Seven Rules for Closing a Deal in China

Last Updated Jun 17, 2008 5:19 PM EDT

If you're outsourcing to Chinese manufacturers for the
first time, you're bound to make a few gaffes when dealing with a
business culture so different from your own. Here are some rules of the road:

1. Never criticize the government.

In the United States, taking verbal shots at the government
is almost de rigueur in business conversation. Not so in China. While savvy
Chinese are well aware that their government has problems, openly criticizing
the government, or even being on the scene of criticism, is a good way to end
up with innumerable troubles when it’s time to make the obligatory
kowtows. “The last thing you want is to be seen as a troublemaker,”
says Usha Haley, professor of International Business at the University of New
Haven in Connecticut.

2. Understand the limitations.

There are still many industries in China where the
organization and ownership structure reflects the old communist system. The
government is reluctant to restructure and privatize these firms, possibly
creating unemployment. When dealing with such bureaucrats, you may need to
understand the constraints under which they are working (such as the need to
maintain full employment) in order to understand how to work most closely with
them, according to James Mulvenon, a former China expert for the Rand Corp.

3. Don’t assume the contract is final.

In general, the Chinese place greater reliance upon personal
connections and personal commitments than on what’s written on a
piece of paper. As such, terms that are discussed prior to the signing of a
contract often are only distantly related to the actual terms under which the
deal will move forward. “After you sign the contract, there will
likely be multiple requests to change the terms in order to make the deal more
advantageous to the Chinese suppliers,” says Brad Finn, president of
Marlboro Corporation, a wholesaler that works with Chinese manufacturers.

4. Try to cultivate the younger executives.

There is growing professionalism among younger Chinese
executives, many of whom have earned MBA degrees from Chinese and American
universities. Unlike their predecessors, such young executives are more likely
to view business ethics and performance in a way that more closely reflects
attitudes in the United States or Western Europe. They can help you understand
what’s going on in more traditional enclaves of their firm, according
to Diana Matthias, a Shanghai-based senior consultant for Rouse & Co.
International, a company that consults on international intellectual property

5. Be sure you’re speaking with the real decision-maker.

It’s not at all unusual for a Chinese business
owner to remain in the background and let his negotiator pose as the
decision-maker. This gives the real decision-maker the flexibility to deny any
concessions that he doesn’t like and dictate better terms using your
concessions (which you thought were mutual) as a baseline. “My advice
is to simply walk away from the meeting if you find out they’re
playing this game,” Finn says.

6. Beware of double-dipping.

Local representatives frequently position themselves to get
paid both by the company that they represent (meaning you), and the company
with which they’re negotiating, according to Tim Wang, regional
president of Novellus China, a subsidiary of semiconductor equipment-maker
Novellus. But don’t get too heated if you discover an apparent
conflict of interest. In China, this is not considered a violation of
professional ethics but a natural consequence of being in the advantageous
position of being an intermediary.

7. Enjoy the inevitable banquet.

When you visit China, you’ll likely end up
attending one or more ceremonial banquets, where a wide variety of traditional
dishes will be served. The host earns status by providing unusual or rare
foods, which probably will not be at all like the Chinese food you’re
used to eating in the United States. You’ll be expected to try every
dish, lest you insult the host by refusing. The last time this writer was in
China, the banquets included pig’s ear, which tasted like rank bacon;
turtlehead soup, without a visible head, thankfully; and an item listed on the
menu as “boner-less chicken.” Bon appetit!