Negotiating in China: Challenges and Practical Approaches

Dr. Pitman B. PotterUBC Institute of Asian

ResearchUBC Law Faculty

I. Introduction

Acknowledgements. Themes: Preparation, Balance,

Prudence China negotiations similar and yet

distinct. Issues of preparation, balance, prudence are generally applicable elsewhere, but local context in China raises particular challenges.

II. Local Contexts

Culture and the importance of Relational Networks Culture (incl. language) is key to

understanding local markets and market behaviour.

Culture of communities vs. cultures of individualism.

Networks are cultural vehicles for communication, risk management.

Diversity of culture. Social: Elite; middle-class, consumers,

gov’t, family, etc. Regional: North / South; inter-

provincial, etc. Occupational: professionals,

bureaucrats, intellectuals, etc. Families (Xi Jinping, Bo Xilai, etc.).

Manifestation of culture: Expression, perception. Use of language (idea of contract as

“hetong” or “qiyue”). Interpretation of behaviour (response

to banquet etiquette, informality, etc.).

Manipulation of culture. Elite negotiator referring to

“laobaixing” cultural norms. Selective Adaptation of

international rules/standards. Acceptance of rules vs.

assimilation of norms.

III. Preparation

Conventional preparation. Identify goals (immediate, medium

& long-term). Identify goals and expectations of

counterparts (research and networking).

Plan processes of trade-offs, what-if’s, fall backs, etc.

China-Specific Preparation. Institutional and personal mapping

(linked to identifying goals and expectations of counterparts).

Examples Links between SOE’s // Central

Enterprises and gov’t departments. Provincial relationships (locally and with

the Centre).

I & P Mapping Examples cont. Rivalries among enterprises and

gov’t departments. Role of the Party, leading small

groups, etc. Personal histories (family, schooling,

projects, etc.)

Problems of non-transparency and obstacles to access to information. Role of informal sources. On-the-ground due diligence.

Examples Contrast English and Chinese

language sources (media, internet).

Due Diligence Examples cont. Contrast formal and informal sources

(published reports, ‘chats’). Problems with ‘conventional wisdom.’ Volume and quality of information. Network building.

Networks as mechanisms for acquisition

and management of information. Formal institutions vs. personal/family networks. Focus on obligations vs. rights.

Examples Agreements // Contract

Different interpretations re significance. Rights (individual) vs obligations (collective). Contract as final or ongoing/flexible expression of

terms and conditions. Implications for negotiations (linked to prudence).

Negotiations Who is participating, who is not? Where is the power/authority? What are the reasons for positions

taken? What are the relationships of

negotiators with third parties?

IV. Prudence Don’t sacrifice business judgment.

Banquet challenges. Market entry costs, loss-leaders, etc.

Respond to reality of relational contracts Prepare for change. Keep terms in reserve.

Assume you are being observed.

At the negotiating table and elsewhere. Plan activities/ demeanor/ behavior in

advance. Translators and helpers (bring your own).

Be disciplined. Spoken word (table talk, negotiating

demeanor, etc.). Behavior (careful about informality). Distinguish (??) between social and business

relationships/activities.

V. Balance Be aware of complexity within Chinese

cultures. Note role of occupation, family, regional differences.

Be aware of changing attitudes re individualistic and collectivist approaches.

Challenge assumptions about business culture.

Anticipate cultural (networking, community) perspectives of counterparts in negotiation and other business relations. But be ready for contradictions.

Be aware of cultural effects on market behaviour (collective relations may take precedence of individual efficiency).

Be alive to institutional implications of information and risk management (reliance of formal mechanisms vs informal information networks).

VI.Summary Be aware that marketization is bringing

change to Asian cultural perspectives, but this will not necessarily mirror European/North American market culture. Contract practices: document vs relationship.

Appreciation of culture should complement not displace attention to self- interest. Understanding of cultural perspectives helps us understand how “interests” are perceived and pursued.

Be aware of context. Be prepared. Be prudent. Be balanced.