BizChina

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Andrew Hupert over at the Chinese Negotiation blog did an interesting and helpful post on negotiating strategy in China in a post entitled, US-China Variation of Prisoners Dilemma -- The Factory Game. In his post, Andrew, who teaches at New York University's (NYU) Shanghai campus, discusses in detail the experiment he did with his students and the results of that experiment.

More importantly, he then sets out five good lessons American businesses can learn from relating to their business negotiations with Chinese companies:

What lessons can US negotiators in China draw from this exercise?

1 – Set the stage for trust, or you will poison the potential relationship from the start.
Test orders are an American concept while systematically building relationships is Chinese. Americans assume that the relationship will grow from successful transactions. Chinese assume that successful transactions will grow from relationships. The result is that Americans tend to under-promise (“we’ll have to see how well you do on the first order before we discuss raising the volume”) while the Chinese over-promise (“oh yeah, we can definitely do what you want at the right price and quality level” – even if they don’t know what they are doing – yet). Both behaviors tend to undermine trust in the early stages of a US-China business relationship.

2 – Penalties and missed bonuses are often interpreted by Chinese actors as ‘cheating’ behavior – and a betrayal of trust.
Americans often employ the ‘carrot and stick’ technique of using potential bonus payments and penalties to enforce positive behavior. Unfortunately, Chinese counter-parties often view this as dishonest and manipulative. It is human nature to count the bonus and ignore the penalty during the pre-execution phase of the deal. Once trust is lost, it is very difficult to restore. A missed bonus – regardless of how justified the American side feels it to be – often triggers negative behavior from the Chinese side.

3 – Guanxi-building activities like dinners, tours and meetings are the Chinese method of vetting partners.
You should be doing the same. Use your banquet time to talk about how you and your counter-party define success. What are your goals? How can you work together? American negotiators are often shocked at how much time the Chinese waste on relationship building. Chinese negotiators are equally shocked at how much opportunity the Americans waste by not building proper relationships.

4 – Overly picky contract terms tend to be counterproductive.
Your corporate lawyer thinks you can write-out the risk of overseas deals, but in China this can be counter-productive. Detailed contracts with penalties and financial stipulations can make the Chinese side feel that you are not a suitable long term partner. Contract terms that seem normal in the US can trigger the “cheat” switch in China — since they think you are already pulling fancy tricks.

5 – Relationships are not organic in China.
Americans tend to feel that close relationships are the product of positive experience and time. Chinese negotiators are a bit more transactional, and expect partners to ‘work at the relationship’ in the early stages. Don’t blow an opportunity by paying lip-service to your Chinese counter-party. When they say, “we want to have a good relationship” it isn’t necessarily a pro-form business platitude. Use the opportunity to define slippery terms like ‘trust’, ‘success’ and ‘long-term’. Assumptions can be lethal in a cross-cultural negotiation.

My experience concurs with all these suggestions and I am going to speak to Andrew's Nos 2 and 4 because those relate most directly to my role as lawyer on foreign-Chinese transactions. My experience is contractual bonuses are frequently misunderstood and oftentimes do create unexpected problems. For whatever reason, Chinese companies frequently seem to be of the view that if a contract provides for a bonus for achieving a particular goal, getting close to that particular goal warrants the bonus, or at least a strong request that it be paid. I also agree with Andrew on the penalty front, but with a pretty big caveat. Our experience has been that they can be quite effective, not so much in their enforcement, but in their keeping the Chinese factory or counter-party's feet to the fire and, when things go wrong, as a leverage piece to force a quick discussion of how things will be resolved. In other words, their strength lies not so much in their enforcement, but in their availability as a leverage tool to get things done.

I also agree with Andrew's view on what he calls "overly picky contract terms." I have always had the sense that the typical Chinese company views the length of the contract as being inversely proportional to the strength of the relationship and though it is important that the contract have all of the critical terms, this is a big incentive to keep it as short as possible. One other thing Andrew hints at here is that Chinese companies typically do not interpret contracts as technically as do Americans. A great example of that is joint venture contracts. If an American holds 51% of a venture, it assumes it pretty much controls everything, whereas the Chinese company might well view that split as simply giving the American the right to 2% more of the profits.

Let's hear your China negotiating stories. What are you seeing out there?

Whenever I get together with tech people who have been doing business with China for a few months, they seem to throw out expressions about China like "next Silicon Valley" or "going to be even bigger than Silicon Valley." But whenever I get together with tech people who have been in China for years, they never say such things; they talk about how much China needs to change if it is ever going to have its own Silicon Valley.

