Legal Skills in Business Negotiations Under Chinese Culture
2017/2/17 14:16:33 点击率 评论
In business negotiations, an emphasis is put on respect for rules and meticulous attention to skills, and there is therefore a pattern to follow. However, although in business negotiations much attention is given to external appearances, such as clothing, manners, etiquette and body language, it is far from a show, and it also requires presence of strength and meticulous preparation in advance. With an understanding of the pith of this article and continual honing of the skills in practice, our abilities in business negotiations can be effectively improved, enabling us to fully leverage our negotiating power while reversing our weaknesses to our advantage.
1. Core Significance of Business Negotiations
Through the process of business negotiation, each party aims to have the counterparty accept its requirements to a maximum extent, and to pave the way for future successful implementation. In business negotiations, each party not only should focus on the negotiation itself, i.e. to have the counterparty accept one's own requirements to a maximum extent, but also consider whether the agreements so reached could be implemented successfully. If a party merely focus on the negotiation itself, and unreasonable requirements are forced down the throat of the counterparty, the first party risks of making both parties unhappy, and successful implementation unlikely. In sum, in business negotiations, the parties need to consider and balance the following two parts:
1） maximize favorable results from the negotiation; and
2） maintain amity for the benefit of future implementation.
2. Basic Tenets in Business Negotiations
1） Pursue reasonable goals and achieve win-win
Negotiation delivers no panacea, and care should be taken when attempting to achieve a goal which is impossible in reality. The primary issue in business negotiations is to set up reasonable goals, and before commencing a negotiation, the parties should tentatively set up reasonable goals and continually fine-tune those goals as the negotiation progresses and new development arises. Three main tests are available to measure whether a goal is reasonable: the first is whether the goal truly reflects a party's deal-making strength and negotiating power; the second is whether the goal will make the deal profitable for the counterparty, and the third is whether the goal will cause one's own party to make continual concessions. Naturally, different counterparties have differing expectations for the negotiation, and the degree to which a goal reflects a party's deal-making strengths and negotiating powers also varies. Those measurements are therefore flexible, subject to adjustment depending on the negotiation itself and the counterparty at the negotiation table.
The purpose of business negotiations is to convert one's deal-making strengths and superior negotiating power into concrete business interests to a maximum extent, and the goals of negotiation therefore must reflect those strengths and powers to the fullest degree possible. But on the other hand, the goals should not be divorced from those strengths and powers, and should not be impracticable. If the goals are set too low, a party will not gain the benefits that are due it, while if the goals are overambitious, a party would not be able to achieve them, and may also in the process damage the amity between the parties, and fail in the negotiation, or even if the negotiation turns out to be a success, the strained amity and trust between the parties will cause problems to crop up in future implementation. Therefore, a reasonable goal should properly reflect one's deal-making strength and negotiating power from both sides of the coin.
Make the deal profitable for the counterparty so that the counterparty will treat and carry on the negotiation seriously. If the deal is unprofitable for the counterparty, the counterparty will not negotiate seriously, and may even close the doors of negotiation, whereby also closing off any means available to the first party for achieving its goals. Therefore, reasonable goals are necessarily goals that make the deal profitable for the counterparty.
If a party sets overambitious goals, it not only may cause a break off in the negotiation, but also may cause itself to make continual concessions. Continuous concession on a party's own part may arouse in the counterparty an undue expectation for more concessions to come, and the party may be rendered unable to defend its bottom lines as the counterparty believes there is still room for more give and take. Therefore, in setting reasonable goals, a party not only should consider maximization of its interests, but also avoid making continual concessions.
There should not be only one reasonable goal, instead there should be a high mark goal, a satisfactory goal and a low mark goal, which are subject to adjustment with the progress of the negotiation depending on the negotiation and the counterparty. A high mark goal is the best case scenario, i.e. the best outcome that might come from the negotiation, and it is an outcome that is within one's reach. A satisfactory goal is a normal outcome that may be achieved through negotiation, and one is satisfied with such a result. The low mark goal represents the so-called bottom line, i.e. a minimal result that should be achieved, beyond which the negotiation could go no further. While sorting out those three goals, one must also think of ideas or reasons that help justify a progressive retreat from the high-mark goal to the low mark goal. A proper justification for making concessions will serve to satisfy the counterparty while deterring it from making further demands for concessions. Conversely, making concessions without cause or with a poor justification will leave a bad impression on the counterparty that one's price is exorbitant, and the counterparty may be tempted to set undue expectations for further concessions, and the parties may starting deal blows at each other, and worse yet, it may cause the parties to break off negotiation and go separate ways.
