Business Negotiations in China

Strategy, Planning and Management

Henry K. H. Wang

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781315467078
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Business Negotiations in China provides a holistic overview of the institutional, organisational and cultural issues that underpin successful business negotiations in China.

Good negotiation strategies and management are essential for establishing successful business deals and new ventures in China. The author addresses the current key issues and risks, high level business management, planning, innovative approaches and modern negotiation strategies. The text opens with a review of the evolution of key negotiation models that have been use in China right up to the most current. This is followed by an analysis of the various negotiation frameworks and processes being undertaken in China; their similarities and differences with other global negotiation processes. Alongside the negotiation itself, the author provides advice on: selection of the negotiation team and the various strategic roles within it; the detailed preparations and analysis required prior to starting negotiations in China; effective management strategies for each of the various stages of negotiation to achieve successful, sustainable outcomes.

Business Negotiations in China is supported by examples and analysis drawn from actual high level business negotiations by leading international companies with China State Owned Enterprises. It also explores the fierce competition between multinationals and China state-owned companies and their respective different negotiation strategies. This book is an important, indispensable insider's guide to the strategy and practice of negotiating in China and is relevant to professionals, academics, researchers and students alike.

Part I

The context of negotiations in China

1Chinese negotiation models

十年树木,百年树人

shí nián shù mù, bǎi nián shù rén

Ten years for a sapling to grow into a tree and a hundred years to develop enterprises.

Good wine takes time to mature.

Executive overviews

Global and Chinese business negotiations have become very complex and can take on many different facets. International business negotiations have evolved from the traditional distributive negotiation model to the more modern integrative negotiation model. Chinese business negotiation models have also been evolving in line with international trends. These changes have been driven by the increasingly complex business environments and modern business practices in China. Literature surveys and analyses of relevant business negotiation models show that whilst there are many similarities between international and Chinese business negotiations, there are also important Chinese characteristics and specifics that negotiators need to understand for successful negotiations in China.

International business negotiation definitions and models

Literature surveys and analysis of international business negotiation definitions show that business negotiations have commonly been defined as a discussion between two or more business parties to reach new, sustainable, joint business agreements, which are commercially acceptable plus mutually beneficial for all the business parties involved in the negotiations.

International business negotiations would normally involve various negotiation models and processes comprising different negotiation stages and phases. Normally the different business parties involved agree to sit together to discuss and negotiate all their key business issues and differences, rather than sue each other in courts or have ugly, open disputes.

The different negotiators from the various business parties would normally evaluate the pros and cons for each key negotiation issue and identify their target objectives, prior to starting negotiations. They would also develop appropriate negotiation strategies in order to achieve their negotiation objectives. After appropriate negotiation preparations, the negotiators from the different parties would then sit together and start to negotiate the various key issues to try to reach jointly acceptable agreements. In modern international business negotiations, the different business parties would normally try their best to negotiate new joint agreements which should be mutually acceptable and win–win for all parties.

With the constantly changing global business environment, international business negotiations have been evolving fast with increasing complexities. Literature surveys and analyses of the different business negotiation models being applied in international business negotiations show that there are three main generic classes of negotiation model. These include the distributive business negotiation model, the integrative business negotiation model and the zero-sum negotiation model. The key characteristics and applicability of each of these negotiation models will be discussed in more detail below.

The distributive business negotiation model represents the older, more traditional business negotiation model. The distributive negotiation model is also called the positional or confrontational negotiation model as the negotiators would normally be arguing hard against each other over some key negotiation positions, such as the issue of distribution of benefits to the parties. A gain by one party would then normally lead to a loss or concession to the opposite party. It would often not be possible to make trade-offs based on different preferences as there would be only one major issue at stake. Neither party would like to concede or give up easily or lose their profit and position. Hence the negotiation would often be restrictive and difficult. There would also be little room for expanding the scope of the negotiations to include other important issues. The agreements reached would normally be win-loss agreements which would often be unsustainable for the longer term in the modern business world. The losing party would normally try their best to get out of these win-loss deals as soon as possible.

The late US President John F. Kennedy gave good advice on the distributive or positional negotiation model in his White House radio and television address to the American people on 25 July 1961: “We cannot negotiate with people who say what’s mine is mine and what’s yours is negotiable.” What he has said some 56 years ago is still very much relevant today regarding the distributive or positional business negotiation models.

