Contract Negotiations:
Chinese Business Bargaining

Being an integral part of business, international business negotiations are vital to get right. Any mistake in strategy can result in overpaying, and you want to do everything right to ensure you get the lowest price and best agreement possible.

Business negotiations in China generally are handled differently than in Western countries. It is essential to arm yourself with an arsenal of knowledge to allow you to be as effective as possible. Before reading this article you may like to read up on the business culture of China.

Furthermore, business negotiations and building a good relationship have a higher significance in China because the legal system can make it difficult to settle any legal disputes. Third party consulting agencies can negotiate on your behalf–one of the numerous services you can make use of.

 

Approaching Business Negotiations in China

The first step before starting business negotiations in China is to do prior research and preparation. This relates to much more than price and cost but also finding out information about the other party. You should familiarize yourself with the product or service that will be at the core of negotiations. If the other party realizes you are not completely knowledgeable, they may use techniques to leverage their position over you.

Likewise, you also need to identify exactly what you can offer, this can be in terms of units, price ranges, as well as understanding how things like budget constraints and sale targets affect these figures. You also need to know how flexible you can be, and how much you are willing to change the agreement until it is no longer viable.

 

Business Negotiations in China with personal contactPersonal interaction and preparation are crucial for contract negotiations in China.

 

Furthermore you need to tie in your prior research into your strategy before engaging in business negotiations in China. You should determine which party has the bargaining position. If you are the side holding the power, you can use this as leverage to get the better deal. However, if the other side is perceived to be in a stronger position, you need to understand that you may not want to push too hard since they might have plenty of other options.

The next step is to formalize an offer. This generally includes monetary figures, and you should still have cards to play before closing the deal. If the deal needs to be altered, you can sweeten it by changing arrangements about who deals with transport, or perhaps altering credit terms. This can be a way to achieve a sticking price point you would like to realize.

 

Negotiation Culture Differences in China

You must understand the culture gap’s influence on business negotiations in China. Therefore, culture should be the starting point for doing business in China. The cultural difference alters the structure of the Chinese negotiation process.

Western cultures generally like to close informally, after most serious business discussions are completed and it is usually only interrupted by a few quick meetings or cold calls. Whereas in China, people prefer to forge long relationships between parties, and you may only be allowed to start this through being introduced and vouched for by an intermediator.

Western cultures likes directness and agreement during the meeting, whereas Chinese deal-making lumbers along at a slower pace often across multiple meetings and interactions. This process is known as “Guanxi”–the process of building and maintaining relationships. During direct business negotiations in China, it is vital to avoid the “lost in translation” moments. Everything needs to be understood and communicated. By using an interpreter, you can ensure the process runs smoothly.

 

Business dinner is part of Business negotiations in ChinaHaving a business dinner is more decisive than one might think.

 

Since there is a heavy focus on a strong relationship, be aware that initial meetings may seem unrelated to the task at hand. There are many informal discussions to create a personal level before the parties get down to business.

Furthermore, you should understand the hierarchy at play. You may often be negotiating with someone who does not actually possess the power to sign the agreement. Even if you want to speed up the negotiations, there may be little you can do without upsetting the other party.

It is also essential to have a strong legal foundation within all contracts about future business. It can be hard at times to enforce performance, especially if there is a misunderstanding within the contract. Therefore, it is recommended to seek legal advice from a China based attorney in any case to allow you to reduce the risk of conflict.

 

Bribery and Kickbacks

Bribery, kickbacks and corruption are something that can occur when doing business or having business negotiations in China. However, if you are just using China purely to source products from manufacturers you will most likely not encounter this situation.

Bribery mainly takes the form through giving gifts, banqueting or preforming small favours, and it is advised to be careful about the size of the gifts you both accept and give. The government in China is trying to proactively decrease the amount of corruption within China, and while it can be a common occurrence, you do not want to get caught up with a juridical process.

About the author

Jan has an intimate knowledge of strategic planning and operations management he acquired in the German military and in academia. Having graduated from Peking University, he possesses an acute knowledge of the Chinese economy. Jan routinely consults on short and medium term company strategy and is currently working on the company’s 3 year plan.

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