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SCRC Article Library: Negotiations, Contracts and the Chinese Culture

Negotiations, Contracts and the Chinese Culture

Published on: Jun, 15, 2005

by: Scott Hudson

SCRC

As manufacturing operations are relocated to China, it is becoming imperative that executives understand how to negotiate and develop contracts in China. Business travelers must realize and accept cultural differences to develop strong working relationships. Misunderstandings, loss of money, and loss of contracts can occur if cultural differences are not accepted.

The Chinese culture, going back over 5000 years of history, is based on communities, strong morality, holistic thinking, and cynicism toward foreigners (5). The strong sense of community relates to the fact that successful Chinese negotiations depend on group cooperation and harmony. Decisions are reached by consensus during face-to-face meetings (3). The Chinese value the time it takes to develop and nurture relationships. The Chinese must feel comfortable with foreign negotiators before doing business with them. Personal commitments can be more binding than contracts. Contracts are usually a commitment to do business together, but are many times not legally binding (2).

The Chinese strong morality relates to the fact that the Chinese culture reinforces status and respect. During negotiations, all employee levels must be represented from basic engineers to top-level executives. Foreign companies must show respect by sending a high level executive to China to finalize negotiations. The respect and status of an individual must not be compromised (1). Each person during negotiations must ‘save face’ by not saying anything offensive to the others. Comprise is reached by long periods of going back and forth over issues. The process to reach a decision is more important than the goal and both sides must feel as if they hold equally valid positions, even after negotiations are finalized (5).

Chinese holistic thinking has developed due to the Chinese language based on thousands of pictures. The Chinese think much more about the big picture than about individual small details. It is important for negotiators to realize the Chinese need all the facts and will ask hundreds of questions before they begin to think about the big picture (5). Negotiations tend to last much longer in China due to this thinking process. Negotiators must become prepared to answer all the questions. An unprepared negotiator will quickly lose the trust of the Chinese.

Finally, the Chinese cynicism toward foreigners relates to the country’s long history of attacks from different points of the globe. Chinese are very leery about rules and laws. Families and relationships are valued much more than civil laws (5). Therefore, once again, personal relationships are more important that any contract. Trust must be earned before a negotiation can even begin (4).

To handle these cultural differences, negotiators must think and react with an open mind. It is important to study and read about the Chinese culture before attempting to negotiate in China. Making strong relationships is much more important than doing business during the first few visits to China. The status and ideas of the Chinese must be respected. Even though negotiations may get long and confusing, patience is also critical to close the deal. The Chinese culture places a strong emphasis on taking the time to consider many different alternatives before taking any action (2).

Americans see the Chinese as inefficient, indirect, and dishonest. The Chinese see Americans as aggressive, impersonal, and excitable (5). Even with these vast differences, a business deal can be achieved if one party understands and respects the entire process that needs to be completed to get the deal finalized. Negotiators must highly respect a culture in development for 5000 years. Negotiators traveling to China must adapt their tactics to show respect, patience, and understanding in order to succeed. Failure in China is not an option in the emerging global business environment.

References:

(1) Shister, Neil. Managing Global Relationships in the Extented Supply Chain. World Trade. January 2004.

(2) Smyrlis, Lou. Cultural differences can trump the most logical of supply chain planning. Canadian Transportation Logistics. September 2004.

(3) Reitz, Victoria. Avoid business faux pas with Chinese. Machine Design. January 6, 2005.

(4) Schuster, Camille. How to Manage a Contract in China. Business Credit. January 2005.

(5) Graham, John L. and Mark Lam. The Chinese Negotiation. Harvard Business Review. October 2003.

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