In business negotiations, we oftentimes hear grumblings that “it is so unfair,” and this phrase has come so far as to have become a slang used in business negotiations. Then what is “fair” in the context of business negotiations? Fairness should be measured against the deal-making strength and the negotiating power of the parties, and it is not equality or equivalence in the common sense of the word. Win-win is a result where both parties achieve results that are due them based on their respective strength, and it is not the same result. In actuality, it is impossible to achieve the same result. However, by necessity, a deal has to be closed by two or even more parties, and a party cannot close a deal on its own. Therefore, even if a party has overwhelming advantage, it needs to care about the interests of, and make the deal profitable for, the counterparty.
We should note that a party's strength works both ways, on the constructive side, it creates value, and on the deconstructive side, it prevents losses. Nearly all strengths, whoever the party may be, cut both ways, even for the party in a stronger position. It is only that a strong party's strength is seldom used destructively in business negotiations, and such use tends to be neglected. The deconstructive use is also of importance to the party in power. If the party in power clearly sets its goals as achieving greater benefits, then so long as the counterparty prevents such goal from being achieved, the counterparty succeeds in the negotiation. In this way, the roles of the parties are reversed psychologically, and it is the party in power that will appear to be hamstrung and at its wit's end. In this case, the party in power should consider deconstructive use of its strength, i.e. we could wreck greater havoc, we are in a position to lose, and the counterparty is not, so that the party out of power is made to adjust its attitude, and move the negotiation forward.
2） Maintain amity, and let the counterparty save face and have something to report back on
Maintaining amity between the parties will not only help facilitate a successful negotiation, but also help future implementation. Therefore, when attempting to achieve goals that reflect one's strength and power, one should also care about the feelings of the counterparty, so that whilst achieving one's goals, amity is also maintained. Even if a round of negotiation does not turn out successfully, don't let the negotiations break off, and don't let it ruin amity between the parties, so that another person from one's own organization still has a chance to repair and to renegotiate. To this end, the negotiators should practice the following:
（1） whatever attitude the counterparty may take, always act respectfully without being servile or overbearing.
（2） don't coerce or threaten the counterparty even if one is in a stronger position.
（3） satisfy the most basic business needs of the counterparty. If the counterparty gains nothing from the negotiation, it would act without fear, as is the case with no gains no losses. Therefore, in business negotiations, at a minimum, the most basic needs of the counterparty should be satisfied.
（4） satisfy the negotiators of the counterparty that they have obtained the maximum interest so that they would not be reprimanded by their superior for not having made an effort. All companies, big or small, are represented by individual human beings. Although the negotiation is between two companies, intermixed in the hodgepodge of haggling are the personal feelings and interest of those participating in the negotiation on behalf of the parties, the most important of which is the career interests of the negotiators, that is to say, no matter how the negotiation turns out, the negotiators must have something to report back on, and to prove to their superior that they have really made an effort, and have obtained the maximum interest it could possibly get from the negotiation. Otherwise, the superior may reprimand and accuse them of incompetency and their careers would be adversely affected. Particularly, care should be taken not to have the negotiators on the other side of the table feel that were their boss here, there would be a better outcome. Once such feelings are aroused, experienced negotiators on the other side of the table would not easily concede to one's requests.
（5） Don't fight senselessly for an answer to who is right or wrong. Care should be taken when pointing out mistakes of the counterparty, and never ever accuse or mock the counterparty for having made a mistake. In business negotiations, it is not that the one in the right is followed, nor is that the one with justification has an upper hand. The purpose of business negotiations is not to prove one is right and the counterparty is wrong, rather it is to achieve a favorable outcome for one's own side. Senselessly haggling about who is right or who is wrong not only does not help, but also affects amity between the parties. If pointing out a mistake of the counterparty would truly be of service to one's own side, then do it, but with ample caution. The first thing to make sure is that has the counterparty truly made a mistake? Secondly, do point it out with tact, and have the counterparty believe one harbors no ill will, and one is doing so solely for the purpose of moving the negotiation forward. Finally, never ever accuse or mock the counterparty for having made a mistake. Amity must be maintained if the parties desire to continue the negotiation. If the negotiation succeeds, the parties also need to maintain amity, even if solely for future smooth implementation, and avoid succeeding at the expense of personal amity. If the negotiation breaks down, there is no need to hurl random accusations at the counterparty as it helps nothing, and may even make the enmity go deeper, and make the going tough for any other person from one's own organization who may be appointed to salvage the negotiation. In sum, if one messes this up and makes the counterparty lose face, the counterparty might immediately launch a counterattack in the negotiation, even generally making it troublesome. Business negotiation will thus deteriorate into personal vendetta, and making any progress difficult.