So which is it? Why or why not?

Please weigh in.

"And the papers want to know whose shirts you wear...."
Space Oddity, by David Bowie

I love technology and I am constantly on the road. I definitely fit the definition of "early adapter" and my friends are constantly asking me what technology they should be buying, oftentimes for travel. I just got an email on that and I figure I might as well just write about it here.

Here's what I use, have used, and wish I used.

1. My laptop is a 14.1 inch Lenovo t400 with a solid state hard drive. I picked the lenovo T400 because it was well priced and because I like how I can remove the DVD drive and replace that with another battery, which is what I typically do. I also like how its power cord is smaller and lighter than most other laptops. I went with the solid state drive because it weighs less than a regular hard drive and is also much less likely to crash. I beat the heck out of my laptops and usually have to replace them every 18 months or so and I have been known to have hard drive issues. Plus, since it is made in China, I figure repairs and spare parts ought to be easy there, though that is probably true of every laptop. I once found myself in Dalian without the power cord to my dell and it took me all of thirty minutes to find a replacement.

When my laptop is docked at my office, it is supposed to back up to my firm's network. But because I am out of the office so much I also back up online via Carbonite and I also every once in a while backup to a Seagate Go portable hard drive.

I sometimes wish I had something even smaller, but then I would have to deal with the hassle of having to do file transport. Right now I have everything I need on my laptop and that would be much more difficult if I were to get something smaller. I bought a netbook a few months ago before a China trip and I absolutely hated it. I actually bought it for my eleven year old daughter so that she would not keep asking to use my laptop, but it was not even adequate for her. The keyboard was just too small and everything just seemed so slow. Many many years ago, I bought an HP Jornada, whose claim was that it worked well for 95% of what one needed for a computer. I found out though that it was the other 5% that drove me crazy and I vividly remember trying to send an email from a hotel room while doing a cost benefit analysis between throwing the Jornada against the wall and reveling in watching the smash or selling the damn thing as soon as I returned to civilization. I sold it.

Still, I covet the Toshiba Mini NB205 http://www.pcmag.com/article2/0,2817,2349053,00.asp Toshiba Mini NB205 and the
Sony P. The Sony P is absolutely gorgeous and it weighs only 1.4 pounds, but since I have an iPhone, I cannot justify it.

2. I use an iPhone, but with trepidation. This is actually my second iPhone and I will be getting the 3GS version very soon. I just love it. One can never be bored with an iPhone. My trepidation stems from two things. First, it is not as good as a Blackberry for email. Second, it is not nearly as good as a blackberry for international use. I was a Blackberry user for years and for years I would marvel at being able to respond to emails while standing in line at customs after having landed in China or wherever. But because my iPhone's mail is pulled off the internet and because international roaming is incredibly expensive, I bring my backup phone with me to China these days, leaving my iPhone at home.

3. My firm's phone system allows me to use my computer to receive and dial out as though I am in the office, but I find it easier and about the same cost to just use Skype. My home phone system is OOMA and I could do the same thing with that, but again, I just do not bother. I have Skype rigged on my iPhone, but I also pay AT&T Mobile a bit extra per month to reduce my international long distance charges and I virtually always make my iPhone calls through AT&T rather than through Skype.

4. Onebox.com. I signed up for this service during the dot.com boom and it was free for years. I used it then and I still use it now (but far far less often) as a virtual fax machine. It costs only $9.95 a month and I also use it as a voicemail box to which my cell phone and my office phone are transferred when I am out of the country. I then pull my voice-mails off the internet. Again, I am sure my office phone system has this same capability, but since I have been using onebox for this for years, I see no real reason to change. My firm's faxes all come in digitally and I can check those from China as well.

5. Tripit.com I am addicted to this service. You reserve your hotel, rental car and airline at your normal website and then forward you email confirmation on to tripit, who then takes all that info and sets it up in the form of a killer itinerary with the key phone numbers and maps that is both online and on my iPhone. It really is amazing. I have the FlightPro app on my iPhone, but I find myself using it way less than I expected.

6. Noise canceling headset. I use a Sony in ear model I bought at Narita airport a few years ago when I forgot my regular pair. I know the quality is not that of a Bose, but its size and weight is considerably less than an outside the ear model and that is most important to me.

7. Booking sites. In addition to the old standbys like Orbitz, Expedia, and Travelocity, I also use Divamboo for my initial hotel check and then I typically go to the hotel's own website to book. I often use ATA to search for flights. When in China, I, like just about everybody else, use eLong and cTrip.

What do you think? What are you using that you like or dislike?