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China is complex: Learn how to negotiate

China > Insights > Negotiations China

Negotiations in China or with a Chinese business partner can be a long process. We take a holistic approach when it comes to doing business in China. Understanding the culture, language and meeting experts has influenced us over the years. This white paper on negotiations in China is something we always wanted to share with our business partners.

In 2005 we met Mr. Geert Hofstede at the University of Otago in New Zealand. His work about the cultural dimensions has had a significant influence on international management. One year later in 2006 we met with Mr. Mark Lam, who is an expert on Negotiations in China and author of various books and articles that were published by Harvard Business Review. We are deeply grateful for getting the chance of meeting these experts in person. At the end working directly in Hong Kong and China for many years is by far the best teacher in order to support companies entering the Chinese market successfully.

Negotiating in China

China isn’t a homogeneous country. A recent study by a group of researchers Talhelm, T., Zhang, X., Oishi, S., Shimin, C., Duan, D., Lan, X., and Kitayama, S.  show that China’s differences in language, culture and the performance of regional economies can be compared to Europe. Thus there is no standard negotiation style across China. This article has its focus on the most obvious features of negotiations in China for providing a guideline for foreign companies.

Meeting

A meeting with business partners in China usually involves many people. Several things are going on at once in such a meeting – talking, listening, preparing arguments and explanations, formulating questions and seeking approvals. Now having several people in the meeting roles are defined and one person is assigned to keep records of the entire meeting. If you only listen you can carefully note all details. Therefor foreign companies are advised to have at least the same number of colleagues at the negotiation table. Numbers help in many ways as it is a subtle indicator of the seriousness as well as the commitment of both parties.

Relationships

Interpersonal relationships are vertical in China. Status distinctions are defined by age, sex, place of education, position in a firm, which firm as well as industry of employment. A president of a company in a certain industry can have a different status of a president from another company. This status also dictates the behaviour and even the speaking style during interpersonal relationships. The exchange of business cards in China gets special attentions.

Language

The values of harmony and hierarchy are promoted in Chinese classrooms. Students are asking less questions, don’t disagree and closely follow the highly respected teacher. Much time is spent in learning Chinese characters which have their origin in pictures. It indicates that people in China have more holistic approach compared to Western who breakdown complex problems into presumably solvable parts.

Studies also reveal that language has deeper implications on social and hierarchical structures within the society as well as influence cultural values, expectations and behaviours. For example in English the word “you” ignores the social context and status of a person. In Chinese the word “you” has two versions called “ni” 你 and “nin” 您. The last one is more formal. The correct use of both depends on the social context of the conversation. In business English is the global language and many global companies like Samsung, SAP or Microsoft are mandating English as the common corporate language.

The Chinese side often makes use of interpreters which can be a disadvantage for native English speakers. Even the Chinese partner understands English well they have a chance to observe nonverbal responses while the interpreter is speaking. Further responses can be well prepared during the translation process.

Negotiation process

The standard negotiation process follows the following steps:

  • Non-task sounding
  • Task-related exchange of information
  • Persuasion
  • Concessions and agreement

The Western mind has its focus on the third stage “persuasion” in which logical arguments are build up to convince the other party. In China most time is spent on people as people don’t want to depend on the legal system to solve problems. Negotiation is also seen as the establishment of long-term commercial relations without having a definite conclusion. Instead of making a concession on individual issues negotiators in China are using a more holistic approach and settling everything at the end. This might also lead to the feeling of showing a “lack of commitment” .

Elements of Business Negotiations in China

Guanxi 关系

Networking is in general important in every business still there is a difference in China. For Chinese one’s place within her or his social network is very important. In China this network is described as Guanxi 关系 which is the basic dynamic in personalised networks of influence and it is a central idea in Chinese society.

Guanxi has a major influence on doing business in China and in negotiations. While Western managers tend to expect immediate reciprocity out of made concessions the Chinese business partners don’t hurry. The long-term personal relationship is more important. This fact shouldn’t be ignored as such reciprocity is very critical. It would be seen as immoral ignoring this principal and labeled as wang en fu yi 忘恩负义 and no future business would be possible anymore.

