In a G2 environment, cross-cultural business relationships can lose their power. If you don’t negotiate the cross-cultural relationship, you are taking unnecessary risks.
I spent 10 years training Western managers to negotiate successfully in China. One of the most dangerous situations I tried to help clients avoid was “Imaginary Relationship Syndrome”. This occurs when a company sources parts or materials from a seller for several years – and is confident that they have established a strong relationship. When the business environment changed or the individual manager who was responsible for 99% of their relationships moved on, the Western side suddenly found that its previous deal evaporated, and now their terms were much worse – if there was any transaction offered at all.
“But we have been partners for 5 years. We have GUANXI!”
“Who are you again?”
Win-Win Relationships VS. Win-Lose Transactions
Fischer, Ury and Patton’s “Getting to Yes” established the concept of “principled negotiation”, and laid out the differences between distributive and integrative dealmaking. Today we usually just talk about Win-Win vs. Win-Lose. I approach the difference by framing a negotiator’s choice as “strategic relationship” or “competitive transaction”. Win-Win or integrative negotiating seeks to create value from the relationship, whereas Win-Lose, or distributive dealmaking, is about maximizing the value of each zero-sum transaction.
In Western markets, the distinction between Win-Win and Win-Lose was pretty easy to conceptualize, even if it was a good deal more challenging to put Win-Win techniques into practice. When you cross cultural boundaries, however, the situation gets murkier – and potentially more competitive.
Cross-cultural buisness negotiation is more challenging than ever.
There are 3 big reasons why Win-Win is challenging as you cross cultural boundaries:
- Hard to read through another culture’s non-verbal cues & communication. You can read your own stories & lies, but it’s harder to read someone from another culture. This is doubly true when the culture values etiquette, which to many Americans misinterpret as actual approval or affection. It’s not.
- Many cultures require you to establish some kind of relationship before you can even discuss certain types of transactions. Just because you’re banqueting and KTVing doesn’t necessarily mean that you are developing a strategic partnership. The transactional relationship is a start—but the other side may not feel that a true relationship exists.
- Westerners often don’t know when they have been successful – or when they are not. The risk here is that Western buyers confuse long-term string of transaction with a strategic partnership. Hint: if your relationship with a big supplier is low-maintenance and high-volume with almost know senior level involvement at all, then you probably value this relationship more than the other side. Chinese don’t really DO low-maintenance relationships with strategic partners. If your strategic, then you are growing together – which is difficult and management intensive.
The Problem with Strings
Westerners in China thought they had cross-cultural business relationships, when in fact all the really had was a string of transactions. This is a natural situation – you find a non-critical part or material at a good price and you out pricing and delivery terms with a mid-level manager. The first deal works, so you negotiate a better price for a bigger order – maybe with the original manager, or maybe with his boss or a “specialist” in your industry or region. For Western businesses, this is the height of efficiency. You have established a steady source with minimal maintenance costs or effort.
In some cases, there may be a meeting or two between principles or senior execs, but for the most part the buyer is happy to let this business run on autopilot. And much of the time it will … until it doesn’t.
Strings of transactions are just that – transactions. You’re not building up equity, relationship, or security. You are engaging in a one-off transaction that will repeat if both parties are willing. When one side is no longer interested, the string breaks. And now you have to find a new supplier – maybe in a hurry.
Cross-Cultural Strings: The Tactical Relationship Dilemma
In places like China, the rest of Asia, most of the Middle East, Africa, parts of Southern and Eastern Europe and part of Latin America, local counterparties expect to establish a relationship BEFORE they’ll agree to certain types of transactions. For locals, however, this is more a form of due diligence than a strategic partnership. They want to know who you are and expect you to put in the face time if you want good terms or access to decision-makers. Entire books have been written on the subject but let me cut to the chase: Unless you have explicitly negotiated a relationship, it’s likely the other side just sees you as a retail customer. If you are not identifying and solving problems collaboratively and sharing high-level confidential information about goals and budgets, then you are not in what they consider to be a genuine relationship.
There’s nothing inherently wrong with a tactical relationship, as long as you understand it for what it is: an unsecured series of transactions. That’s fine if you are buying office supplies or non-core products. If you’re basing your entire production run or the integrity of your intellectual property on a string, then you may have a problem.
The Tech Lock-In: Strings that Bind
Lately, a lot of tech companies have been “simulating” relationships with long-term contracts and tech lock-ins. These are designed to prevent customers from leaving their proprietary platform and going to a competitor.
For many purchasers, this is indeed a real relationship. However, it is an abusive one that they will try their best to escape.
Self-Reinforcing Cross-Cultural Negotiations
Building real cross-cultural strategic partnerships is a high-level function that take time, effort, and managerial bandwidth. As we enter Globalism 2.0, look for government restrictions, rising complain.
- Negotiate the relationship.
a. Relationship variables: Budgets for cross-training, R&D, and other cooperative efforts. Budgets reinforce relationships – promises increase skepticism.
b. Distribution of power and responsibility. You need a new official organizational chart that shows how power is actually being split. If you don’t want to share this level of information, then you likely don’t have a true strategic partnership.
- Have a workable vision for co-growth.
a. Your company doesn’t plan on 0% growth in your annual planning, and neither does your partner. He wants to see a plan for your joint business to grow.
b. You may be able to grow together. Lots of Chinese manufacturers are setting up operations in Vietnam or Mexico. This is a good time to find out what your existing suppliers are planning for their growth.
c. At the minimum this may include transparency into your order book or new product development plans. If this kind of data is too sensitive for you to share, then you don’t have a real partnership and should focus on transactions.
- Build a Cheap-Dear agenda.
a. The best cross-cultural deals are based on cheap-dear negotiating variables.
b. You should offer something that is expensive for the other side to receive but cheap for you to offer. (i.e.: know-how, training, access to your US and/or Euro markets).
c. Ask for things that are expensive for you to receive but easy for them to provide (i.e.: government connections, local network, business registration, local sources).
Bottom Line:
As the old institutions and relationships that we all profited so much from during Globalism Classic disintegrate or metastasize, international managers need to bring new focus to their cross-border negotiation. After decades of “race to bottom” bargaining in China, followed by years of tariffs and nationalism, many Western-Chinese relationships have dissolved. As we forge new ties in SE Asia, India, or LatAm, we have to avoid the same mistakes we made in China.
One off transactions are fine – if you have a deep bench of alternate suppliers.
Strategic relationships are fine – if you put in the time and effort to build a truly collaborative partnership.
Strings of transactions are NOT fine if your business relies on the best efforts of your counterparty. It led to problems in China, and it will cause trouble in your new markets as well.