Negotiating in China - John L. Graham and N. Mark Lam - October 13, 2003

When U.S. and Chinese businesspeople sit at the negotiating table, frustration is often the result. This Harvard Business Review excerpt summarizes the historical and cultural disconnects. In preparing for a business trip to China, most Westerners like to arm themselves with a handy, one-page list of etiquette how-tos. "Carry a boatload of business cards," tipsters say. "Bring your own interpreter." "Speak in short sentences." "Wear a conservative suit." Such advice can help get you in the door and even through the first series of business transactions. But it won’t sustain the kind of prolonged, year-in, year-out associations that Chinese and Western businesses can now achieve. Indeed, our work with dozens of companies and thousands of American and Chinese executives over the past twenty years has demonstrated to us that a superficial obedience to the rules of etiquette gets you only so far. In fact, we have witnessed breakdowns between American and Chinese businesspeople time and time again. The root cause: a failure on the American side to understand the much broader context of Chinese culture and values, a problem that too often leaves Western negotiators both flummoxed and flailing.
The View from Both Sides

The challenge of mutual understanding is great; American and Chinese approaches often appear incompatible. All too often, Americans see Chinese negotiators as inefficient, indirect, and even dishonest, while the Chinese see American negotiators as aggressive, impersonal, and excitable. Such differences have deep cultural origins. Yet those who know how to navigate these differences can develop thriving, mutually profitable, and satisfying business relationships.

The roots of Chinese culture
Four thick threads of culture have bound the Chinese people together for some 5,000 years, and these show through in Chinese business negotiations. The first thread is agrarianism. In contrast to the U.S. population, which is mostly urban, two-thirds of the Chinese people still live in rural areas, laboring primarily in rice or wheat cultivation. Traditional Chinese agriculture is peasant farming. It is communal, not individualistic; survival depends on group cooperation and harmony. Loyalty and obedience to familial hierarchy binds laboring groups together. Many of China’s city dwellers were born and raised in the country and have retained their agrarian values. Just as the most urbane Americans are influenced by the country’s cowboy roots - "shoot first and ask questions later," "lay your cards on the table," and so on - the most modern Chinese are affected by millennia of living close to the soil. We have witnessed breakdowns between American and Chinese businesspeople time and time again.

Before the 1980s, agrarian values trumped business values. When during the Cultural Revolution Mao Tse-tung sent bureaucrats and students to be "reeducated" by the peasantry, he was reflecting the deep-seated belief in the virtues of rural life. Indeed, Chinese philosopher Fung Yu-lan explains in his works that Chinese sages historically distinguished between the "root" (agriculture) and the "branch" (commerce). Social and economic theories and policies tended to favor the root and slight the branch. People who dealt with the branch - merchants - were therefore looked down upon. The second thread is morality. The writings of Confucius served as the foundation of Chinese education for some 2,000 years. During those two millennia, knowledge of Confucian texts was the primary requisite for appointment to government offices. Confucius maintained that a society organized under a benevolent moral code would be prosperous and politically stable and therefore safe from attack. He also taught reverence for scholarship and kinship. Confucius defined five cardinal relationships: between ruler and ruled, husband and wife, parents and children, older and younger brothers, and friend and friend. Except for the last, all the relationships were strictly hierarchical. The ruled - wives, children, and younger brothers - were counseled to trade obedience and loyalty for the benevolence of their rulers - husbands, parents, and older brothers. Rigorous adherence to these hierarchical relationships yielded social harmony, the antidote for the violence and civil war of Confucius's time.

For a taste of the importance of hierarchy in Chinese society, consider what happened to Cheng Han-cheng and his wife. According to Chinese scholar Dau-lin Hsu, in 1865 Cheng’s wife had the insolence to beat her mother-in-law. This was regarded as such a heinous crime that, among other punishments, Cheng and his wife were both skinned alive, their flesh displayed at the gates of various cities, and their bones burned to ashes. Neighbors and extended family members were also punished. This is, of course, an extreme example - but the story is oft told, even in today’s China. And it underscores why it is so easy for casual Westerners to slight their authority-revering Chinese counterparts.

