Negotiating in China: Challenges and Practical Approaches

1. Negotiating in China: Challenges and Practical Approaches Dr. Pitman B. Potter UBC Institute of Asian Research UBC Law Faculty

2. 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.

3. 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.

4. 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.).

5. Manifestation of culture: Expression, perception. • Use of language (idea of contract as “hetong” or “qiyue”). • Interpretation of behaviour (response to banquet etiquette, informality, etc.).

6. Manipulation of culture. • Elite negotiator referring to “laobaixing” cultural norms. • Selective Adaptation of international rules/standards. • Acceptance of rules vs. assimilation of norms.

7. 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.

8. 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).

9. 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.)

10. 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).

11. Due Diligence Examples cont. • Contrast formal and informal sources (published reports, ‘chats’). • Problems with ‘conventional wisdom.’ • Volume and quality of information. • Network building.

12. 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).

13. 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?

14. 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.

15. 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.

16. 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.

17. 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).

18. 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.

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