3） Whatever position one may have in the negotiation, one should take a lead and pitch oneself against the big and powerful.
One of the fundamental ideas of dialectical materialism is that “difference in the sequence of spatial arrangements of a matter can lead to qualitative changes.” A party in a weaker negotiating position can do nothing to change it. Then if it aggravates it by following along with the counterparty's train of thoughts, it is basically impossible to achieve a result that reflects its level of strength. However, the stronger position of the party with more negotiating power is accompanied with greater opportunity costs. Success in the negotiation will bring it greater benefit, and likewise, failure will wreck greater havoc, even more so than for the party in a weaker position. Conversely, the party in a weaker position has less expectation, success in the negotiation will bring it less benefit, and failure will cause less losses. Therefore, in terms of opportunity cost, for the party with more negotiating power, its stronger position becomes its weakness, and for the party with less negotiating power, its weaker position becomes its strength. Furthermore, no matter how strong the position might be, the party with stronger negotiating power also has points of weaknesses. If the party with less negotiating power could take a lead in the negotiation, and by always focusing the light on the opportunity costs and weakness of the stronger party so that the stronger party's attention is directed towards its own weaknesses and losses that might arise from failed negotiation, the stronger party would not doggedly pursue unreasonable goals by virtue of its stronger position, and would instead consider making due concessions to the weaker party.
Therefore, the weaker party should find ways to take the lead in the negotiation, and have the stronger party follow along the lines of its thoughts and standards, while highlighting the opportunity costs and weakness of the stronger party, so as to change the direction of the power based negotiation, and turn the table in its own favor, and achieve outcomes greater than what is warranted by its own strength. This is like shifting the sequence of spatial arrangements of a matter, and although the matter itself remains as before, a qualitative change has taken place.
4） To fight and to fight not, vice versa, one is the end, and the other is the means to the end
In business negotiations, it is easy to voice one's requirements to the counterparty, however it is more difficult to explain one's reasons that the counterparty should accept one's requirements. The stronger party often feels that it is plain as day: I am stronger, and naturally you should accept my requirements, while the weaker party frequently feels that the counterparty is stronger, why should I ask him/her to accept my requirements. Only God knows that in business negotiations it is like playing cards, the party with the good cards would not necessarily win the day, and the party with the bad cards would not necessarily lose. It may well be that the outcome of card playing never fully reflect the goodness or badness of the cards of the players. Strength and power is one thing, and how to use this power and relevant factors to convince the counterparty is another thing.
To fight and to fight not, vice versa, one is the end, the other is the means to the end. This is the methodology of persuasion. In a short comedy show titled “Sale of Wheelchair” featuring Zhao Benshan and Fan Wei, two famous Chinese comedians, a typical instance of such persuasion takes place in the scene where Zhao Benshan asks Fan Wei to lift his feet off the ground, and Fan Wei voluntarily seats himself in the wheelchair. In this scene, the goal of Zhao Benshan is to have Fan Wei voluntarily seat himself in the wheelchair, however, the means he uses to achieve this end is not by rhetorically persuading Fan Wei how good it is to sit in the wheelchair, let alone telling Fan Wei forthright to sit in the wheelchair if he wants to continue. The first thing that Zhao Benshan does is to take Fan Wei to a place where there is nowhere to sit except in the wheelchair. Then, Zhao Benshan provokes Fan Wei so that Fan Wei unconsciously fights to defend his intellects, and defend along the lines and standards dictated by Zhao Benshan. As a last measure, Zhao Benshan says casually “lift your feet off the ground.” At this cue, Fan Wei naturally seats himself in the wheelchair. If we go one step further, we will find that what Fan Wei accepts is not the idea of “sit in the wheelchair,” rather “it is only natural to sit in the wheelchair under such circumstance.” In business negotiations, to ask the counterparty to accept one's demands is like directly asking Fan Wei to sit in the wheelchair, and to ask the counterparty to accept the backgrounds to one's requests is like asking Fan Wei to lift his feet off the ground. In comparison, the latter method is gentler and more humane, and would be more easily accepted.
