On a recent flight home from Shanghai, I overheard a fellow business traveller’s phone call to his boss in Australia in which he lamented his company’s follow-up talks with a prospective Chinese partner had not gone well.
He appeared angry and frustrated, and said he could not understand it, especially as both sides had seemed to get off to a great start the previous month.
In fact, the Australian team had been so positive, they had rushed back to China to clinch the deal.
Unfortunately, this scenario is an all too common experience among Australian businesses.
In their eagerness to forge an agreement, many businesses still overlook the essential cultural drivers that shape relationships – and impact on outcomes –with Chinese counterparts.
Indeed, negotiations in a Chinese context are a complex art.
In the current environment, it is more important than ever to navigate your prospective partnerships with extra care.
So, how can businesses ensure their negotiations not only get off to a good start, but also remain on course and lead to long-term, mutually rewarding outcomes?
Understand cultural drivers: The Chinese word for negotiations, ‘tan pan,’ combines the characters meaning both ‘to discuss’ and ‘to judge’.
Negotiations in China are an ongoing and dynamic process. It’s essentially a process to build trust, so that both parties can achieve a common outcome.
Negotiating effectively in China means understanding and accommodating your counterpart’s different approach, and devising a strategy that will deliver long-term benefits for both sides.
While there is no blueprint for success, it’s important to recognise the deep-seated Chinese cultural practices, worldviews and behaviours that have a strong impact.
These cultural norms are often rooted in the spiritual and philosophical codes of Confucianism (which underlines social relationships), Taoism (which emphasises holistic thinking) and Buddhism (which encourages harmony).
Seek mutual gains: When we assist businesses with their Chinese negotiation strategy, it can be useful to apply the Mutual Gains Approach developed by the Consensus Building Institute.
This framework helps inform a strategic approach that can be adapted and ‘nuanced’ to accommodate China’s distinct cultural, business and social environments.
Based on hundreds of cases, the Mutual Gains model identifies four steps for negotiating better outcomes while protecting reputation and relationships – preparation, value creation, value distribution, and follow-through.
These steps are not just about achieving a ‘win-win’ outcome, but rather applying careful analysis and good process management.
Obviously, each step in the process needs to be carefully nuanced to fit the Chinese context.
Prepare by building guanxi: From a Chinese perspective, relationship and trust are paramount.
It may seem cliched, but guanxi – which translates literally as relationships – is the most covered topic in China negotiation literature.
Given the fundamental importance of guanxi, building a robust relationship with your Chinese counterpart at the beginning of a negotiation, should be one of the most important aspects of your preparation.
In doing so, relationship building enables a better understanding of their business, commercial drivers and the key people involved.
This will put you in good stead for both the negotiation itself and enabling commercial alignment. This cannot be rushed.
Newcomers may be treated with a degree of caution and it’s important to invest time and effort, including travel and meetings, to understand your potential partner and develop trust. Intermediaries may also need to play a role.
As the CEO of a major Australian financial organisation commented to me, it took him 10 years to build a strong relationship, but when the time came for negotiating a multi-million dollar deal, the negotiation was completed within three weeks and implementation was very smooth.
Create value: Creating value is about uncovering shared interest and doing so before committing. This phase is about exploring questions like ‘what issues do we value differently; what options are we prepared to propose’?
In a Chinese context, several common barriers often arise during this phase.
For example, Chinese negotiators are often particularly sensitive to the concept of face, and will work hard to avoid direct conflict. Making a negotiator lose face will be very detrimental.
Rather than raising it at the negotiation table, to get to the bottom of tricky or sensitive issues, it can be useful to leverage informal opportunities, such as dinners or social gatherings, private conversations or trusted intermediaries, to find a solution.
Other challenges can arise around differing communication styles and approaches to hierarchy, and the level of detail, which the Chinese side may request.
Focus on the means not just the ends: When it comes to distributing value and achieving follow through, building trust is key to achieving successful outcomes.
Almost all Chinese or Australian executives that have clinched a successful partnership will tell you a business deal in China should be a long-term agreement, not a quick one-off.
Having a local Chinese colleague in your negotiating team can help build this trust, by fostering relationships and buffering confrontations or discomforts.
And even after the deal is signed, it’s crucial to continue to build trust. Many deals have fallen apart because the leaders negotiated hard, signed the deal, and then handed it over.
In fact, in many cases in China, a contract is just a starting point. Some Chinese counterparts may see the contract more as a symbol of partnership and will look to renegotiate the wording even after the contract has been signed.
This can lead to misunderstanding, for instance, with the Western side viewing Chinese counterparts as unreliable, and the Chinese side perceiving their Western partners as inflexible.
Creating good guanxi, reciprocity and investing in relationships will help minimise this misunderstanding.
Get support when you need it: Obviously, navigating business negotiations in China’s dynamic, evolving and volatile environment is fraught with challenges.
But the highly complementary nature of the Australian and Chinese economies and business interests stands most organisations in good stead to unearth and leverage mutual gains in their negotiations and partnerships.
And the good news is, that as the Australia-China economic relationship matures, support, resources and training are available, as well as the opportunity to learn from other business success stories.
By carefully managing cultural differences, you can achieve mutually beneficial business outcomes at the negotiating table.
Nick Henderson is director of the China Practice at Asialink Business, Australia’s National Centre for Asia Capability. Nick has more than 17 years’ experience in assisting diverse businesses to enter and grow in China, particularly with the Australian tourism sector to get China-ready.