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China News

Negotiation Techniques with Chinese Companies

by William R. Dodson
 

1 May 2004
I recently participated in negotiations between an American company and a Chinese private enterprise. The American company wanted to buy most if not all of the Chinese company. The American company was particularly impatient in its entry into the China market because the company’s industry in China was growing in leaps and bounds. It felt if it did not enter the market quickly its global customers would abandon it for lower-cost Chinese companies, and even its non-Chinese competitors would gain market share from it.

The discussion between the parties went something like this:
American: Do you want to have a joint venture?
Chinese: Yes.
American: We need to have super-majority interest in the joint venture.
Chinese: I see.
American: Will you accept a 20% stake in the jv.?
Chinese: No. 50/50.
American: That’s not possible. 30%

And on and on. The most the Americans ever got from the Chinese side was a 51% of the joint venture after eight months of talks.

When marketplace pressures combine with an American tendency for directness of discussion and a laser-like approach to finding solutions to problems, the challenge of finding Chinese partners and acquisition targets can be even more difficult than originally imagined. I told one American executive, “It’s like smashing your fist into a basin of water. The waters just part to make way for the momentum of your thrust.” Chinese companies simply dance around your attempts at directness and then apply their own approach as suits them.

One of the key ways in which American negotiators frustrate the negotiation process is the way they ask questions of Chinese businesspeople. Americans tend to ask rhetorical questions that elicit Yes/No answers. “Do you want a joint venture?” “Will you sell me your business?” “Will you accept minority interest?” Closed-ended questions do not create a dialog with Chinese counterparts. Instead, they force respondents to answer in an equally unimaginative way that stunts dialog.

Chinese are only too happy to answer binary questions because the answers give little information and force the American party to work hard to unearth a full picture of the enterprise. Indeed, while the American party is puffing away at its contribution to reducing the entire transaction to its most atomic elements, the Chinese are sitting back watching the American activities. Chinese are consummate observers when confronted with an unfamiliar situation, preferring to hang back and learn about their counterpart’s strengths and weaknesses than to engage in “blue-sky” conversations in which nothing is really achieved. Americans believe they are gathering intelligence through their binary interrogations; Chinese know they are deepening their profile of the American side through bouts of heavy drinking at luxurious banquets.

“Open-ended” questions are the most effective approach to getting Chinese counterparts to come out from behind the bushes. Open-ended questions elicit responses that must be thoughtful, considerate of the context of the discussion. Open-ended questions often begin with, “What do you think of …,” “How do you feel about …, “Why do you consider …”

Discussions between an American company and the Ming Hua Company (not its real name) were going poorly. The American side was asking no questions while the Chinese side was asking penetrating questions such as, “What are your plans in China?” “In what timeframe are you expecting to establish a joint venture in China?” and “What benefits will you provide Chinese partners?”

Finally, I scribbled heartily on a slip of paper and slid the sheet to the lead negotiator. He nodded understandingly. I told him, “Questions travel in pairs. When he asks questions, answer and then ask him a question back. Make sure its an open-ended question.” After answering the next question from the Chinese side, the lead on the American side asked, “What are your ideas for working with a foreign company?” The Chinese became animated and engaged in the discussion, finally feeling they could become partners in the conversation. The timber of the conversation changed dramatically: it became more positive, more of an exchange instead of an interrogation, more light-hearted. Clearly, by the end of the discussion, the Chinese side felt in this first round it had learned what it wanted to know; the American side felt the same way.

Western directness and the command-and-control approach to interrogating Chinese counterparts is not a productive means of gathering information or of building a relationship with Chinese businesspeople. The most effective means comes with active listening skills that present a wide platform upon which Chinese can contribute to the conversation, instead of a narrow parapet from which counterparts feel insecure in the discussions. Then -- as the lead Chinese negotiator said at the end of the Hua Ming Company discussions -- American and Chinese representatives can “go out and drink and do some real business!”
 

William R. Dodson is Managing Director of Silk Road Communications, L.L.C., a market research and business development consultancy that positions companies for success in China. He is the contributing editor on international business to the American Management Association’s (AMA) MWorld Journal of Management, and writes the column “The Cultured Business”, found at www./. He can be reached at contactus@/ or +1 (847)630-1271.