Chinese culture and negotiation: the real contract is the relationship

Happy to put this way of the cross behind us, here we are in the boardroom exchanging business cards, gifts, handshakes and group photos. Even the business forecasts, resting on the vast potential of the world's most dynamic market, now look like a 'cat in the bag' with the signed contract.

Those who have already gone through the first stages of launching a business in China already know how this story ends: after the elation, often comes... the shock!

A short time has passed, and already our Chinese partners are trying to challenge one or more clauses of the sacrosanct contract.

But how is this possible? Did we choose the wrong partner? Were we screwed?

The project of the year suddenly looks like a pile of papers strewn on the floor.

What do we tell the shareholders now? Panic, disappointment, regret.

This case happened to me three times.

However, I had the great fortune, during my first experience, to read Business Journey to the East by Cho Hou Wee and Fred Combe, a small but valuable handbook on the cultural differences between East and West.

It made me realise a fundamental concept of doing business in China: the sequence in which business relationships are built is diametrically opposed to ours.

Let us take a step back.

China was already a huge, prosperous empire united by culture and trade when we were still busy founding Rome.

Over the centuries, the Chinese have managed to integrate themselves into almost all Asian geographies thanks to their ability to travel and do business.

Trade was not the consequence of imperialistic conquest, but the primary motivation for pushing beyond the horizon.

The second key concept is that of the Guanxi - already mentioned several times in this column - which can be summarised as the ability to create and maintain strong relationships, combined with the breadth and quality of one's social network.

The importance of the legal framework, in this context, is much less than that of Guanxi. A difficult concept for us Westerners, children of a civilisation that invented jurisprudence, to grasp.

In China, the need for a contract weighs less heavily than the ability to really trust a person, to assess his reputation and to be able to rely on his 'face'.

Let us return to our case.

What does this 'restarting' of negotiations mean? A betrayal? A breakthrough? Not at all: it's quite the opposite. It means that we are really in business, that we are trusted, and that we can finally start doing business... that is, negotiating!

Spending evenings eating and drinking together in Asia has precisely this purpose: to get to know each other better, even in an informal and relaxed way, to start building mutual trust.

What about the contract, then? For us, it is an instrument that must frame everything, provide for everything, delimit every aspect of the relationship. For the Chinese, on the other hand, it is an information base from which the business relationship evolves.

In summary, the Chinese sequence can be described as follows:

1. Let's get to know each other

2. Let's get the business going.

3. Then, maybe, we put it all down on paper.

While the Western sequence sounds something like this:

1. We negotiate the contract.

2. Let's get the business going.

3. And, along the way, we will develop - perhaps - a more personal relationship.

I wrote 'Chinese' and not 'Asian' because this sequence varies a lot in the rest of Asia, not so much in the order as in the way it manifests itself.

But the most important learning remains this: in China, once the contract is signed, the work really begins (and often, the stakes are higher because of the enormity of the market).

How to react, then?

First of all, understanding the diversity of ethos helps not to feel betrayed and to avoid potentially harmful instinctive reactions. For me, the greatest learning in multicultural settings is always, rather than deciphering the ways of others, to consider how I react in a new context.

It also allows a clearer assessment of the roots and impact of new demands. Sometimes they are due to legal changes - frequent in China - or simply to the desire of the partner, or someone in his team, to get something more.

The Chinese counterpart often understands our culture better than we understand theirs. It is therefore perfectly acceptable to say... no.

But there is no point in appealing to the contract: in fact, it would be counterproductive. The probably most effective reaction is to join the dance, accept the game and ask for something in return. Something proportionate, something that can enrich the partnership, or, if necessary, something deliberately unacceptable, if the new request is.

It is an exercise in commercial creativity that not only saves the project but can even make it grow.

After all, in China the real contract is not the one signed on paper, but the one that is built day by day in the relationship. That is where the business really starts.

*Beauty & luxury business executive, board member Babe Invest