In a very short and very helpful video — The big secret in Chinese/Western negotiations? — China negotiation expert Andrew Hupert explains two things of which you should be aware when negotiating with Chinese companies.
The first is to realize that most Chinese companies are not so much looking to do a long-term deal with you, but rather, to secure your IP. In our “free look scheme” series we wrote about how Chinese companies will feign interest in doing a deal with you when what they really want is your IP for as little cost as possible. Essentially, China free look schemes are methods employed by Chinese companies to get a “free look” at your intellectual property and trade secrets. In part 1 of this series, we looked at how Chinese companies use their purported interest in investing in a foreign company to convince the foreign company to give the Chinese company access to the foreign company’s IP. In part 2, we explained how Chinese companies use Memoranda of Understanding (MOUs) to get free looks at foreign technology. In part 3, we explained how Chinese companies use Joint Ventures (real, fake and non-existent) to get at foreign technology without paying for it. In part 4, we noted how there are plenty of legitimate Chinese companies seeking legitimate deals with foreign companies and then explained how to determine whether the Chinese company with which you are dealing is serious about doing a real deal or is just trying to get a free look at your IP. And in part 5, we addressed how best to deal with the risk of a China company free look scheme.
This is sort of part 6 and it deals with how to negotiate away from a free look scheme.
Hubert starts by noting how once you have been “partners” with a Chinese company for more than six months your China partner probably thinks it can earn more without you. Hupert goes on to say that Chinese learning curves are much steeper than western learning curves and because of this, Chinese companies are usually not terribly afraid of you leaving them and going it alone. Once they see your IP, they are over-confident about their ability to make use of it. I completely agree with Hupert and would only add that Western companies tend to be over-confident about the ability of their Chinese counterparts to take what little IP the Western company gives and run away with it and start competing.
Hupert then discusses how your Chinese partner likely believes that without its help, you will not be able to function in China and once it sees your technology it typically believes it is “competing on a more or less even playing field with you as far as the product is concerned.” I love how Hupert says that if (as is so often the case) it seems that your Chinese counter-party is spending most of its time trying to uncover your intellectual property and asking questions about your business processes, it’s because they are. Again, I completely agree. I can remember many times where one of our clients did not believe its Chinese counter-party was seeking to take its IP and was eventually proven wrong, but I cannot remember a single time where a client believed its Chinese counter-party was seeking to take its IP and that was not the case.
Per Hupert, the second thing of which you should be aware is that to protect your interests, you want your Chinese counter-party to work with you all the while believing you will provide new technology and even more valuable ideas to it in the future. But at the same time, you also want your Chinese counter-party to fear that you may team up with a different Chinese partner. “This hope-fear dynamic is your best best for building a good, healthy relationship in China.” Again, I completely agree and in fact, I add the following PowerPoint slide to nearly all of the talks I give on China:
I put this PowerPoint slide in nearly all of my China talks because — like Hupert — I see this as the key to negotiating deals with Chinese companies that work.
For more on negotiating with Chinese companies check out the following:
- Negotiating With Chinese Companies: Death By a Thousand Cuts
- Negotiating With Chinese Companies: Walk, Don’t Look Back
- Negotiating With Chinese Companies: Be The Rabbit
Or go all out and spend $4.99 for the Kindle version of Hupert’s book on negotiating with Chinese companies, 10 Common China Negotiating Mistakes: A Survival Guide for Front Line Negotiators and Team Leaders.This article was written by Dan Harris and published on China Law Blog. Original Post: https://www.chinalawblog.com/2018/09/negotiating-with-chinese-companies-how-you-are-viewed-and-how-you-should-respond.html