Scandinavia or the Germanic countries.

Walking Out

Anyone who has ever spent time in a Mexican market knows the power of walking out. The price on whatever you were last examining drops dramatically. Walking out can be physically walking out of the room, but it can also be an emotional walk out with anger, shouts and gestures. It is normally preceded by threats of walking out. If you are ever going to try this, you have to be willing to walk away from negotiations altogether. It is normally last resort. Sometimes just one member of the negotiating team will walk out at a critical time. This tactic is used more frequently by Czechs, Dutch, Germans and Israelis. But if you use it on North Americans or Western Europeans, your negotiations are probably over.

Silence

This one is my favorite because it is most often used against my fellow Americans. Prolonged silence (up to 3 minutes) can make North Americans, South Americans and any other communication-intense cultures very uncomfortable. Especially East Asians know this. What normally happens is that the silence is broken by the communication-intense side. They start blabbering and giving away concessions or other information they shouldn’t. The trick is to sit quietly with no facial expression until the other side breaks the silence. If you ask a question and receive no response in 3 minutes, head for the door. If they are serious about the negotiation, the other side will stop you from leaving.

I hope these negotiation technique descriptions are helpful!

Onward and Upwards,

Becky Park

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The International Entrepreneur: Hardest Place to Negotiate? The Middle East

 

Courtesy of Cognizant & Flickr

Courtesy of Cognizant & Flickr

I was recently asked in which culture I thought was the most difficult to negotiate a business deal. The most difficult I could think of would be to negotiate with the Roma (gypsies) of Europe. But that really doesn’t come up much in international business. The Russians would be a strong candidate for most difficult, but a sharp wit and enough vodka can often help bridge the gap. No, my vote would go to Middle Eastern cultures as the hardest to navigate in negotiations.

Before I explain why, I think it is important to point out that in my experience, Middle Easterners are normally warm and welcoming people. Business partnerships can often be measured in decades, with Middle Easterners showing a strong sense of commitment and loyalty to those who reciprocate. Middle Easterners I have known have a wonderful sense of humor and are dedicated to their family and friends.

Now here is why the Middle Eastern cultures get my vote. Long-term business relationships depend on each side benefiting from the relationship. But when Middle Easterners (& Russians) negotiate, culturally they want to win at the other side’s expense. There also can be a lot of drama (emotional displays) in the negotiation that negotiators from other cultures are not accustomed to seeing. But the final reason is that it is easy to offend a Middle Easterner and very difficult to regain the trust. This happened to me last fall. I was building rapport with a young professional Middle Eastern person. Over a period of three months, this person repeatedly offended a group of people. Instead of understanding or admitting her role in the group, this person blamed everyone but herself. In the process of complaining to me, I indirectly inferred joint responsibility for the situation. The result – an emotional volcano erupted and ties severed.

Does that mean that the rest of the world should not do business with Middle Easterners? Absolutely not. There are ways to compensate for any challenging aspects of Middle East negotiations. First, always come prepared with what you can give to the other side and what you can’t. Most importantly, inflate your price to allow for deeper discounts and a perceived win-lose that is actually a win-win. Second, instead of dreading an emotional display in the attempt for deeper concessions, enjoy the show! It’s for your benefit. Your role is to stay calm and focus on the long-term relationship. And finally, never directly or indirectly accuse your counterparts of any wrongdoing. Instead, focus on the negotiating issues at hand. Remember, well-negotiated business relationships with Middle Easterners can be some of the strongest and most enduring to be found anywhere.

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