4th September 2023
ECON3820:
Negotiating with the Chinese
Prepared by Yunxia Zhu
§ Associate Professor Yunxia Zhu, PhD (ANU)
§ Email: y.zhu@business.uq.edu.au
§ NIC Negotiation graduate certificate Harvard Law and Business
School; NPC Negotiation graduate certificate, Saïd Business School,
Oxford University
§ Winner of multiple teaching and research awards (Australian National
Citation Teaching Award 2014)
§ Senior Teaching Fellow HEA; UQ Teaching and Learning Fellow, 2015
§ Expertise and experience of teaching all levels including MBA,
executive programs, postgrad and undergrad courses; PhD
supervision
§ Extensive experience in industry and training in Australia, NZ, and
China
Introduction
2
§ Online quiz on this week’s readings
§ General contexts and challenges for business
negotiation with China
§ Challenging contexts today’s (de)globalization contexts
for negotiating with the Chinese
§ Four major mindsets of Chinese negotiation
§ Some cases for applying these mindsets to Chinese
negotiation
Outline of this Lecture
3
Which column is more appropriate, why? 4
• China is a melting pot of
cultures with over 50 ethnic
groups. Get to know and
appreciate your partner’s
individuality.
• Generalize. China is a huge
country. Not everyone has the
same cultural background.
• Give gifts. They form a big part
of trust and understanding in
Chinese business etiquette.
• Show up to a business meeting
without gifts
• Try the exotic Chinese cuisines
even if they are not to your
liking.
• Express disgust and reject
what’s on your plate. Talk
about work during meals
• Have a clear understanding of
Guanxi (关系), the Chinese
concept of establishing trusting
relations.
• Disregard your business
partner’s emphasis on
reputation and respect
• Respect their hierarchy. Send
an employee of equal rank to
meet with whomever they
send.
• Send someone lower ranked
than the counterpart of
whomever the Chinese
company is sending. It shows a
lack of respect.
§ The growing Chinese economy has created many opportunities for
global organisations in the past few decades and promising deal
can be compromised by lack of negotiation skills.
§ De-globalization has been under way for more than a decade and
decoupling of China and the US
§ Presence of HK; Relocate supply chains to politically safer
countries; Re-evaluate relationships with Chinese companies
and universities; Factors in geopolitical investment risks
§ Imperative for understanding more deeply about the complexities
of how to negotiate with the Chinese
§ Understanding Chinese negotiation as a dynamic process involving
historical and cultural, political, and international business contexts.
Contexts for Negotiating with the
Chinese
2008; 5
US Trade with China
6
Source: U.S. Census Bureau USA Tra de Portal February 15, 2022
Australian Exports to China
7
Exports in the Past Five Years
8
Exports in the Past 25 Years
9
Characteristics of a negotiation
situation
• There are two or more parties
• There is a conflict of needs and desires between two or
more parties
• Parties negotiate because they think they can get a better
deal than by simply accepting what the other side offers
them
• Parties expect a “give and take” process
• Interdependence and the structure of the situation shape
processes and outcomes
– Zero-sum or distributive – one winner
– Non-zero-sum or integrative – mutual gains situation
Mutual Adjustment
• Continues throughout the negotiation as both
parties act to influence the other
• One of the key causes of the changes that occur
during a negotiation
• The effective negotiator needs to understand how
people will adjust and readjust and how the
negotiations might twist and turn, based on one’s
own moves and the other’s responses
Alternatives
Shape Interdependence
• Evaluating interdependence depends heavily
on the alternatives to working together
• The desirability to work together is better for
outcomes
• Best available alternative: BATNA
(acronym for Best Alternative to a Negotiated
Agreement)
Approach to Negotiation
Most people think bargaining and negotiation mean
the same thing; however, we will be distinctive about
the way we use these two words:
• Distributive Bargaining: describes the competitive,
win-lose situation
• Integrative Negotiation: focuses on win-win
situations in which parties try to find a mutually
acceptable solution to a complex conflict while
enlarging the pie at the same time
• Distributive bargaining: https://www.youtube.com/watch?v=nvNc-wt6a-0
• Integrative negotiation: https://www.youtube.com/watch?v=7SHGfFWObVs
Different Requirements of
Integrative Negotiation
14
Preparation stage
Non-task stage (interpersonal relationship
building)
Exchange of task related information
Persuasion
Concession and agreement
Cross Cultural Negotiation
Stages
15
Adapted from Graham (1985)
§ Lack of understanding of the complex political and
social contexts
§ Lack of goals and planning
§ Wrong partner (for lack of relationship building)
§ No exit strategy
§ Anything else?
