A strict guide to effective negotiation with the Chinese
I have some good news and some bad news.
Sticking to tradition, I’ll start with the bad news. You have lost at everything. Whether it is working, negotiating or doing business with the Chinese, you have lost at everything, by definition.
The good news is, I will help you win this war.
Because it was I who took the risk of leaving everything behind with a less then mediocre command of Chinese and going to China with a one-way ticket and $300 in my pocket. I had nothing there: no friends, no place to live and no job. Moreover, everything I knew about the Chinese was limited to my university lectures. I had no other choice but to make arrangements with the Chinese in their language. And I did a good job.
I acquired all my knowledge, skills and capabilities in the field, rather than inside a comfortable office. And, by the way, I was speaking fluent Chinese within a month.
Why not them?
People who major in Chinese usually become translators, guides, teachers or FEA managers. None of them learn how to survive among the Chinese in combat mode. I do, however, respect all of the above mentioned occupations.
Numerous articles have been written on how to negotiate with the Chinese, but, weirdly enough, they all repeat one another and speak from a Westerner’s point of view. The Chinese are different. Completely. But not a single article gives us the actual picture. They mostly use general words and formulas, which do not work in practice. I learned this from firsthand experience, and more than once. For instance, not a single article will tell you a thing about the psychological age of the Chinese, or why, from a historical standpoint, their behavior seems so strange, inconsistent and unusual to us. Not a word. Not even a hint.
Negotiating with and thinking like the Chinese, reading their minds, doing business with them, choosing the right approach to working with them and making them play by my rules are the skills I acquired not at a university desk, but in real life. True, we learned a lot from our university lectures, but they never taught us how to apply this information in real life. So, I learned on my own. After graduation, I, like most of my schoolmates, had two main options: either finding a job as a translator or guide or purchasing agent, or going to China to continue studying. But I chose a third option. I simply went to China with no particular plan, to learn about the Chinese in their natural habitat.
It was only later that I enrolled in university in Beijing, having got to know the Chinese from the inside and having discovered them for what they really are. I studied for a year and I went to work with a good understanding of how to deal with the Chinese.
Many people who work with the Chinese often ask me, «Why do they act the way they do and what can we do about it?» I have often seen Western executives stall negotiations with their Chinese partners or agree to unfavorable terms (e.g. quality, deadlines, payments, etc.). When I hear such stories, I can’t help but wonder why it happens. Then again, some things that I find obvious are not as obvious to others.
I came up with this course after two incidents, which happened around the same time. These are the stories I would like to begin my course with, as they illustrate very well the essence of negotiating with the Dragon.
One of the stories happened to me and the other to a colleague of mine named Denis. We were doing business with two different Chinese companies, Leon and Electron respectively (all the names have been changed). We negotiated on different terms and ended up with different results: the price I was to pay was reduced from USD 7.15 to USD 6 and Denis’s was raised from USD 64 to USD 75.
The backstory goes like this. Leon charged me with USD 7.15 and refused point blank to go any lower. They said things like «we shall not discuss this any further», «we are incurring major losses», «we have raised the wage of our employees» and «production costs have grown», which are typical Chinese excuses when they want to close the deal. I believe many of you have come across such bargaining. And you probably agreed to the terms and the high prices.
Meanwhile, Electron charged Denis with USD 64 (he was buying a different product), sent an invoice and refused to lower the price making pretty much the same excuses.
Then the day arrived. We had both wanted a markdown on our respective products, but by the end of the day, we had two very different outcomes: I was to pay only USD 6 and Denis — USD 75.
Electron explained that the price increase came from the firm’s new management team that had «a new vision and policy» for the company.
Electron was able to pull this off, because:
1. Denis did not speak Chinese (negotiations were held in English);
2. Denis was unfamiliar with the Chinese mentality;
3. Denis was unfamiliar with the way the Chinese think;
4. Denis did not know how to use Chinese cultural specifics to his advantage;
5. Unfortunately, Denis lacked strength of character (I will explain why this is important in Chapter 3).
So, why did Leon ultimately quote a lower price, even though they had refused so much as to discuss the matter?
You will find the answer in this course.