Guanxi can get important when it comes to negotiations as connecting to an influential person can provide an advantage during the negotiation process and have a stronger impact than data collection for arguments. Economist recommends Western managers to be aware of this cultural difference in order to ensure doing business successfully in China (Smart, Josephine (2012-09). “Dancing with the Dragon: Canadian Investment in China and Chinese Investment in Canada”)

Mianzi 面子

Mianzi means face or can be interpreted as social capital. It is important in all over Asia and causing your business partner “losing face” should be avoided. Overall Mianzi defines a person’s place in a social network. It sources can be wealth, intelligence, attractiveness, skills and also a great social network. Face can be given, gained, lost, earned or taken away.

The following remarks should be paid attention to. What must be avoided:

  • breaking promises
  • displays of anger
  • disreputable behaviour
  • casual kidding (too often)
  • insults
  • criticism

All these can lead to lose face of you or your business partner. Praising someone too often could mean insincerity. Helping a business partner in a critical situation could also help saving his face.

Shehui Dengji 社会等级

Geert Hofstede also studied the importance of social hierarchy across cultures. The dimension he used in his study was called the power distance index (PDI). Countries and cultures with higher PDI tend to have more distrust of others. Those who hold more power seem to be entitled to hold more privileges. A low score reflects more egalitarian views.

Therefore the title on the business card has importance in Chinese business culture. Often names are replaced by titles in communication. For example calling the director of a company “Director Li” instead of Mr. Li.

Renji Hexie 人际和谐 (Interpersonal Harmony)

For successful negotiations in China interpersonal harmony between business partners is essential. According to Mark Lam (China Now, 2006) respect and responsibility are the glue for hierarchical relationships while friendliness and positive feelings hold the horizontal relationships together.

Quandai Guanxi 裙带关系 (Nepotism)

Qundai Guanxi is a key element of Chinese business culture. In my recent years working for and with Chinese groups I have experienced strong family relationships within companies that are different from the ones in Europe or USA. Gordon Redding explains this behaviour in his book The Spirit of Chinese Capitalism as well. Most Chinese family-owned companies seldom grow beyond their family bond. In business negotiations targeting individuals for their personal benefit might be less effective instead the negotiator should consider showing the benefits for the family/company.

Qundai Guanxi can be a strange concept for the Western business society but it is essential within the Chinese business environment. Further it is a key element for negotiations with Chinese business partners.

Zhengti Guannian 整体观念 (Holistic Thinking)

A book called Beyond the Chinese Face by Michael Harris Bond a cross-cultural psychologist at the Chinese University of Hong Kong explains the different thinking patterns of Chinese. A psychological test among children showed significant differences between perceptions of Chinese children compared to Western ones. Chinese children were better seeing the picture as a whole while American ones were more focused on the details. In negotiations Chinese will always think in terms of the whole, in a sense are willing to discuss all problems simultaneously, while Westerners tend to be more specific and like to separating problems in different tasks (J.K. Sebenius, C. Qian, 2008)

Chiku Nailao 吃苦耐劳 (Endurance or “Eating Bitterness and Enduring Labor)

In China working hard even under worst conditions is normal and it shows the endurance of Chinese people in their lives. It all starts at school where long hours are standard for children and trains them for working even harder in their adult life. Chinese always emphasise hard work and see endurance as much more important and more honourable. For negotiations the Chinese invest a lot of time into the preparation and expect long bargaining sessions.

Jiejian 节俭 (Thrift)

Price negotiations in China are always critical. Compared to Western managers Chinese have greater reluctance when it comes to price negotiations and might only alter prices after lengthy discussions.

sources & further reading

  • China Now, 2006, Mark Lam, Graham
  • Beyond the Chinese Face: Insights From Psychology, Michael Harris Bond, Oxford University Press, 1992
  • The Spirit of Chinese Capitalism by Grodon Redding
  • Cultural Notes on Chinese Negotiating Behavior, James K. Sebenius, Cheng Jason) Qian, Working Paper 09-076, Harvard Business School, 2008
  • Negotiating In China: 10 Rules for Success,link, 28.03.2011