5） Be adequately prepared
Business negotiation is far from being a simple contest of strength and power, as such, the parties should prepare themselves fully, and work to achieve favorable outcomes. No matter how strong a party may be, it should make meticulous preparations and exercise caution and care. No matter how weak a party may be, it should prepare carefully and never call it quits. In addition, in business negotiations, no speech or action is isolated, and any one of them may plunge a party into passive submission. Don't expect in any negotiation that results will be achieved in one go and the parties will soon reach agreement. Therefore, care should be taken to avoid commencing any negotiation unconsciously. Don't rush into negotiation, and don't even send an e-mail, before making a thorough survey of the background and finalizing an overall strategy. Otherwise, one may start out badly without any hope of turning the tide, or may leave evidence adverse to its position, and suffer involuntary beatings. To be more specific, before going into negotiation, one should make the following adequate preparations at least:
（1） Learn and acquire background information
Background information includes basic information of the parties, and all information that becomes available during the first contact between the parties on the subject matter of the negotiation. A good understanding of the background information will help avoid saying anything untoward during the negotiation, and prevent a party from overlooking any circumstance that is favorable to it. The most important background information is any divergence and disagreement between the parties and the causes thereof, which is also the core underlying any negotiation. In addition, each party should know the basics of itself and the counterparty, which will help it understand relevant factors, including the parties' difference in values.
（2） Understand relevant laws, regulations and precedents
Relevant laws and regulations mean legal stipulations and precedents in the areas of laws, regulations, rules, government orders, judicial interpretations etc. at each level of the governmental hierarchy. This will help give an idea about the legal nature of the subject matter of the negotiation as well as consequences of any potential litigation or arbitration, and it will also help define fundamental strategies to pursue in the negotiation, such as whether one should go out of its way to secure a successful negotiation, or whether it could make concessions, and how to make concessions. In addition, it can help chisel out a clear and rigid framework for the business negotiation and avoid wasting time in negotiating outside the framework or agreeing to something outside the framework that cannot be enforced.
（3） Understand administrative regulation
Administrative regulation refers to the relevant rules and regulations of competent governmental authorities that the subject matter of the negotiation should observe. In China, administrative regulation is subject to a great degree of flexibility, and it varies from place to place and from case to case. Take license for instance, there are primarily two types of licenses, i.e. licenses that a company must have as a legal entity, and licenses that are required for production and marketing of specific products. A pharmaceutical company, for example, first has to have a pharmaceutical production license, and then when it produces a specific medicine, each medicine must have a permit No For a company that manufactures fire-fighting products, the license for each product must also indicate the identity of the “manufacturer” and “producer” as well as the address of the “producer”. A negotiator must clearly understand such administrative regulation.
（4） Understand the industry conditions
Industry conditions refer to the basic conditions of the industry to which the subject matter of the negotiation relates, such as the oil production success rate, daily production quantity, international crude oil price and production costs mentioned in Case 3 below. As shown in the case, an understanding of the industry conditions helps move the negotiation forward and achieve favorable outcomes from the negotiation.
（5） Understand the specific business process
Specific business process refers to the specific arrangements of each party for its production and operations in accordance with relevant laws, regulations, administrative regulation, industry conditions and other relevant factors. The specific business process of a party can affect the business negotiation. For instance, each investment bank generally has an investment committee, and investment into target companies is subject to prior review by the investment committee, and only after obtaining sign-off from the investment committee would an investment bank agree to execute an agreement. Even if the project manager of the investment bank is prepared to agree to the conditions of the target company, however if he/she is worried about sign-off by the investment committee, he/she would not easily make any commitment. Conversely, project managers of investment banks often refuse to accept a target company's conditions on the ground that such conditions could not be signed off and approved by the investment committee. Therefore, negotiators not only need to understand the business process of its own company, but also understand the business process of the counterparty, to avoid being requested to accept unreasonable conditions by the counterparty under the pretext of the counterparty's business processes.
Relatively speaking, listed companies have more stringent and systematic business processes than unlisted companies, foreign invested companies and state-owned companies have more stringent and systematic business processes than privately run companies, and big companies （especially multinational companies） have more stringent and systematic business processes than smaller companies. Therefore, before the negotiation commences, the negotiators of privately run companies and small companies must “casually” let the counterparty understand that unlike other privately run companies and small companies, the negotiators' company has systematic and stringent business processes which must be considered in the negotiation as those business processes are restrictive, and the counterparty should duly consider whether the negotiators of such privately run companies and smallcompanieshave something to report back on, and in this way the negotiators may achieve a better outcome.