I will help you learn about the Chinese and what they are like, what hides behind their fixed gaze, what kind of person you should have as your negotiator, and, finally, what mistakes you should not make when negotiating and how to avoid them. You will learn how to make the Chinese play by the rules. Your rules.
Chapter 1. The Chinese. Who are they?
This chapter is about the Chinese mentality and outlook. We shall also look through some key notions that are essential for effective negotiations.
For a while, the Chinese were cut off from the rest of the world (China is surrounded by mountains and sea). They were also more advanced than other peoples were at the time. So, it is no surprise that the Chinese thought themselves superior to and better than anyone else. In other words, they believed to be the center of the world. The Chinese believed they were the only society worth studying and so did not bother to explore their neighboring lands, which, as they believed, were inhabited exclusively by barbarians. This is where ethnocentrism comes from, as well as the country’s name, 中国, or «Middle Nation».
Ancient Chinese maps locate the country in the center of the world, too. Even when the Europeans came to China, they had to place it in the center of their maps, to avoid displeasing the emperor.
Certain of their moral and ideological superiority over all other peoples, the Chinese found it hard to learn new things, which is why the country retained many ancient features until the 19 century.
Nevertheless, they were able to learn from the West, adopt its best practices, adjust them to their needs and thus evolve even further, nourishing the belief that they were the superior nation.
They keep proving it today, too:
1. Almost every country has transferred its production to China;
2. The Chinese can copy anything you show them, but cheaper;
3. The Chinese still believe they are superior to every nation in the world and they still see everyone else as barbarians.
Keep this in mind at all times when you do business with the Chinese. From their point of view, you are a barbarian, a primitive being, meaning they can and will deceive you and can and will break all verbal and written contracts (we will return to the specifics of the term «contract» later). When negotiating with Chinese suppliers, remember this: they will never see you as an equal; you will never be one of them; they will always be thinking of ways to profit at your expense.
This is why you have to be alert. You can kid yourself all you want, but do not expect equality when it comes to the Chinese, ever. Consider this or do not work with them at all. Period.
I was the only one in my year to attend lectures on ancient Chinese literature. This was my schoolmates’ Unforgivable Mistake #1.
What do some boring old books written before the Common Era have to do with our topic, you ask? This literature course and, more importantly, my impeccable knowledge of the ancient Chinese writings from the university booklist helped me reduce the price from USD 7.5 to USD 6.
This ultimate figure yielded an annual profit of USD 115,000 against USD 57,500 (given the USD 7,15 price). As you can see, the difference is dramatic. Ever since 2009, I have been hearing all kinds of people, including orientalists, say, «What’s the point in reading some ancient books? They are obsolete». This is Unforgivable Mistake #2. There is only one good reason to read these books: they are still relevant in China.
China, of course, is not the oldest civilization, but it is a truly remarkable country, which has been enjoying a continued existence for a few thousand years now. China has preserved its foundation, or matrix. The main indicator is the continuity of its history, with only some minor gaps. None of the existing countries can say the same about themselves.
China’s age is still a matter of dispute. We shall use the classic 5,000 years mark. It means that the Chinese culture has existed, uninterrupted, for that long. Since history and archeology are among the most important subjects in Chinese schools, any regular Chinese person knows their history from the very beginning of the Chinese civilization. This entails a plain truth, ignoring which is one of the most unforgivable negotiation mistakes: things that were relevant in China 5,000 years ago are still relevant today!
This is why all those ancient books are still very important. The Chinese carry their wisdom in their genes and apply them in present-day business matters. Knowing the ideas and principles written down in these books is a major competitive advantage over both your competitors and the Chinese.
The West has come to realize this already, and the success of those who rely on these books in their negotiations with the Dragon is hard to ignore. Thanks to their knowledge, firms rush to the top of their segments.
Which books am I talking about? No, I am not forcing you to study the entire Four Books and Five Classics of Confucianism, although it would not hurt.
First of all, it is worth reading «The Art of War» and «The Thirty-Six Stratagems». Even though these books are dedicated to war strategy, they explain very well the Chinese manner of negotiation. The Chinese study them while they are still in school and apply the principles with great skill both in business and in matters of love (more on that in Chapter 2).
