Case Study 7

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to sue each other, which seems to be a national sport in the United States. If you go to court, all parties involved lose face. And a system which is built on moral obligations can only work if a high degree of ethical standards are observed. That is why we get so upset, if the Americans equal guanxi with corrup­ tion. I freely admit that we have the problem of corrup­ tion in China, but this is because of the abuse of power by bureaucrats, not because of the importance we attach to mutual obligations, which goes back to Confucius. Why do you think overseas Chinese are so successful in so many countries? It is because of trust and sense for obligation, in short because of guanxi.

America might be at the moment the most powerful country in the world, but their values are not as univer­ sal as they might think. And our American business partners, with their usual combination of arrogance and ignorance, did not follow our advice to build up guanxi with the planning commission and I am sure they would still be waiting today for approval.

Overseas Chinese

Mr. Jones: Considering the difficulty we anticipated to have in communicating with our Chinese counter­ parts, we had a fellow in our negotiation team who was of Chinese origin. We thought that his fluency in Chinese and his deeper understanding of the Chinese way of doing things would be useful. And indeed, we benefited greatly from his accurate interpretation and prediction of responses from the Chinese. Even though both sides had professional interpreters, his role was appreciated also by the Chinese, as he was able to better interpret conflicting standpoints and mediate between both sides.

However, it didn't take long before we ran into pro­ blems. Whenever there was some dispute over the contract details, our Chinese counterparts began to pressure him to sort out things in their favor. Never mind that he was born in the United States, was an American citizen and was working for an American company, they just saw him as one of theirs and couldn't grasp that he represented the other side. This was not China against America, this was a nego­ tiation between two companies and he was an employee of our company, so what did they expect? It's completely ridiculous that the Chinese felt entitled to ask so much from him just because he was of Chi­ nese origin.

Mr. Wang: There was this U.S.-born Chinese guy on the American negotiation team, and we interpreted

his presence as a sign of sincerity and goodwill on the part of the Americans and their wish to establish a good relationship with us. Finally someone who would appreciate how business is done here. So we focused on trying to make him understand our posi­ tion. But instead of acting like a bridge between the two sides, he showed no sympathy whatsoever for us. He was coming from rich America and should have had more consideration for our situation. And when he overheard us discussing in Chinese, he must have passed on what he heard to his bosses. So, the man we thought of as a friend was nothing but a spy. Not exactly the right way to establish trust.

Honesty

Mr. Jones: Our Chinese partners constantly stressed the values of trust and harmony in business. But how can you expect to be trusted if you are not completely honest. And the Chinese were the masters of decep­ tion and game play. Of course no one puts his cards on the table, but there is a difference between holding back some crucial information and telling stories which are not true. Overall we were quite frank with what we wished to see to come out of the negotiation, because we were convinced we were in a win-win situation and we wanted to build up trust. But we didn't get anything back for our honesty. In the end Ithink they considered our honesty as a weakness.

Mr. Wang: Life in society would not be possible

without honesty. You should never lie to your parents, relatives, or close friends. But in a business negotiation you have to act strategically. To our great surprise, the Americans turned out unbelievably na"i've with being overly honest. With all their money and technological know-how they might think they can afford to be completely honest, but if you start out at the weaker end, one needs to compensate for this by being cle­ verer. At one point the American negotiation leader even called us dishonest. What an insult! Only because we were cleverer by not revealing everything, we are no\ dishonest. And what the Americans mistook for honesty and frankness was often nothing but impolite and rude behavior.

Face/Shame

Mr. Jones: The Chinese concept of "saving fa soon began driving us mad. In a business negotiaf you have to think logically, you need to be obje and look at the facts. In the interest of the pro

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you have to be able to criticize and accept criticism. Once we were discussing the optimal way of setting up machines in the factory. It was a purely technical detail. The head of the Chinese negotiation team, Mr. Wang, made a proposal which simply didn't make sense. We had it all figured out and based on our calculations. I calmly but firmly explained to him that what he suggested was simply nonsense. He became angry and left the meeting. What is this? First not get­ ting the math right and then getting upset? If we hadn't picked up on this, we could have incurred lots of costs which would have been of no interest to any­ one. I might have been more diplomatic, but I wasn't putting him down, I only made my point.

Still, I apologized later on and he replied I shouldn't worry, there was no problem. But the following day when I just confused two figures, he corrected me like a teacher would a schoolboy, looking triumphantly to his team. Apparently, he tried to regain face by shaming me. What childish behavior! What we never could quite comprehend when communicating with the Chinese is how much they care about the formal way of communication, instead of its actual content. No problem to tell a blunt lie, if you only do it with a polite smile!

Mr. Wang: Being completely fixated on profits and effic!ency, our American counterparts showed no respect to people. Once I made a point which was probably not well thought through. It was just a detail, no reason fighting over. But instead of just leaving it for the moment and telling me later on, Mr. Jones lec­ tured me for 10 minutes about why I was wrong, thus causing me embarrassment in front of my entire team. I think he was not even aware of the fact that I lost face, but that is even worse: the Americans always seem to think that their way of behavior represents the univer­ sal standard and everything else are just folkloristic oddities which should be abandoned for the sake of the only right (American) way. And in addition, Mr. Jones is 10 years younger than I am. How dare he treat me with so little respect!