The integrative business negotiation models are more representative of the newer, more modern business negotiations. Integrative negotiations are also called collaborative negotiations as the negotiators from the different parties would normally try their best to negotiate the different issues on a collaborative basis. The negotiators would be trying to make appropriate compromises and concessions. They would also be trying their best to negotiate and combine their various interests into new mutually acceptable agreements which would maximize values and benefits for all parties. The common objective of the negotiations would be to create maximum lasting value for all parties. This would normally be achieved during negotiations by all the parties by making some important strategic trade-offs and compromises on their different key business issues. These trade-offs would normally be made based on the overall holistic benefits for the new joint venture. The different negotiating parties would normally be negotiating hard to achieve their most valuable business objectives whilst being prepared to compromise on their less important business issues. These would help the negotiators to develop new joint agreements which were acceptable and win–win for all the parties. These win–win agreements would likely be more sustainable on the longer-term basis.

Analysis of modern, high-level business negotiation cases shows that they have been evolving from the older, traditional distributive negotiation model to the more complex, integrative negotiation models. These negotiation changes are in line with the modern, complex international business environments and requirements. In the past, most companies were driven primarily to maximize their profit positions and their negotiations were mostly based on the distributive negotiation models. These negotiations would then result in win-loss agreements which would normally be unsustainable in the longer term. The business parties who felt they had lost out in the distributive or confrontational negotiations would normally try their best to get out of the win-loss deals as soon as possible after getting what they wanted.

With the growing complexity of the international business environment, modern business negotiations generally follow the newer integrative or collaborative negotiation models. The negotiators would normally be trying to trade off different positions during negotiations and make compromises on the different key business issues. These would help to develop new, mutually acceptable agreements which should be win–win for all the parties involved.

A good example of an international and Chinese integrative business negotiation is the Sinopec Apache negotiations on Egypt oil and gas. On 15 November 2013, Apache Corp agreed to sell its 33 per cent stake in its Egypt oil and gas business for US $3.1 billion to the Sinopec Group after long negotiations. Apache agreed to sell their upstream oil and gas assets in Egypt to Sinopec as part of their new global strategy after long, difficult Sino-foreign negotiations. Apache’s new strategic thrusts were to rebalance their global portfolio and to reduce their exposure in Egypt amidst the rising political unrest. Sinopec agreed to purchase the upstream assets from Apache under the Chinese government’s ‘Go Abroad Investment Policy’ which encouraged Chinese companies to purchase foreign oil and gas assets to secure extra equity in oil and gas exports to China. These assets would help to support the rising oil and gas imports to China. Apache reported gross oil production of 198,000 barrels per day and gross natural gas production of 912 million cubic feet (MMcf) per day in 2013 from its upstream oil and gas operations in Egypt. Apache and Sinopec negotiated hard on the various key business issues along the integrative model approaches. They were finally able to agree a mutually acceptable win–win deal in 2013, which met both the strategic objectives of Sinopec and Apache.

The zero-sum negotiation models and strategies would normally be applied by companies when they have little common ground for negotiations but have been instructed to carry on negotiating for various special political and business reasons. These bilateral deals would typically be driven by state or national ­priorities such as international bilateral energy supply deals between countries. With the growth of State-Owned Enterprises (SOEs) in international business, the zero-sum negotiation models would often be applied by some leading SOEs in negotiating difficult, bilateral mega deals, such as major energy deals, which would often be driven by different governments.

Good examples of zero-sum business negotiations would be the international oil or gas supply deals between different producing nations and consuming countries. These bilateral oil and gas supply deals would normally involve complex political and business aspects which would all have to be negotiated. The various state oil and gas companies from the producing and consuming countries involved in these international supply deals would have to go through the complex negotiation process to demonstrate to their key government sponsors the various major business issues and negotiation hurdles. Based on these, the SOE government sponsors would then be able to re-evaluate and weigh up the different political options and costs. They would then try to work with the different political parties and interest groups within their country to develop new, compromised negotiation positions which are acceptable to all the powerful stakeholders. The government leaders would then convert these compromises into appropriate new negotiation mandates for their SOEs. Then the SOE management and negotiator would use these in their next rounds of business negotiations with other international SOEs. Hopefully the SOE negotiators would then be able to, using the new negotiation mandates, undertake integrative constructive negotiations with the negotiators from the other SOEs. These should then generate new joint agreements which would be win–win for all parties and the governments involved. Otherwise the SOE negotiators would have to continue these difficult zero-sum negotiations over long periods. These would then normally result in disappointing lose-lose negotiation outcomes for all the parties involved.