Remember: things that were relevant in China 5,000 years ago are still relevant today!
Do not make Unforgivable Mistakes.
Traditionalism is very strong in the Chinese culture; it even survives revolutions. It is growing even stronger these days amid China’s Confucian socialism. Various norms, rules, and principles comprise the Chinese’s historical memory code, which has remained intact for 150 years. This is the main distinguishing feature of the Chinese culture. As a result, ancient Chinese traditions are very much alive in modern China. The Chinese still abide by the same rules and norms they followed many years ago.
China can digest anything. It digested the Mongols, who invaded China and established the Yuan dynasty, and it digested the Manchus, who also invaded the country and established the Qing dynasty, but in the end, both dynasties are considered the most «Chinese» of all. Moreover, China even digested the West and communism. It is no coincidence that sinologists unofficially regard China’s communist party as yet another dynasty.
The patterns of behavior, thinking, and outlook, which were established before Confucius and were later cultivated by him, are clearly traceable in today’s interpersonal relationships, business matters and negotiations. The most important thing for Chinese employees is laoban — their boss, director, i.e. the person in charge. He is their emperor. Whatever he says should be done, will be done. Regular clerks are 100% subordinate to him and fulfill all his orders. Even if you get hold of his contact information (which is highly unlikely), you will not be able to reach him. His employees will carefully protect his peace.
At the negotiation table he is mostly silent, listening attentively and paying attention to everything. He is unlikely to address you directly, and he will probably tell the negotiator what to say on his behalf.
Decisions are also made only by the laoban. This is why it is important to develop guanxi, or connections with him (more on that in chapter 2), so that he knows you in person and has an understanding of who you are. This connection helps ease the negotiation process, among other things.
Seek out the laoban or get ready for some lengthy negotiations.
Conformism is compliance with a certain set of rules or norms, and a tendency to stay within their margins. Every kind of relationship is regulated, whether inside the family or between the sexes, co-workers, holidaymakers, friends and neighbors.
Conformism caused me a lot of trouble when I left everything behind and arrived in China for the first time. The Chinese largely rely on template thinking and on stereotypes, so if anything outside the template occurs, they usually find it extremely unsettling. Flustered and at a loss, they do not know what to do and how to deal with whatever the issue is.
Want to get a new credit card? You’ll have to wait for 2 hours. Want to transfer some money via Western Union? You’ll have to wait for 2 hours. Want to extend your visa? Again, 2 hours.
Two vivid examples come to mind.
I went to a bank once to open a Chinese account. The teller, a Chinese woman, took my passport and, without checking with me first, scanned my Schengen visa, thinking it was the main page with all the data she needed. Then she pointed at the words «Schengen Visa», written in Roman characters, and asked me, which of the two words was my given name and which was my surname.
Another time, I was extending my visa at a visa center. A Chinese clerk took my passport to copy my details into his computer, when he almost literally froze over my date of birth, because Chinese dates go like this: year, month, date.
To make things worse, helping a Chinese person in such a case is out of the question, or else they will lose face, closing the door on any further cooperation.
So, if you want something from a Chinese supplier, do not use words; simply send them a relevant picture, blueprint, video, etc.
If you still need to explain something, keep it simple, very simple, perhaps even split it into several parts, and by all means send a picture, a scheme, anything with concrete figures. Do not, however, forget to explain these figures in the letter, keeping it as simple as possible, and the Chinese will most certainly understand you.
Do not load them with several unrelated questions. Stick to one question, one topic, and one letter. This will help avoid any confusion. True, it is hard. But it will be much harder to sort out a whole shipping container of damaged goods, because the Chinese misunderstood something and did everything according to their usual template. Remember that the Chinese think stereotypically, which means the following: you are a barbarian; the best things in the world are Chinese; it is possible to deceive you; they do everything the way they are used to; making changes requires additional thinking, which is tiresome, so it is easier to say, «We can’t do it». Also, always verify and re-verify what they say.
Interaction with the outside world
All civilizations outlived the stage of ethnocentrism, but they either disappeared or changed their opinion along with the world’s geopolitical development, which is why ethnocentrism became obsolete. It is, however, still alive in China. There are three reasons for it.