Three Biggest Mistakes in
Negotiating with the Chinese
16
A Dynamic Model for Negotiating with
the Chinese: Four Mindsets
Cultural context
Confucianism, etc.
Guoqing: Chinese
characteristics
(De) globalisation
contexts
Tech transfer
Historical context 36
Stratagems
17
§ Traditional Chinese philosophies—largely
Confucianism— that have governed Chinese society
for two thousand years remain the core value system
in Chinese business behavior today.
§ They are manifested in such well-known
characteristics of Chinese business negotiation as
patience (a famous Confucian virtue), an orientation
towards harmonious relationships
Culture Contexts of Chinese
Negotiation: Confucianism
18
Source: Zhu, 2015
Hofstede’s (2001) Confucian
Dynamisms
Long-term
• Hierarchy or
relationship order;
• Perseverance;
• Shame;
• Stress on thrift;
• Interrelatedness
• Positively related to
economic growth
Short-term Respect for
tradition;
• Saving face (Mianzi);
• Personal steadiness;
• Stability;
• Reciprocation of
favors;
• Negatively related to
economic growth.
§ Family and interpersonal relationships (guanxi)
§ Face
§ Respect for old age and hierarchy
§ Harmony (和) takes the collective good as its goal and this
approach requires a balance between individuals' good and
the good of the large society.
§ Guanxi (the Chinese term for relation- ships, connections, or
contacts) is a major mechanism in the Chinese social
psychology. Guanxi is closely related to renqing (favor), and li
(etiquette, pro- priety, and rules of conduct) in regulat- ing
relationships (Kauri & Fang, 2014)
Confucianism
21
Yin-Yang and Harmony
§ Hierarchy and status: Respect and responsibility
are the glue that binds hierarchical relationships,
§ “A man without a smile should not open a shop”
and “Sweet temper and friendliness produce
money”
§ Interpersonal harmony hold relationships of
equals together.
Interpersonal Harmony of two
Different Types
23
§ Await leisurely the exhausted enemy
§ Shut the door to catch the thief
§ Make a feint to the east while attacking in the west
§ Make an exit route
§ Befriending a distant state while attacking a neighbour
§ What is the most important stratagem?
The stratagem of exit in order to win ultimate victory (BATNA)
§ Extra stratagem: Red-face and white-face stratagem
36 Stratagems: Some examples
24
§ The Chinese characteristics (guoqing) refer to the
distinctive characteristics of contemporary social
political system and conditions of the People’s
Republic of China (PRC).
§ The guoqing involves variables such as Chinese
politics, China’s socialist planned economic
system, legal framework, technology
development, Belt-Road recently, etc.
§ Deng Xiaoping: White cat or black cat, catching
mouse is the good cat
Guoqing: Chinese Characteristics
25
§ Five year plan
§ Belt-Road initiative
§ Overlapping with guanxi
§ Overlapping with the long term orientation
§ A strong sense of urgency among Chinese
leaders to catch up in science and technology
(e.g., high-speed rail and Belt-Road initiative)
Cultural Implications
26
§ Chinese business has become increasingly integrated into
the international business arena long dominated by the
West since 1978.
§ Increasingly important player on the global stage has been
hastened by an influx of foreign direct investment, adoption
of cutting-edge technological and management know-how,
and the return of overseas talents.
§ Chinese negotiators’ exposure to increasing opportunities to
learn international practices.
§ Yet recent years have witnessed the trend of deglobalization
as the cold war intensifies
De(globalization) Contexts
27
§ Western concepts and technology transfer: Hight
speed rail as an example
§ The insistence of Chinese negotiators on technology
transfer from western companies e.g., Ceely and Volvo
§ DiDi enters Australian market
§ Combination of competition and harmony (yin-yang)
§ Challenges in negotiating with China today due to
complex political tensions arising from the cold war
Technology Transfer and Market
Competition
28
§ Trade war is nothing new, but it is more
challenging during the pandemic
§ Trumps negotiation games and attacks
§ Tit-for-tat negotiation
§ Trade sanctions and tariffs with Australian
agricultural products, etc.
§ National interests and safety issues
So where will this end and what we should do to get
an upper of negotiation?
