WASHINGTON—Americans, good old fashioned straight-shooting Americans, go into negotiations looking for the “win-win.” When doing deals with Chinese counterparts, they regularly lose their shirts.
And it’s no small wonder, says Morgan Reed, executive director of the Association for Competitive Technology, or “ACT,” which represents small-scale software developers. The Chinese do business with their gloves off, while Americans are not aggressive enough, too bound by their rules, and so far have been unable to recognize just what they are up against.
The stance Reed adopts to the problem is a bit like a skills coach: he just accepts the fact that the Chinese are playing a different game, and has come up with all sorts of ideas for how Americans can learn that fact and try to fight back a bit. He takes it for granted that the Chinese recognize no such thing as a “business partnership” with a foreigner.
Reed’s thinking toward China was shaped early on, when he wrote an undergraduate thesis in the late 1980s about what Hong Kong’s fate would be after it was handed over to Chinese communist control. “At the time much writing was yes/no, up/down answers,” Reed says: either that everything would remain hunky-dory, or that there would be a mass exodus. Reed called it somewhere in the middle: As China’s shadow over Hong Kong grew larger, “the things that people liked about Hong Kong would disappear slowly over time,” not right away.
But it became clear that in order to understand further, “I needed to read in Chinese, needed to learn more about China linguistically and culturally in order to have a true sense of what was going on.”
He worked hard studying “chengyu,” or idioms, usually composed of four characters, that often summarize some lesson or story from history. They can be put to devastating use in discussions. “If you ever have long conversations with older Chinese gentleman, the ability to deliver the right chengyu at the right time is very powerful, and will often be the key punctuation of a discussion,” Reed explains. “The guy that can drop the right idiom always wins the debate.”
In his role as head of ACT, Reed draws from his background in computers--his father was a professor of computer science (“I learned programming with my father on old punch card computers in the 70s, and we had a computer at home, non-stop from 1978 onwards”)—and his study of China, its language, and importantly, its contemporary business culture.
ACT collects membership dues, calibrated to the size of member companies, and in return conducts training boot camps, produces reports, and serves the interests of its members in policy discussions with the U.S. government. Reed is regularly invited to testify before Congressional committees.
Reed’s role sees him interface with companies trying to crack the China market, and in receiving delegations from China who want to learn about innovation. This gives him a broad set of interactions with multiple actors, and a consequent treasure trove of lessons for would-be entrepreneurs considering an engagement with China.
“The most common failure that Americans enter into,” Reed says, “is where the offer on the table is trying to achieve as much as possible” for both sides. But that’s not how to go about it.
“In negotiations with Chinese, they’re trying to extract as much as possible. They’re not looking for a compromise that leaves all sides happy. They’re pleased with a result what leaves you unhappy and them entirely happy.”
Chinese negotiating with Americans have no interests in the latter’s success, Reed says. “They don’t make the same ties or connections with Westerners. Part of it is the supply model: we go to China, get something made, it leaves. You’re not building a network of relationships. He doesn’t have a deal with you in the same regard he does a family member, an aunt, or someone he'll need down the road.”
Basically, “don’t look for win-win, look for the situation that gives you the maximum win. If you go in saying we’re going for a win-win win, you’re going to get taken, and you‘ll be like: ’What happened?!'”
Cultural assumptions going both ways complicate the matter. Chinese, for example, have adopted the idealized American self-image through imbibing Hollywood movies and American pop culture. Americans don’t play dirty, the thinking goes.
But not playing dirty doesn’t mean one shouldn’t be creative. “You have to be willing to understand that it’s a complex social ecosystem. Looking for simplistic answers in how to deal with the Chinese, it’s very difficult. The one touchstone, if there was one, is seeking leverage.”
“Leverage” is really a fancy term for figuring out ways to push other people into doing what you want. And in this context, that’s fine by Reed.
The standard dichotomy is this: Americans are rule-bound and guided by their good faith in others, whereas the Chinese will cut corners and do whatever’s needed to win the day. More simply: “We enter into it from a rules-based perspective, they look at it from a leverage perspective.”
Continued on the next page: The American approach needs to be seriously revised
The American approach needs to be seriously revised, Reed says. He does not advocate any actual rule breaking, like bribes, but “figuring out, in any negotiation, what is your leverage. How does the person across the table benefit by the deal you’re proposing. What are his partnerships, who does he do business with, who are his competitors.”
This information can be extracted over long discussions over tea. “You need to be informed. When it’s time to negotiate the deal, you need this information.”
This approach bears important lessons for the macro picture of America’s trade with China, where the latter has clobbered the United States with a sophisticated system of mercantilistic industrial policies that have wiped out American jobs and badly skewed the terms and balance of trade between the two countries, according to experts. Reed spoke at the recent presentation of a report which laid out that case.
“When it comes to: has America gotten the raw end of the stick? Yes, but not unexpectedly, because of these problems. We cannot drop our rules-based philosophy. What we have to do is modify it. We know what our rules are, but it doesn’t mean you can’t seek leverage in other ways.”
One technique, for example, would be to play companies off one another. If engaging in a trade dispute with Company A, one could seek out Company E, the smallest of its five chief competitors, and see if they’ve got any useful intelligence on problematic trade practices by A. How they obtained that information may not have been savory by American standards, but E would benefit by its being shared, and so a deal may be struck.
Figuring out the incentives and constraints of Chinese bureaucrats, and playing off them, is another skill that is insufficiently developed in Americans’ dealings with Chinese. Calling on favors is another. Using the U.S. bureaucracy to punish recalcitrant Chinese companies, and taking the heat off the U.S. counterpart, is another. Companies working together with investment banks to see what they know about certain sectors and how business is done in those sectors is another.
In short, there is a whole toolbox of instruments of leverage that are waiting to be deployed, as soon as Americans realize that they’re not dealing with “partners,” (Reed playfully mimics: “We viewed it as a partnership. How could they not be our partners? We’re buying all this stuff, how could we not be partners?”) as they have naively believed, but instead something much more ambiguous.
The failure so far to grasp all this is partly due to the China-hand establishment, which takes its clues from the traditional State Department China expert, Reed says. This style--of expertise in high-level diplomacy and bureaucracy, not the mud-in-between-the-toes, lived experience of China--has long dominated America’s understanding and approach.
“It’s necessary, but not sufficient,” Reed says. “Bringing in the grubby kids who spent five years living hand to mouth in China, and having them engage, is as valuable as those who graduated from Princeton with a degree in Chinese. Or more valuable,” he said.
“We have a shortage of ‘grubbies,’ so to speak.”
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