Roughly contemporary with Confucius was Lao Tsu, the inspiration for Taoism, whose fundamental notions involve the relationship of yin (the feminine, dark, and passive force) to yang (the masculine, light, and active force). The two forces oppose and complement one another simultaneously. They cannot be separated but must be considered as a whole. The implications of the collision and collusion of yin and yang are pervasive, affecting every aspect of life from traditional medicine to economic cycles. According to Lao Tsu, the key to life was to find the Tao -"the way" between the two forces, the middle ground, a compromise. Both Lao Tsu and Confucius were less concerned about finding the truth and more concerned about finding the way. These moral values express themselves in the Chinese negotiating style. Chinese negotiators are more concerned with the means than the end, with the process more than the goal. The best compromises are derived only through the ritual back-and-forth of haggling. This process cannot be cut short. And a compromise allows the two sides to hold equally valid positions. While Americans tend to believe that the truth, as they see it, is worth arguing over and even getting angry about, the Chinese believe that the way is hard to find and so rely on haggling to settle differences.

The third cultural thread is the Chinese pictographic language. Just as Western children learn to read Roman letters and numbers at an early age, Chinese children learn to memorize thousands of pictorial characters. Because, in Chinese, words are pictures rather than sequences of letters, Chinese thinking tends toward a more holistic processing of information. Michael Harris Bond, a psychology professor at the Chinese University of Hong Kong, found that Chinese children are better at seeing the big picture, while American children have an easier time focusing on the details. The fourth thread is the Chinese people’s wariness of foreigners, which has been learned the hard way - from the country’s long and violent history of attacks from all points of the compass. So, too, has China fallen victim to internal squabbling, civil wars, and the ebb and flow of empires. The combination yields cynicism about the rule of law and rules in general. It can be said that the Chinese trust in only two things: their families and their bank accounts ...

The eight elements
The cultural influences outlined above have given rise to a clearly defined set of elements that underpins the Chinese negotiation style. Most American businesspeople we have worked with often find those elements mysterious and confusing. But if Americans ignore them at any time during the negotiation process, the deal can easily fall apart.Following are the eight important elements of the Chinese negotiation style in the order most Westerners will encounter them:Guanxi (Personal Connections) While Americans put a premium on networking, information, and institutions, the Chinese place a premium on individuals’ social capital within their group of friends, relatives, and close associates.

Zhongjian Ren (The Intermediary)
Business deals for Americans in China don't have a chance without the zhongjian ren, the intermediary. In the United States, we tend to trust others until or unless we’re given reason not to. In China, suspicion and distrust characterize all meetings with strangers.

Shehui Dengji (Social Status)
American-style, "just call me Mary" casualness does not play well in a country where the Confucian values of obedience and deference to one’s superiors remain strong. The formality goes much deeper, however - unfathomably so, to many Westerners.

Renji Hexie (Interpersonal Harmony)
The Chinese sayings, "A man without a smile should not open a shop." and "Sweet temper and friendliness produce money." speak volumes about the importance of harmonious relations between business partners.

Zhengti Guannian (Holistic Thinking)
The Chinese think in terms of the whole while Americans think sequentially and individualistically, breaking up complex negotiation tasks into a series of smaller issues: price, quantity, warranty, delivery, and so forth. Chinese negotiators tend to talk about those issues all at once, skipping among them, and, from the Americans’ point of view, seemingly never settling anything.

Jiejian (Thrift)
China’s long history of economic and political instability has taught its people to save their money, a practice known as jiejian. The focus on savings results, in business negotiations, in a lot of bargaining over price -usually through haggling. Chinese negotiators will pad their offers with more room to maneuver than most Americans are used to, and they will make concessions on price with great reluctance and only after lengthy discussions.

Mianzi ("Face" or Social Capital)
In Chinese business culture, a person’s reputation and social standing rest on saving face. If Westerners cause the Chinese embarrassment or loss of composure, even unintentionally, it can be disastrous for business negotiations.

Chiku Nailao (Endurance, Relentlessness, or Eating Bitterness and Enduring Labor)
The Chinese are famous for their work ethic. But they take diligence one step further - to endurance. Where Americans place high value on talent as a key to success, the Chinese see chiku nailao as much more important and honorable.

Excerpted with permission from "The Chinese Negotiation," Harvard Business Review, Vol. 81, No. 10, October 2003.

John L. Graham is a professor of international business at the Graduate School of Management at the University of California, Irvine.N. Mark Lam is an attorney and business adviser specializing in East–West negotiations.

Graham and Lam are coauthors of Red China, Green China, forthcoming in 2004 from Rowman & Littlefield.