A Crucial Negotiating Lesson from the U.S.-China Standoff
In our unquestionably global economy, companies are increasingly sourcing materials and products from international suppliers, and investors are looking overseas for growth opportunities. But building the relationships and establishing the contracts that enable global sourcing and investment often begin with negotiations between stakeholders from different cultural backgrounds.
This is where negotiators can encounter unexpected conflicts and challenges based on those cultural differences, as illustrated by the recent trade standoff between the United State and China.
In a recent analysis of the negotiations, Shang-Jin Wei, a former Chief Economist of the Asian Development Bank and a Senior Scholar and Professor Columbia University, says that fundamental differences in negotiating norms and styles are the likely cause of the impasse between the U.S. and China.
As an example, Wei asks us to consider a three-day negotiation between American and Chinese teams covering nine topics. Let’s assume that, after two days of talks, the two sides have reached an agreement on the first six topics. On the final day, the two sides reach an impasse on the last three points, and suddenly the Chinese team declares that it must alter the agreement on the first six topics.
This is similar to what has happened in the reported breakdown in U.S.-China trade talks. China has asked to renegotiate terms that were already agreed upon during earlier discussions. As we’ve seen from comments on the American side, some U.S. negotiators feel that the Chinese have reneged on a prospective deal and are being untrustworthy or insincere.
According to Wei, however, it’s not a matter of “walking back” the earlier agreement. It’s a difference in negotiating norms and styles. As Wei points out, most American negotiators take a “checklist” approach: if they want to cover nine topics, they prefer to reach an agreement on each one in sequence. Once agreement has been reached on some of those points, it isn’t fair game to renegotiate them.
In contrast, Chinese negotiators take a more holistic approach and follow a different norm that “nothing is agreed until everything is agreed.” Thus, if our three-day sample negotiation involved two Chinese teams rather than teams from China and the U.S., neither side would find it strange if the other asked to revisit the first six topics after reaching an impasse on the final three. According to Chinese negotiating norms, each side expects any agreement on the first six points to be temporary, and it’s subject to revision based on the outcome of discussions on the last three topics.
If the same negotiation involved the U.S. and China, and the discussion about the final three issues turned out to be quite different from earlier expectations, Chinese negotiators may ask to revisit the first six topics. This is because the various trade-offs among all nine topics have since changed. There’s now a new negotiating context.
Of course, this isn’t necessarily the “right” or “wrong” approach. As Wei suggests, the checklist approach and the norm of nothing-is-agreed-until-everything-is-agreed are both valid. In fact, the Chinese negotiating style can potentially benefit the America side, since the U.S. could revisit agreements on the first six topics if the last three don’t develop according to its expectations.
However, regardless of the approach we take, the challenge is to be aware of cultural differences and account for them before negotiations begin. Toward this end, Weis recommends that negotiators from different cultural backgrounds first discuss and try to agree on the norms that will govern their talks. Then they can move on to the actual substantive negotiations.
Following this advice, we should never assume that our negotiating norms are universally shared. International negotiations can be difficult enough in terms of substance, and letting differences in style exacerbate the challenge is unwanted and unnecessary.
To better prepare for international negotiations, it’s also a good idea to hire a subject matter expert who has direct experience with specific business cultures and can help navigate the inevitable challenges that cultural differences pose. At Graphite, we help firms tap this cultural expertise by connecting corporations, investment firms and consultancies with the world’s leading independent consultants, including U.S. and internationally-based experts who can help with projects and negotiations involving different business cultures.
Whether you’re conducting due diligence on a potential investment opportunity or researching international suppliers and potentially negotiating terms, it pays to have this cultural expertise on your team. However, even if you already have the right resources in place or need to go into negotiations with your existing team, keep in mind Wei’s advice and the example of U.S.-China trade discussions. Ultimately, the best negotiations begin with an agreement on norms before your talks truly begin.