Negotiation and Trade War in
Political Contexts
29
§ Exploring alternatives for business negotiation frameworks
§ Let’s pause and reflect
§ Some reflections will help, tracing back in history about
Australia-China relations established in 1972.
§ In 1978,China began market-orientated reforms, which led
to a significant and increasing expansion of bilateral trade.
§ The China-Australia Free Trade Agreement was signed on
17 June 2015
§ Article: Australia-China Relations in
Retrospect: https://insidestory.org.au/whitlam-in-china/
Australia-China Relations in
Retrospect
30
§ Same destination of negotiation but different routes
§ Similarities between Western and Chinese are
usually just coincidence
§ Westerners seek transactions but Chinese
negotiators is characterised by a process, and they
may want your information, contacts, etc.
§ In all, Chinese negotiation is still driven by
traditional impulses but competition can also be
fierce
Cultural Differences in Negotiation 1
31
§ Proposal vs. social, or casual with intention to
know more
§ Relationship is more important than contract for
Chinese
§ Chinese view relationship as more stable and
binding with guanxi as the glue
§ Different tactics used from those of the West:
• Hope for winning (win-lose/distributive approach) vs
motivating the other party to sign (with a win-win
intention but with very complex traditional impulses)
Cultural Differences in Negotiation 2
32
Chinese host-guest relationship
§ Start with a long-term relationship orientation. They expect
you to reciprocate respect and relation in return.
§ You will be treated well but reciprocity is expected.
§ Assign high value to their own network and knowledge
§ Unequal exchange of information
§ Exclusivity and asymmetrical commitment (group oriented)
§ But don’t trade away your crown jewels and keep to your
BATNA.
§ Guard your technology and IP.
Implications for Understanding
Chinese Host-guest Relationship
33
§ What are some of the lessons learned?
§ What are some of the rules of negotiation applied
to this case?
§ What are the implications for negotiating with the
Chinese?
Mini Case 1 Ford and GM in China
Using the Dynamics Model
34
§ Jan 2006 established website to have simplified Chinese
§ Feb 2006, Google was criticised at a congeressional hearing for
giving into pressure from China to censor content
§ Jan 2009 Google was one of the 19 companies criticised by the
Chinese government regarding content censorship
§ July 2009 Google China share of the internet search market rises
above 30% but is still ranked second to Baidu (retaining 60% of the
home market)
§ 10 March 2010 two months after talks between two parties they
both indicated that Google.cn was likely to close.
§ 22 March 2010 withdrew from China as a compromise by shifting
its operations from China to HK.
Mini Case 2 Google in China
35
§ How did Google prepare to enter China?
§ How does the relation between the Chinese
government and Google evolve?
§ How could the conflict have been solved differently?
§ What does it indicate about the future East-West
cooperation and the return of Google?
Guess What’s Happening Now? –Too late to reverse
the situation
Google Case: Some Questions
for Reflection
36
Learning the influences of traditional cultures and
warring stratagems
§ Reliance on moral influence over legal practice
§ Be aware of developing guanxi and respect for
hierarchy
§ Understanding face-saving or mianzi. Enjoy the
social events
§ Trust and ethics
Some Takeaways: How to
Negotiate with the Chinese 1
37
Chinese socialist characteristics
§ Centrally controlled with ‘socialistic’ market
economy
§ Political system with multilayered governance of
business
§ The dominance of state-owned enterprises
Some Takeaways: How to
Negotiate with the Chinese 2
38
Complex IB and Deglobalisation contexts
§ Efficiency-oriented control system
§ Materialistic world view
§ Awareness of IB rules and cultural differences
§ Awareness of the tension in relation to national
interests and and ideologies
§ Need to think about yin-yang principle and other
strategies flexibly
Some Takeaways: How to
Negotiate with the Chinese 3
39
§ What is distributive or integrative negotiation? Define
BATNA
§ What elements of Chinese negotiation are integrative or
distributive? Provide an example for each case.
§ Familiarise yourself with the model of five stages of cross-
cultural negotiation
§ Review the model of Chinese negotiation of four dimensions
§ Understand these Confucian dimensions: (1) guangxi, (2)
power relations (hierarchy), (3) face and (4) harmony.
Activity after class: Negotiation with China
https://lti.oupsupport.com/9780190454357/DB/3_negotiate_with_china_p1.html
Week 10 Review Questions