An example of a good business negotiation case is the gas supply negotiations between Russia and China. Gazprom and China National Oil Petroleum Company (CNPC) have negotiated for many years the possibility of a gas supply agreement from Russia to China. These bilateral negotiations were very difficult and proceeded in line with the zero-sum negotiation model with little progress made. Then the international sanctions on Russian gas exports to Europe motivated the Russian government and its gas companies to open up new gas export markets to China and Asia. These new international developments enabled Gazprom and CNPC to make breakthroughs in their negotiations. CNPC and Gazprom were finally able, with their new negotiation mandates from their respective government sponsors, to negotiate and agree a major new joint gas supply agreement for the delivery of 38 BCM of Russian gas by Gazprom over the next 30 years to CNPC in China. The new joint gas supply agreement was a win–win deal for both Russia and China. It helped Russia to diversify its gas customer base from Europe to the fast-growing gas markets in China and Asia. For China and Asia, Russian gas imports would help to diversify their gas supply sources globally which would help to improve the energy security of China and Asia.

High-level businesses negotiations in China have also been evolving in line with international business negotiations. The key drivers influencing Chinese business negotiations, particularly from the Chinese business environment and key industrial sectors, will be discussed in more detail in this chapter.

Chinese business negotiation models and tactics

In Chinese, the word for negotiation is ‘tan-pan’, which literally means a combination of discussions and judgements. In Chinese business negotiations, it would usually be considered very important for both parties to first build trust with each other before they get into serious negotiations. The build-up of trust between the Chinese and international negotiators would also take time and would normally involve detailed dialogues between the two parties. Each party could then judge and evaluate the other partner’s capabilities and relative values. The Chinese negotiators would normally only start to negotiate with the international negotiators after they have decided that the international company could be a trustworthy long-term partner to the Chinese company. Then the negotiators from two parties would start to negotiate the required agreements over many negotiation rounds. The Chinese negotiators would also stress that the negotiation should be along the key principle of ‘equality and mutual benefit’ for both parties.

The Chinese negotiation process would also support the idea that both negotiating parties can negotiate and reach mutual understanding on specific business issues in a way that both parties feel is ‘a mutually beneficial, win–win deal’. The primary objective of Chinese business negotiations would usually focus more on creating a lasting framework for long term co-operations rather than rushing to draft a one-time agreement quickly.

Business negotiations in China are often considered to be a dynamic, ongoing process which have to take into account the actual ongoing business situation with various changes. Many traditional Chinese negotiators would also prefer the dynamic, ongoing negotiation approach to the Western negotiation approach, which would normally focus more on agreeing and drafting written contracts and agreements. Many Chinese negotiators would perceive negotiations that would focus primarily on developing written contracts quickly as more in line with the Western style of negotiations. International negotiators undertaking major business negotiations in China should understand and master these key differences in negotiation culture and negotiation models in order to achieve successful negotiations in China.

Literature surveys and analyses of the different Chinese business negotiation processes and models show that these have also been evolving quickly in response to the changes in international and Chinese business environments. In addition, the rapid economic growth of China and its integration with the global economy have also contributed to more alignment of the Chinese negotiation styles and processes with international negotiation developments.

In the early days of business negotiations in China during the 1960s and 1970s, high-level business negotiations between Chinese and international companies have initially followed the traditional distributive or positional negotiation models. These negotiations have focused primarily on the key issue of profit and benefit distributions. This was seen to be the most important commercial co-operation issue between Chinese and international companies in the early days of international trade. These negotiations have often resulted in win-loss agreements, as neither the Chinese nor the international partner would like to give up their position and share of the profits or benefits. Many of these contracts have also shown to be unsustainable for the longer term as the partner who felt that they have a losing agreement would want to terminate these agreements as quickly as possible.

Analyses of recent, modern high-level Chinese business negotiation cases show that the modern business negotiation models currently used in China have evolved more in line with international business negotiations. In high-level business negotiations between Chinese and international companies, the traditional distributive negotiation models, which would focus primarily on the key single issue of profit and benefit distribution, have been gradually phased out. One key reason was that these negotiations had usually resulted in win-loss agreements which were unsustainable for the longer term. In addition, there would also be many different business issues that would need to be negotiated in the bigger business deals being negotiated in China at present.

Modern business negotiations in China have been using the integrative or collaborative negotiation models more and more. As China integrated more into the global economy, it has also been adopting more international business and commercial practices. The majority of modern business negotiations in China between Chinese and international companies have also became more complex and multi-faceted. The business negotiations in China have been developing in line with the increasingly complex business environments and requirements in China and worldwide. These negotiations would normally involve many complex legal and commercial issues which the Chinese and international negotiators would need to consider, discuss and negotiate. The key business issues would no longer be just profit and benefit distribution, which were the key business issues in the early days of international trade many years ago.

The Chinese and international partners now need to negotiate and consider many other important commercial and legal issues, such as joint venture organization, human ...