Adapted from “During the Gold Rush: Negotiating in China,” by Ray Friedman (professor, Vanderbilt University), first published in the Negotiation newsletter, February 2007.
China is a vast, rapidly changing country bursting with economic opportunity for locals and foreigners alike. Since market reforms began in 1979, real GDP growth has averaged 9% annually; the Chinese economy is expected to surpass the U.S. economy around 2050. It’s no wonder that American entrepreneurs are traveling to China in droves to open plants, hawk cell phones and cars, and create new partnerships.
What special insights do outsiders need to prepare for negotiations in China? Much of what you know already about negotiation holds true, but four characteristics complicate negotiations in China:
- A strong emphasis on relationships. Deals tend to depend heavily on the relationship between the parties involved; social gatherings are common during the negotiation process.
- High commitment, loose contracts. Your new partner in China is likely to expect you to invest significantly in the relationship, often without fixed terms, and to respond to his shifting needs. Calls for flexibility can frustrate Westerners accustomed to ironclad contracts.
- A long, slow deal-making process. The Chinese focus on building relationships rather than on contracts tends to prolong the negotiation process. Westerners befriend their counterparts only after making a deal, while the Chinese make a deal only when some level of friendship has been reached.
- Widespread opportunism. Despite the importance placed on relationships, negotiators in today’s China keep their options open—and may abandon a deal when a sweeter one appears.
Some might argue that you need to take chances and even accept temporary losses to gain a foothold in today’s China. Before you do, consider this advice from Carl J. Lukach, previously the director of finance for DuPont in Asia Pacific: “Don’t do anything in China that you wouldn’t do in New Jersey.” As you adapt to the culture and context, remember that the numbers must still add up for a deal to be worthwhile.