China takes up most of Asia. As I have already mentioned, China is geographically isolated from the rest of the world (mountains, sea, desert), which is why the Chinese «stewed in their own juice» for a long time, so to speak.
In China, the difference between a Chinese and a barbarian has always been highlighted. The Great Wall of China is a material manifestation of the «us and them» distinction.
3. Level of development
China’s cultural level was much more advanced compared to many other Oriental lands’ both in ancient and medieval times.
All this led the Chinese to think of themselves as the Middle Nation, the only cultured and developed country in the world, surrounded by savages and barbarians who need to be civilized.
China’s mission was to establish and maintain a balance between all things and people. This is where the notion of «Sinosphere» is derived from, which was to be accepted by all non-Chinese peoples. China, however, never intended to conquer anyone. The barbarians were supposed to see the beauty of the Chinese culture, to recognize it as the only true one and to accept it willingly as their own.
There were three types of barbarians. The first one included China’s immediate neighbors (Korea, Japan, and Vietnam). The second consisted of nomadic and seminomadic Asian tribes, who sometimes paid tribute to Chinese rulers. The third type comprised the rest of the world, or the so-called «remote barbarians», including us.
China’s attitude towards the barbarians was similar to that of senior to minor, or lord to vassal. They still have a very clear distinction between «Chinese» and «barbarian». By definition, they do not see us as cultured, exalted beings, and they initially do not consider us as equals. This is why upsetting the arrangements made with us, barbarians, is fine with them.
Chinese people still believe that if a day goes by without tricking at least one foreigner, this day is a waste. As a result, they charge us higher prices than they do their fellow Chinese. They will never respect us the way they do each other.
If you have been to China, especially in smaller cities, you may have noticed the Chinese blatantly pointing their finger at you, or taking pictures, or shouting something in your direction. This is because you were some sort of exotic animal they had never seen before. They have always treated barbarians like this, and it is likely they always will.
This tendency is often noticeable during negotiations. If you use English to negotiate, they will quote a higher price than they would if you spoke Chinese. Plus, if you speak their language, they will see you in a totally different light. Your Chinese language skills will not make you their equal, but they will transform you into a proximate kind of barbarian, who has accepted China as the best culture in the world and is doing all he or she can to become civilized. Moreover, if a person knows not only the language, but also the Chinese negotiation technique, his or her success can be tremendous.
So, to open the gates to China, you have to accept that you are a barbarian and a savage willing to become a civilized person with the help of the Chinese culture.
As I have mentioned earlier, the Chinese rely on stereotypes, templates, patterns, and analogies. It is a clear manifestation of the Chinese mentality and their associative thinking. There are two reasons for this.
Psychologists say that Far Eastern countries have a special kind of thinking, formed by the use of characters. One character contains 500 times the information a single Roman or Cyrillic letter does.
2. Ancestor worship, which Confucius cultivated and strengthened in the minds of the Chinese. Ancestor veneration also refers to the ideals of conduct and thinking, which were followed in the past. These ideals are to be followed in the present as well, no changes applied, because all the best is back in the past.
Back then, all the important issues were solved through history books, which would be opened in search of similar problems and ways of solving them. One of them is the book of stratagems we have mentioned. These stratagems are also used today as templates of thinking.
Associative thinking deprives a person of imagination. If models, patterns and templates are available, it is easier to rely on them, rather than to think or invent something new. One can simply find a similar situation in the past and follow the example.
This is why the Chinese get stuck when they come across something outside of their thinking template. They cannot create a new template, however. This explains why the Chinese laoban values employees who lack initiative and ambition: they fulfill every order from above, but never offer any solutions of their own. Such employees are considered trustworthy and loyal. If a staff member shows initiative, he or she will not last long in the company, even if the initiative brings positive results.
Associative thinking effects negotiations significantly. They are strictly regulated, with every participant playing a certain role, which has to be performed flawlessly. Stratagems are used extensively, because they describe all the situations that may occur during negotiations. All you need is to find the suitable one and act according to it. For each stratagem there is a counter stratagem. As you can see, there is no need to think. There is no need to invent anything new.
This is why it is so difficult to negotiate with the Chinese. But it is also the reason they can reproduce anything based on just a copy or a sketch.