In this second part of our Guidelines for business in China we will analyze and provide advice for two very specific aspects that are crucial for the outcome of the negotiation and the success of our business or project in China.
1) Practical and cultural aspects when negotiating with Chinese business partners
The most common mistake made by foreign companies when starting the development of a business project in China is to underestimate the enormous differences between China and other countries.
China is different. A world apart and in many ways featured by unparalleled complexity and unique distinctive peculiarities. And now, more than ever, there is no room for improvisation in this market. Not understanding this or not taking it into account means losing the battle beforehand in any project that is started in China.
Doing business in China and negotiating contracts are obviously not an exception. Certain features, formalities, common places and specific ceremonies do usually need to be followed to take any negotiation to a successful outcome.
This kind of peculiarities are often not well-known by foreign companies and their representatives when they start doing business in China and begin negotiating with a Chinese partner. For that reason, there are a few aspects to consider beforehand, which will help to ease the negotiation and result in a better mutual understanding, bridging the cultural differences.
- Knowing your counterpart. One should always learn more about the counterparty before starting the face-to-face negotiation. Research on the potential partner´s background must always be done through online channels but also through partners on the ground.
- Kindly contact and stress out the cooperation purpose. In China's business environment, formalities are extremely important. One must begin by writing an email to the counterparty with a kind tone, making a brief introduction and describing the main purpose and contents of the situation before proposing face-to-face negotiation.
- Small talk. If as a foreign company you are going to meet up face-to-face with the potential business partner, according to the Chinese culture, a good beginning always comes with food. It is advised to initiate a small talk to warm up the negotiation for a few minutes before food is served. This will make Chinese partners feel closer and will ease the path to get into proper business negotiation later during or after dinner.
- Describe the cooperation plan in detail. A detailed description of the cooperation intention, cooperation procedure and cooperation content should be made, while potential questions that the partner may raise should be expected and prepared in advance. One should always keep in mind that, especially in China, it is all about gaining trust.
- Provide flexible methods of quotation. Generally, the quotation of goods is the point of highest concern for Chinese partners during the negotiation. Therefore, foreign companies should convey to their Chinese counterparts their willingness to apply special discounts to ease the agreement. For example, the quotation may be provided first, but with a kind reminder that it can be adjusted based on actual needs. Equally, if the sale volume is large, a "package price" can be offered as most Chinese entities prefer it this way. For large purchases, in practice, the buyer will not purchase a large volume at first. Thus, the possibility to grant certain discounts may be proposed for future deals.
2) Chinese legal contract practice particularities: making a contract valid under China application regulations
There are a few particularities of Chinese contractual practice and legal system that must be duly considered when entering into a contract with a Chinese company. Bearing that in mind will allow EU SMEs to effectively protect and secure the validity and enforceability of the contract.
- Chop: The contract must be chopped with the official corporate chop of the Chinese entity. Chinese chops have standardised elements such as a circular shape, red ink, and a star in the middle, as shown in the examples to the right. Chops in other shapes and colours (with some exceptions) do not have any legal value in China.
- Chinese names: It is essential to include the Chinese name (in Chinese characters) of the potential business partner in the contract. English names of Chinese companies are not official and tend to be made up.
- Original version: always obtain and keep the original version of the contract duly signed and chopped by both parties.
- Bilingual agreement: even if not required, bilingual agreements (Chinese + foreign language) are highly recommended to avoid further misunderstanding and drawbacks.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.