Haggling

Mr. Jones: What amazed us quite a lot was the fact that the Chinese adopt exactly the same strategy in business negotiation as in shopping on the street mar­ ket. The seller demands an unreasonably high price, followed by some intense haggling which usually ends at around half of the initial asking price. In the end, both parties feel happy, even though they could

have settled for half the price right away without wast­ ing all the time on fierce negotiation. It took us quite a while to realize what satisfaction the Chinese take from asking and receiving concessions. The bargain­ ing ability is something the Chinese take pride in, and they enjoy practicing it no matter if it is for obtaining better conditions in a multi-million contract or for get­ ting cheaper vegetables for dinner. At each item on the agenda, our Chinese counterparts started out with some totally unacceptable conditions, waited for our counter-offer , which was much closer to a realistic solution, and then continued asking us for conces­ sions with an unbearable patience.

Before coming to China an expert on Chinese busi­ ness suggested to me to read The Art of War, written by Sun Tzu more than 2000 years ago. At that point I laughed at this advice, but it turned out I should have taken it more seriously, as the Chinese themselves interpret negotiation as psychological warfare and use the war metaphor quite frequently when talking about negotiations. Chinese just don't understand the concept of a positive sum game. They only think in terms of losing or winning. How can you enter a JV if you are always perceived as the rival and not as the partner?

Mr. Wang: We are surprised how little negotiation

skills the Americans had. They always were so upfront with their real intentions that we could easily get con­ cessions when we pushed the right buttons. And we could read from the expressions on their faces like an open book. I thought the Americans were so good at poker, but apparently not. In negotiation you should never reveal what you think.

Also, the Americans reacted always so nervously if there was a delay in the negotiation. Whenever we agreed on something important we told them we needed approval from our superiors which was also often the case. We just don't have the decision­ making authority the Americans are used to. Anyway, as they often reacted so impatiently, we delayed sometimes the process on purpose. And in particular when they became irrationally agitated and furious we always got the concession we wanted.

Skillful negotiation is about ascertaining the genu­ ine intention of the other side, and preparing respond­ ing strategies so as to reap the most benefits from the final result. This is what real negotiation encompasses, which is far more than "haggling" as the Americans refer to our tactics. Of course, for a long-term partner­ ship both sides need to be satisfied, but it is always good to be a little more satisfied than the other side.

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Strategic Behavior

Mr. Jones: Negotiating with the Chinese feels almost like walking in complete darkness-you never know what their next move will be, you can't even figure out whether they are content with your proposal or not. Always seemingly modest and courteous, we never knew what they were thinking. Whenever we suggested something and explained in detail why this should be good for both sides, they never contra­ dicted, always nodded, frequently said "yes," but in the end, they often just ignored what we just laid out or said they needed to refer this to their superiors and come back to us, which they never did.

And every time they pushed us for another conces­ sion, they started by emphasizing the importance of loking at th long-term benefits, as if we were just myo­ pic and unwise not to agree with the conditions more favorable to them. And when asked what these long­ term benefits would be, they usually vaguely described them as the possibility of much more lucrative contracts in the "near future." Whatever that means.

Mr. Wang: One of the most crucial criteria in ou; society to judge a person's social status and social skills is the ability to control one's own emotions. The more someone plainly shows satisfaction or irritation, the more people will regard this person as shallow, undignified, and inexperienced. Americans with their noisy directness and openness will never understand this. This has put us into an advantageous position, as we always knew where we were with them, but they had no clue about our position. As a result, they also felt less and less confident and more willing to compromise.

Americans like to feel dominant. They like to talk a lot and explain this and that. So we let them talk we listen and nod encouragingly . The more you liste the more you learn, but the more you talk the more you reveal your position. At the end of a negotiation day, our American friends were happy, because they felt they w'ere in charge and we were happy because we understood their intentions better.

What Means ''Yes" and "No"

Mr. Jones: What frustrated us most was the fact the Chinese negotiators were never prepared to give a definitive answer, everything remained "subject to approval" of their superiors. And even if we got what we thought was a definite agreement, the Chinese were not the slightest embarrassed to reopen a sub­ ject we thought to have settled. So, a "yes" could mean anything, including "no."

While we often got a "yes" without knowing what it meant, we never got a clear "no." Only after a while we understood that phrases such as "it's possible, so long as ..." or "this would be very difficult" were equivalent to "forget it." In short, you never knew

:-"hat was going on. When we said "yes" we meant 1t and they could count on it. And also when we said "no," we meant it as well, but the Chinese never took "no" for an answer. Sometimes I felt like I was in a kindergarten!

