China: Day 3

China Day 3: Shanghai

Today was a full day of class at the Westin – we began the morning with a simulation exercise. The class was broken into teams of 7 representing 3 each for a Chinese and American negotiation party, plus one observer. The goal was for the US team to negotiate an agreement to allow Universal to develop a theme park in China, but the real point was to better understand differences in the Western vs. Chinese negotiation styles.

 A few habits of Chinese negotiators that typically trip up Westerners:

·         Nothing is agreed upon until everything is agreed upon: if one point of several in a negotiation is agreed upon, the Chinese do not consider this final until all items are finalized; they will reopen “closed” items, often skipping around agenda items, until a full picture negotiation is agreed upon. The Chinese also typically wait to make any concessions until the very last moments.

·         The Preamble: Most negotiations begin with a long preamble of vague long-term goals that the Chinese want to accomplish through the agreement. Most Westerners ignore this, but Chinese courts are usually highly sympathetic to the preamble written in contracts, to the point that they will allow parties to break contract clauses if the action aligns with the spirit of the preamble

·         Never say no: Because the Chinese culture focuses strongly on collective harmony, negotiators will very rarely directly say no. Rather they will say vague responses such as “we will have to look into this further” or “we will have to check with our senior management.” You have to read behind the lines to discern what is a ‘maybe’ and what is a disguised ‘no.’

·         The Quiet Leader: While in Western negotiations the senior ranking person typically takes the lead in negotiations, often a younger person leads negotiations in China. This can make it difficult to discern who in the Chinese negotiating party has the most seniority/decision making power.

·         Silence is golden: Silence is a very commonly used tactic by the Chinese. They are comfortable with stretches of silence, while Westerners typically feel awkward and fill the silence, potentially sharing more than they intended with the opposing negotiators.

We also had two guest speakers, ex-pats (one from the US and one from India) currently working in marketing firms in Shanghai. They discussed a variety of brand marketing and other challenges firms face in customizing/successfully selling products in China. One of the most interesting points was the idea of a “public” brand. As people are becoming wealthier in China, there is a much stronger demand for luxury goods such as Luis Vuitton, sports cars, etc. But an interesting cultural norm is that the Chinese are typically willing to spend money only for luxury brands that other people can see. For example, Luis Vuitton has done very well in China, but Victoria Secret and other brands that aren’t “publicly visible” have largely failed in China. This even holds true with items like beer – Chinese consume foreign beer almost entirely in public restaurants (where it is a sign of status/wealth), but drink inexpensive domestic beer at home where no one can see them. Thus many global brands face an uphill battle convincing Chinese consumers to pay a premium for “private” brands.

This plays a role in counterfeiting as well. As luxury goods have become more common in China, people do not want to be “caught” with a counterfeit (i.e. they don’t want to be spotted in public with a fake Luis Vuitton). But they have no problem using counterfeit goods privately – Windows, for example, still faces enormous piracy issues in China.

After wrapping up class around 5pm, we headed to an acrobatic show. While very touristy, the show was amusing. Some of the acrobats looked ridiculously young though – maybe 8 or 9 – not so much on protective child labor laws in China, I suppose.

I still haven’t had much of a chance to really experience Shanghai, which is a bit frustrating. Beyond a quick dinner out last night and a few glimpses of the city in the bus taking us to the acrobat show, our days have really been packed with class/speakers/business tours. Hopefully towards the end of the week we will have more time to experience the real Shanghai. It’s been fun to meet a lot of other EMBAs though – they are definitely an impressive (and fun) crew.

Shot of the acrobat show: