Google-China negociation case

Everyone thinks that they know what Win-Win negotiating is, but what about Lose-Lose?
Simply stated, its when both parties leave the negotiation worse-off then they entered.
There are two general categories of Lose-Lose negotiations:
The first is when a negotiation goes bad, and both sides lose time, money, assets or resources as
a result. This what management students refer to as a hygiene issue because unlike a
structural issue, the result is due to poor execution, bad planning or some other form of
incompetence. If one or both sides were better at carrying out their own strategy, the result would
not be lose-lose. Lots of US-China JVs end up this way. The other type of Lose-Lose
negotiation is structural. Due to environmental or external reasons there is certainly going to be
a loss. The rational goal of this kind of lose-lose is to minimize the downside either
cooperatively or competitively. Think of a bankruptcy or divorce as an example of lose-lose.
So what do we have in the Google-China case?
3 Factors control this negotiation.
1) Business interests
2) Censorship
3) Hacking
The hacking issue was actually the most significant though it seems to be hazy and irrelevant
to Googles ongoing business. If the Chinese government is indeed, behind the hacking of
Googles servers then the company probably had no choice but to force the issue when it did
and had good reasons for doing it the way they did.
The Hack
If a bunch of 15 year-old script mutants from Estonia hack into AutoPartsWorld.xyz, then the
site owner has the option of forgetting about it. But if an unnamed foreign entity (i.e. China)
conducts a concerted quasi-military attack on Google and the company not only learns about it
but also discovers that A) sensitive companies involved in US infrastructure and defense
industries were also hit and B) its own employees may have been involved, then the company
has severely limited options. If Google knew about this and said nothing to anyone then the best
it could have hoped for was a PR nightmare and it sounds like it might be edging towards
treason (or at least prolonged GlennBeckian rants and special Congressional hearings) in a
worst-case scenario. Sure, it could have handled it more discretely but then there was the
possibility of losing control of the message (when someone in the company or either government
reveal it at a time of their choosing or through a blunder) and looking, well, EVIL when the
pattern became apparent. Only a handful of people know for sure the actual extent of the hacking
and who was behind it but the facts as presented would make business as usual impossible for
a responsible

management. After 4 years doing business in China, Google couldnt claim it didnt know what
the downside of this kind of hacking might have been. This is their business.
The
Business
Interest
There are some very good reasons for Google to take the position it did. No the problem wasnt
that Google was failing in China. It was doing fine and the most recent stats indicate that
Google was actually making significant gains in the last few months. With China cracking down
on piracy and IP violations, the industry was moving in Googles direction (since Baidu still gets
lots of its search traffic from MP3 downloaders). The business issue has to do with WHEN to
force a confrontation, not WHETHER to do it. If the hacking was real, then it was in Googles
favor to have the negotiation earlier rather than later; louder rather than quieter. There are lots of
people shouting that Google didnt understand Chinas culture. Well, I cant speak for Brin, Page
or Schmidt, but I like to think that I do understand a little about Chinas negotiating culture.
Handling this according to Chinese convention would have been an unmitigated disaster for the
company. By going public and presenting its case in the court of public opinion, Google can
balance its losses in China with gains elsewhere. If the company had conducted quiet, behindthe-scenes negotiations with Chinese bureaucrats it would be bargaining away all its advantages
before the first meeting even started with little hope of improving its position either in China or
globally. Deservedly or not, Google has managed to turn 180 degrees and go from being seen as
a co-conspirator with a human rights violator to being the champion of justice and freedom. At
the time of this writing, Google is still up and running on both the .COM and the .CN sites so the
company hasnt given up anything. Googles harshest critics are saying that it should have
happened sooner.
Censorship.
Although the loudest of the three arguments, this was probably the least important. Freedom of
information flows is Googles stock in trade and it routinely makes arrangements that limit
those flows under certain conditions and in certain places. If it can marry a stronger anticensorship image to its brand name, then The Goog is in a much stronger position to defend its
de-facto position as repository of all human knowledge from nervous Western authorities. The
censorship position makes a great bargaining chip. If Google and China do want to arrive at a
face-saving decision, then this is the only option on the table that makes any sense at all.
Google.CN is the variable in play. If Google decides to give something up to appease Beijing,
they can jettison or alter the CN site. Likewise if Beijing wants to let the Goog look like it won
something (as unlikely that may seem right now) then the two can issue joint press release that
the new and improved Google.CN will be freer and opener in some way.
Once Google discovered the hack it had no option other than to engage in a loss-minimization
strategy. The discovery was a game-changer that significantly constrained Googles negotiation
options. Its BATNA plummeted, and the only rational course of action was to negotiate to limit
its losses and counter-balance with new gains elsewhere.
Sursa: http://www.chinesenegotiation.com/2010/01/google-china-as-a-case-in-lose-lose-negotiation/

Conflict Resolution vs Conflict Avoidance in Chinese Business Part

I: Rock and a Soft Place
I was recently asked to speak about conflict resolution between Chinese and Western counterparties in China. This is a bit of a challenge, because there really isnt any such thing as conflict
resolution in China in a traditional sense at least between Chinese and non-Chinese counterparties.. The Chinese wants Harmony, the American wants Justice. Those two principles may coexist BEFORE a business conflict exists if both sides have structured their deal carefully but
they tend to destroy one another the moment conflict arises. Harmony is soft and fluid Justice
is firm and solid.
Were going to handle this one in 3 parts. Today well look at why conflict resolution between
Chinese and Western business counter-parties seems to be so uncommon. Next time well
discuss strategies to minimize damage when you DO find yourself involved in conflict with your
Chinese counter-party. Finally, well take a look at ways to structure deals that will help avoid
conflict with Chinese partners down the road.
Why conflict resolution doesnt really work in China at least with non Chinese counterparties:
1. Its about Harmony not Justice.
Chinese dont use institutions to resolve conflicts with other Chinese. In fact, big parts of
Chinese social behavior have evolved with the implicit or explicit purpose of AVOIDING
Chinese institutions like police, courts and government structures. 2 members of a group
engaged in a conflict will usually opt to submit to a mutually respected 3rd party (old guy) or a
proto-jury (loud guys). Once the police or courts get involved, it is straight up LOSE LOSE.
Lately this is less true in the downtown sections of big cities, but traditional Chinese wisdom
states that smart people keep officialdom as far away as possible.
2.
Its
a
Guanxi
thing

youll
get
yours
on
the
flip
side.
Chinese counter-parties dont return cash or pay restitution even when they acknowledge they
are wrong. Disputes are remedied on the next deal. Yes, I see how you did get screwed here a
little. Ill get you back next time. We cool? Yeah, we cool. Cigarettes are lit, and harmony
quietly returns. This doesnt work with foreigners because you are unlikely to remain engaged
with a counter-party that has taken advantage of you.
3. Non-economic values.
Chinese counter-parties tend to focus on cash during the negotiation and non-cash benefits in
the post-negotiation. In other words, they bargain about money, but often seek their real value in
things like technology, design, contacts etc. Thats one of the reasons Westerners are often
surprised at how often Chinese actors seem to be to destroy value by screwing up a potential
long-term relationship. It may, in fact, be that the Chinese has already met his objectives when
he got your business model or new product design. To him, there is no conflict to be resolved.
They never planned on following through with the deal in the first place.

4. Its easy to fool a foreigner.

For many Chinese counter-parties, taking advantage of foreign counter-parties is still part of the
deal. This notion of you can always fool a foreigner faded briefly in the early part of the
decade, but now seems to be back in full force. Anyone who has ever been involved in a Chinese
court case can verify that even the winners lose. While you pay expensive international lawyers
and shell out for airfare and business hotels, your local counter-party is going to dinner with the
bureaucrats in charge and will be back with his family by 10 PM.
5. Another counter-party is always coming down the road. (The ballad of the bull market).
Business conflict resolution is a product of the business environment. As long as Chinese
counter-parties feel that there are 2 more potential deals waiting in the lobby, the incentive to
resolve conflicts will be uneven. He has had a Plan B since the beginning and finds it
somewhat amusing that you dont.
Ok breathe. Remember that step and repeat as necessary. Inhale, exhale. Good. Now youre
ready.
Rule 1 Its just business.
Its not personal, patriotic, nationalistic, racial, or genetic. Its just business. You need a business
solution.
2. Interests, not positions.
This old saw from Fisher, Ury & Pattens Getting To Yes is still true at it ever was, though the
Chinese applications may be a little different. About the only thing you are in control of is
whether or not you will deal with this counter-party again. But if you lose your temper or make
threats, then that option is off the table as well.
3. What do you want to happen?
Do you want cash back? Thats a tough trick to pull off in the Middle Kingdom. Are you
planning on suing? Talk to a busy lawyer first not one with time on his hands. Hell tell you
just how bad an idea that will be. Do you want justice? Meiyou. Never made it here. We got
harmony, and we got seething resentment. Which one will you have?
4) Do you know people who are able to help you?
People who are willing to help? People who need you to succeed? Get these people mobilized.
The ones who can help may very sit on the sidelines until the very last minute. Get them into the
game. This is where Chinese culture comes into play, because motivating 3rd parties to intercede
on your behalf is not simple. HINT: They are going to be very unwilling to get involved if you
are foaming at the mouth and talking about how you would like to kill those thieving bastards.
But if you are confused about the best way to resolve this unfortunate situation. (followed by
that long, long pause so common in this land) then they may take those first tentative steps.
Relying on the offices of others is by far your best option but it and it can result in you getting

dinged again if your new Chinese Rabbi turns out to be scamming you. If you get the impression
that they feel helping you is a slightly less attractive than root canal, then you are on the right
track.
5) Dont show your worst side How would you feel if your counter-party started screaming or
sobbing during a deal? Maybe hes nuts or maybe hes just a big baby but he is certainly not a
suitable counterparty. Well, thats what Chinese counter-party thinks about you when you
display anger in front of them. They dont get intimidated they think you are a sketchy
lightweight. Alternatively, dont look like a chump. Even the Chinese -who respect stoicism
need to understand that you know youve been messed with, or its going to keep happening over
and over.
Ironically, your only real choice is do you go back for more pain or not?. I know this sounds
crazy. But the fact is that there are many circumstances where your best course of action may be
doubling-down and betting again on the same hand. If you have checked out your guy and gotten
decent references AND the dispute stems from a genuine misunderstanding or a change in
environment (yes including price level changes), then dealing with this guy again might not
necessarily be nuts. If your Chinese counter-party really didnt intend to screw you over, then
this ironically is exactly where guanxi gets built. Real guanxi not the KTV toasting nonsense.
If your guy really feels that the first deal just broke bad for you but would like to make sure that
the next one treats you better then you might have a good thing going.
If, however, the phone doesnt get answered or worse the deal never moves beyond the
upfront money then you need to cut your losses and move on. Unfortunately, your troubles may
extend beyond the parties directly involved. Whoever introduced you or facilitated the deal is
also suspect. Not necessarily, but once youve been punked in public you may look like an easy
mark.
The road to long term profits is paved with good intentions.
It comes to intentions. I know that sounds counter-intuitive and it really doesnt make your
life any easier. But if a Chinese counter-party is trying to do right by you, then you have to
understand how they deal with a business disagreement. To an HONEST, 100% trustworthy
Chinese counter-party, outside circumstances and unforeseen environmental factors still
supersede your existing contract. Hell do his best but he expects you to be realistic. If his
factory burns down or a typhoon shuts down the port, he expects you to cut him some slack.
Now heres the important thing if his upstream supplier drops the ball or a raw material price
spikes, he STILL expects you to cut him some slack. Its not just HIS problem its your
problem too. Thats what guanxi means. When you get all Rambo up in his face, talking about
who drew first blood and betrayal, then he feels you are not an appropriate counterparty. This
lets him off the hook and absolves him of any and all obligations he might have otherwise felt
towards you.
Westerners with hard-won experience in Chinese negotiation structure their deals AND China
business models completely differently than newcomers do. They take longer, spend a lot more
time in the early stages, know a lot more about their counter-party and never try to force out-of-

town rules onto a Chinese game. That doesnt mean they do things the Chinese way they do it
the Smart-Westerner-in-China way.
What do smart westerners in China do differently than newcomers?
1. They are in it to win it, both during the negotiation and in the all-important post deal
phase.
Good dealmakers know that a Chinese deal isnt done until well, ever. If you have trouble, the
dispute can stretch out forever. And if things go well, then you want to hold onto that counterparty forever. Either way, you need a strong on-the-ground presence. Ideally, you are the one
building that presence. Plan B is having a China operation in place and making frequent,
regularly scheduled trips. Coming back next year or someday -is a pretty bad option.
Relying on you counter-party to manage your affairs is simply not a viable option.
2. They know that the real problems start AFTER the deal is done.
The Chinese know this as well, and if you dont then you are gong to put yourself at a severe
disadvantage. This means that you have to budget time, bandwidth and resources to manage the
post-deal renegotiation. If you plan on screaming into a phone at midnight from NY to fix things,
you are just plotting your own destruction. This is how minor issues can turn into major conflicts
during a cross-border transaction. If your Chinese counter-party knows that you are showing up
in an hour then your situation is going to be pretty high on his list of priorities. Maybe. But if you
are emailing or staying up late to phone it in, then there are lots of other things he can be doing
with his time and energy.
3) They find a partner to match their deal needs they dont find a deal to match the
partner they have.
Yeah, I know that opportunities change and you have to be flexible. But you should be coming to
China to solve a specific business problem, and you need a partner who can fill in the gaps of
your business model not reinforce your own strengths. A big problem in China is that some
newcomers get match-made with the wrong partner and then they use their skills and energy
trying to turn his deal into the right one. Do the due diligence and make sure that your partner
has the right level of integrity, competence and organization. If he doesnt dont try to force it.
Conversely, you have to be the right partner to him. Chinese feel that they can negotiate
profitable relationships from the start no matter how long it takes. Americans are the ones who
believe in building trust over time and many small transactions. You take up a long stretch of
your Chinese counter-partys time and energy and then give him a piddling test order when
he expects a big deal. This has the potential to make him look bad in front of his people and
makes it seem that you are taking advantage of him. Thats why experienced deal-makers discuss
the relationship that they are going to have during those long nights of guanxi-building toasting
and singing. Tip: Try to align your expectations early. He may define success completely
differently and may see you as untrustworthy because you dont trust him.

4) Compensation has to be smart and fair.

Be sensitive to how quickly the balance of power can shift in a cross-border deal. He needs you a
lot up until the moment that the funds are injected or the assets are transferred. Once that
happens, the whole balance of power shifts and suddenly you are more valuable as a pissed-off
ex-partner than as a satisfied real partner. If you want your Chinese counter-party to have a good
reason to trust you and protect your interests then he has to A) want a long term deal and B) have
good reason to expect a rising payout.
If you plan on finding a new counter-party or setting up your own independent operation as soon
as the business grows by 25%, then hes looking at a dwindling business and a new foreign
competitor after showing you the business and working through the hard parts. If you think hes
not going to be able to do that kind of math on his own, you are just wrong. On the other hand, if
this guys numbers back up the notion that his business with you will be rising by 50% a year for
the next few years, then you just may have the beginning of a beautiful partnership. There are
only 3 ways to really understand what his goals are: You can guess; you can assume that both of
your goals are the same; or you can ask him how he sees the world. The third option is the only
one that makes sense to the Old Hands.
5) The environment has to be right.
I dont care how good you connections are you are not changing Chinese. Likewise, no matter
how skillful or experienced your guy is, he cant change the GDP level or affect the savings rate.
If all the planets align and you have the right partner and the right business model then you
have the potential for a great deal. But if youre missing something big or worse have
something wrong, then nothing is gong to come together. Starting up a business in China because
you think youll lose less money than opening in NY is dumb. You dont want to be right at the
wrong time.
Sursa:
http://www.chinesenegotiation.com/conflict-management-and-china/conflict-avoidance-vsconflict-resolution-in-china-part-iii-structuring-better-china-deals/

Conflicting Deal Cycles: A New York Minute vs. a Chinese Lifetime

I was recently asked to look at a deal in progress between a US service provider and the local
government of third-tier Chinese city. The US side was feeling the pain of recession so they were
initially excited by the prospect of a big contract but their first foray in Chinese negotiation
was nerve-wracking and draining. They were describing progress they had made after four
months of email negotiation and one visit to the Chinese hinterlands with phrases like scam,
backwards and funny business, so I was curious to get a feel for what was happening. I ran
through a set of standard questions and then I gave the American management team my
assessment:
I cant be sure, but it doesnt sound like you are being ripped off. In fact, it seems like things are
going pretty smoothly. When I told them that they were on track for another 6 months or so of
similar successes before they could expect a solid agreement, they didnt look happy.
New York has its own special style of deal-making during the best of times, but the economic
situation is wearing people down and making them even more impatient and just a bit desperate.
Not only do we hate wasting time, but we always want to know exactly where we stand. We
respect decisive, straight-forward counter-parties who can give us a clear yes or no. If that means
doing a few small test deals to work out the kinks and test the waters, then so be it.
This contrasts with the Chinese style of building life-long relationships that yield profitable
transactions when the time is right. Like a winding mountain stream that eventually leads to the
ocean, Chinese deals are rarely direct or efficient and arent meant to be. If a potential partner
has any character flaws or quirks it is best to find out before there is a fortune at stake. If it takes
a long series of meetings over many months to get comfortable with one another, then so be it.
In the old days (2006) there was a safety valve built in to US-Chinese negotiations called
cultural barriers. When China was a strange, undiscovered territory for US service providers
and Chinese SMEs (small & medium sized enterprise) wouldnt dream of initiating deals in
America interaction between the two sides was regarded as exotic, specialized and just a little
dangerous. People may not have known exactly what they were getting into but they knew that
they were getting into something that was at least a little over their head. Nowadays there is so
much press about the difficulty of doing business in China that people think they are forewarned
and forearmed about the dangers.
What perils lay in the distant gloom: Lions and tigers and bears or the Bermuda
triangle?
Its not enough to be cautious and circumspect you have to know what to be afraid of. New
Yorker bravado has been an empty joke since Mayor Dinkins started cleaning up the streets in
1990 (yeah you heard me. Dinkins) and reading a few wise-ass articles in the Times about
Shenzhen factory conditions does NOT count as cross-cultural training. Americans in general
but the hard-driving New Yorkers in particular need to keep their eyes open during their first
couple of China deals.

Rules for New Yorkers negotiating their first China deal:

1. Time and scheduling
It will take a very, very long time. Funny story trying to rush the timetable will only delay
things further as your local counter-parties get nervous and start adding people and extra
meetings to try to appease you. Being a type A, table-banging, no-nonsense hard guy doesnt
impress your Chinese counter-parties and handlers. In fact, to them it looks like you are having a
hissy-fit. Yup. Youre not The Donald youre the brat who has to turn off Sponge Bob. If
you are buying you can move things along a bit, but if you are selling or partnering, Id be
concerned if your negotiation took LESS than 6 months.
2. Truth and Honesty
They think they are being polite by telling you what you want to hear. New Yorkers do the same,
but instead of them saying, What a cute baby or you look great in those jeans they are
saying, well wire the money within 60 days or it looks like we have a deal. They are
surprised you took them seriously. Not impressed just surprised. If you want to avoid the worst
of the overly polite double-talk, arrange for your own translators and spend an hour discussing
background and procedures with them BEFORE your meetings. If you rely on the other side to
provide translation services then you are putting yourself at their mercy. And no not everyone
in China speaks English. Its pretty much a given that your key decision-maker doesnt at least
not with you.
3. Dim lights, dusty city.
If the Chinese are calling you, it probably wont be from Shanghai or Beijing. Those people have
already got a supply chain and service providers they know. Most of the exciting stuff is
happening out in 3rd tier cities deep in Chinas interior. For New Yorkers, that would be like
Syracuse NY or Allentown PA except in China they have 7 million people and tons of
government stimulus money. Expect to take a little plane from Beijing direct to the middle of
nowhere, and then drive for 6 hours. Dont panic but yeah, you are off the map with no way of
getting home and no one knows where you are and no one understands a word you say. Believe
it or not, youre completely safe.
4. Effort doesnt count.
If you are in the countryside, dont joke about how bad the roads are. In the cities, dont
complain about the traffic or crowds. Dont whine about how hard it is to get there or the lack of
5 star accommodations. You know how that guy from Texas sounds like when he talks about the
sky-scrapers blocking the sun in mid-town Manhattan? Well thats you in China. This is their
home. Its not quaint or exotic. Its where their parents grew up and where their children will
probably grow old. They are not impressed that you are deigning them with your presence. If
your negotiation goes well, you should plan on being there at least twice a year for the duration
of your relationship. Make it clear to them that you understand that and are happy about it.
5. A little goes a little way.

Its nice that you can say ni-hao and use chopsticks. And yeah, in the sticks they will flatter you
and tell you how good your Chinese is. Smile, laugh, and be friendly. But dont think that you
are done. Real compromise with a Chinese counter-party is a huge commitment. If you arent
prepared to add manpower, put in the travel time and change your operating procedure to
accommodate this new business, then you should think twice about starting the negotiation. A
China operation isnt like a fern that you water twice a week. Its like a relationship that will sour
and turn on you if you neglect it.
Sursa: http://www.chinesenegotiation.com/2010/08/conflicting-deal-cycles-a-new-york-minutevs-a-chinese-lifetime/