Mr. Wang: Reality is just too complex for simple "ys" or "no" answers. Everything depends on every­ thing else and everything is in flow, so what matters is the overall picture. The Americans are always so proud of their analytical approach. But to "analyze," means to "take apart" and you simply can't just tear things apart and treat them as independent from each other. This is for us a sign of an immature view of the complexities of reality. We don't analyze reality, we take a holistic view, in order to comprehend the totality of the problem. Therefore, we could never comprehend how upset the Americans became when we asked to revise a certain point. Negotiations are a circular and iterative process, not a linear and sequential one!

Chinese Lack of Technological Know-How

Mr. Jones: Another point we were never able to com­ prehend was the following: Often we detected a cer­ tain feeling of cultural superiority with the Chinese who appeared to look down on us. But then, at times, they fully surprised us by putting themselves down to the verge of self-humiliation. This was specifically the case when the negotiation touched upon technology and R&D. Here the Chinese openly admitted how back­ wards their technological standards were, which was all due to foolish Chinese politics in the past. Now they had to catch up and so our Chinese partners expressed straightforwardly their admiration for our advanced technology and their willingness to "learn from the Americans," pleading for our help. Deeply impressed by the Chinese ambitions, we felt it, to cer­ tain extent, as our moral duty to contribute with our technology to the development of this amazing country.

However, things soon went completely wrong

when, after exploring the possibilities of our coopera­ tio"n on the technology level, we moved on to the esti­ mated costs of R&D, licensing fees, and others. What shocked us was that the Chinese refused to even

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consider paying for anything, and said they were truly disappointed at our intention to charge them for our technologica l know-how which was in clear opposi­ tion to the spirit of trust and good relations. They argued that it wouldn't cost us anything to just pro­ vide them with the know-how, as we already had the technology. Besides we are from a rich company and a rich country, while they were from a poor state­ owned company in a still-developing country. The fact that we had spent hundreds of millions of dollars on R&D and that our company is fiercely competing with other big corporations on the world market and that we have to act in the best interest of our share­ holders and can therefore not just give away technol­ ogy for free was incomprehensible to our Chinese partners.

Ithink they somehow still had this notion in the back of their mind that for centuries foreigners traveled from all parts of the world to China, bringing with them their knowledge and goods which they freely offered as tribute and sign of respect to the Chinese who per­ ceived themselves as the only real civilization on earth and the center of the world. Well, not with us!

Mr. Wang: We were deeply disappointed with the Americans' attitude about passing on technological know-how. We very much admire the American inge­ nuity to develop new products and we were eager to learn from them. But they apparently only wanted to engage in the JV to use cheap Chinese labor. And when we discussed technology transfer and expressed our interest in learning from them, they asked for out­ rageously high fees which we would never have been able to pay. We are from a still poor country and the Americans shouldn't try to take advantage of this and exploit us. I think they were acting very selfishly and immorally.

Criticism

Mr. Jones: The Chinese never accepted any con­ structive criticism, however well intended. I admit, we Americans might be more direct than the Chinese and this might cause some friction, but why is it that we always have to adapt to them?

Mr. Wang: We were just tired of the Americans lecturing us all the time. They kept making critical com­ ments about everything, about our interpreter who had a strong accent which made it difficult to understand him, about people in the streets who seldom obey traf­ fic rules, about air pollution in the cities, and so on. At one point they even touched upon sensitive issues such as democracy, human rights, and Taiwan. How

dare they mingle into our internal affairs? That's none of their business.

Conclusion

Mr. Jones: Despite all the obstacles and everything we had to put up with, we were almost there! We had gone through all points and agreed with much diffi­ culty on each item. The day for the formal signature of the contract was set and our CEO planned to fly in for this event. We were all enthusiastic to finally go back home. At this point the Chinese negotiation leader came to us, apologized to us and said that some "little points" still had to be revisited on the request of his superiors. And it turned out that these "little points" were absolutely fundamental and purely unacceptable to us. I was absolutely furious and called him a dishonest game player. He realized that he might have gone too far, but it was too late. I told him that the deal was off. The next day we flew home. With people who behave in this way one can't do any business.

Mr. Wang: For us Chinese a negotiation starts with the first handshake and hasn't finished until the contract is signed. But the Americans seemed to be all content to have gone through their checklist with all their little items and only thought about going home. For us, however, it makes sense to leave everything open to further possible adjustment up to the very final stage, so that we can always re-consider earlier agreements. We can't just say "yes" or "no" to a little issue and then move on until you reached the end of the agenda. This is just a sign of naivety and immaturity.

And of course it is standard tactical negotiation behavior to try to score some final points at the very end, taking advantage of the tiredness of your nego­ tiation partners. One of the advantages to negotiate on your home turf is that at the end the others are eager to return home and often willing to make some last minute concessions. Of course I didn't expect the Americans to fully agree to my proposals, but just a little concession would have been sufficient. They are rich enough to make one more compromise and I would have been regarded by my superiors as a clever negotiator to obtain some last minute conces­ sions. Mr. Jones should have known that. But instead, he became all angry, shouted at me, and thus completely lost face. It is very unfortunate, but even in the future we cannot take up the negotiations again. With people -who behave in this way one can't do any business.