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How to negotiate with Chinese companies

By Dan Harris in 'China Law Blog'

Just read a really good International Herald Tribune article, entitled, "Avoiding Pitfalls, and Forging Success, in East-West Contract Negotiations." The article concisely sets out the basic underpinnings of what it takes to succeed in negotiating with Chinese companies.

It starts out by emphasizing how Westerners need to be patient:

“The first lesson is to understand that the negotiation process is considered to be part of the fun for Chinese—an expected challenge,” says Laurie Underwood of China Europe International Business School. “In an East-West business negotiation, the Chinese side will generally expect a long, complicated negotiation process, during which both sides must work hard to discover what the other side really wants. This is the challenge.”

“Chinese will not come to the negotiation table with a clear list of goals,” she continues. “They will instead plan on a long, convoluted discussion, during which both sides will get to know each other better and both sides will work hard to uncover the actual goals of their counterpart.”

Seeking to shorten the process is a mistake:

Eric Olander, who has spent years in China, says: “So what ends up happening—as Americans try to take shortcuts to get to the results they’re tasked with, it gives the Chinese the upper hand in doing business. So one of the common negotiating tactics for the Chinese is to agree to almost everything in the initial stage of a negotiation.”

“As the process goes on, the Chinese will start introducing a delay or a wrinkle or another element that slows it down. What the Chinese are doing is evaluating the Westerner’s response,” he explains. “It’s a negotiating tactic. As the Westerner becomes more impatient, the Chinese gain the upper hand in negotiation.”

The article contains a number of other negotiating tips, but my favorite involved the role of meal invitations:

“But if you don’t invite them or they don’t invite you, that can send a very strong message. But you have to be very careful with that play, because that’s maybe making people lose face,” he adds.

I liked this tip so much because many many years ago, I was representing a very large Korean company in a settlement negotiation with a very large American company. On the first day, the talks were tough, but going fairly well and at lunch time, the lead in-house lawyer for the Korean company invited the American side to join us for lunch. The Americans declined. We went to lunch (the Korean company representatives and me) and then negotiated the rest of the afternoon.

The next day, we made tremendous progress and a full settlement was completely in the bag when the lead in-house lawyer for the Korean company again invited the American side to join us for lunch. Again, however, the American side stressed the need to work through lunch.

So again, I went to lunch with my Korean client, but this lunch was very different from the previous day. My usually very light-hearted and sober client had a number of drinks during lunch and made clear early on that he was not in a joking mood. After lunch, we returned to negotiate and one of the more junior lawyers on the American side made some completely innocuous suggestion. I do not remember the suggestion, but for effect when I tell this story, I say that he suggested the agreement be signed in blue, not black—it really was nearly that inconsequential.

In response to the young lawyer’s comment, the lead in-house lawyer for the Korean company slammed his notebook shut and proclaimed that we were “done here” and instructed all of us to walk out. The Americans looked at me for an explanation and I had none.

Only a few weeks later did my client tell me what had transpired.

On the first day, he had invited the American company to lunch and they had turned him down in front of “his people.” The next day, the American company should have invited all of us to lunch but they didn't. So in an incredibly magnanimous act, the lead in-house lawyer for the Korean company had invited them. Again though they declined, which made him lose tremendous face in front of “his people.”

In the end, we did eventually settle, but it took another month and a lot of lawyer time and a highly choreographed trip to Korea by the CEO of the big American company and all because of a declined invitation for lunch .

Anyway, I highly recommend the article and would love to hear what you think about it. Do you have any additional negotiating tips?

Dan Harris is founder of the Harris & Moure law firm, a boutique international law firm focusing on small and medium sized businesses that operate internationally. China is the fastest growing area for the firm. Dan writes as a source of China legal and business information.

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