（6） Understand the parties' common interest, points of individual interest and conflict of interest
Common interest refers to common goals that the parties wish to achieve, or the status quo that the parties wish to maintain, through the negotiation. In business negotiations, common interests are often those interests where both parties benefit from a successful negotiation and both suffer from a failed negotiation. The more similarly the partiesbenefit （or suffer） from the success （or failure） of a negotiation, the more common interests there are between the parties. If the benefits （or losses） of the parties are vastly different so that one party intends to coerce the counterparty by virtue of such difference, the parties basically have no common interest. The existence of common interest between the parties will have an important effect on the success or failure of a negotiation. If the parties have common interest, both parties will benefit from a successful negotiation or suffer from a failed negotiation, more or less equally. Thus, the parties are psychologically balanced and both will act with scruples of conscience and temperance towards the other, and success in the negotiations will be around the corner. To the contrary, if the parties lack common interest, not both parties will benefit （or suffer） from the success in negotiations, or their benefits （or losses） are vastly different. Then, there must be one party who will act without scruples, either launches massive attacks or act without fear for death, and the result would be disastrous for both parties, let alone success in the negotiation.
Each party's points of individualinterest refer to results that each party wishes to achieve, or the achievements that it wishes to maintain, through negotiation. Throughout business negotiations, negotiators should always bear in mind the points of interest of its own company and the counterparty, and use negotiation strategies focusing on those points of interest and endeavor to realize the most important interests one after the other. In business negotiations, each party normally has many points of interest, some of which are very important and some are not, some could be used as a bargaining tool as necessary, while some absolutely should not be given up. Those points of interest can also be classified as constructive and deconstructive, i.e. those that one does not yet have but striving to have through negotiation, and those that one already has but not to be lost during the negotiation. The points of interest vary from company to company, and each company emphasizes the constructive or deconstructive interests differently. Negotiators must fully understand the points of interests of its own company and the counterparty in advance, and should take them into due consideration when formulatingand using negotiation strategies.
Conflict of interest means the parties have opposing points of interests, i.e. a zero sum situation where when one party wins one point, the other party loses one point, and when one party wins two points, the other party loses two points. In business negotiations, such conflict of interest is the most difficult to manage. If there is a messup, the parties inevitably become hostile, and may ultimately break up with each other, or both may suffer heavy blows.
In addition, it should be noted that different entities may have different points of interest in respect of the same matter. For instance, in a share acquisition deal, the financial investor has points of interests vastly different from the strategic investor. In the context of share acquisition, a financial investor is an investor who aims to secure economic returns through the investment, and will cash out in due time. A financial investor focuses more on short-term gains, and does not care much about the long term growth of the company. While on the other hand, a strategic investor has superior technology, management, marketing, human resources, and its finances are healthy and sound, and it is committed to hold the target company's shares for the long run and aims to secure long term economic returns. Venture capital, hedge funds and investment banks are typical financial investors. A financial investor generally does not appoint a director to the board of the target company, nor doesit participate in the operations and management, and it only provides financial support, however it cares about factors important to the success or failure of its investment, such as compliance of, preparation of business plans and profit distribution for, the target company etc On the other hand, a strategic investor cares most about control of the target company.
（7） Understand the parties' difference in values
Values mean the parties' respective viewpoints and requirements with regard to the subject matter of the negotiation. Difference in values may help move the negotiation forward, and it may also hinder the progress. An understanding of such difference will help one understand the points of divergence in opinion and the points of interest of both itself and the counterparty, and in addition, it also helps a party understand the goals the counterparty is after and help clear any misunderstanding between the parties and move the negotiation forward towards a win-win outcome. For instance, all multinational companies use project companies to hold and operate specific investment projects. Further, a multinational company may need to substitute its current project company with another for the purpose of capital management, and thus, it often requests to have a provision in the contract to the effect that the signing party （the project company） may unilaterally assign its rights and obligations, even the entire contract, to an affiliate without consent of the counterparty. If the counterparty does not understand the capital management needs of a multinational company, it may feel resentment towards such a requirement, and such resentment may even threaten amity between the parties and harm the negotiation process. If the counterparty understands such needs, it will be able to face it with calmness and equanimity, and ask the multinational to consider ways to control risks to the counterparty, which is only reasonable considering that the project company is often a shell company with little capital, sometimes with just one dollar of capital. If the multinational company considers this request, then the risks will naturally be contained, and if the multinational company does not or could not consider this request, the counterparty would be justified to reject the multinational company's request without harming amity between the parties. Conversely, a multinational company should explain that its request is not fabricated out of thin air, and is required for capital management purpose, in this way the multinational company could avoid any misunderstanding by the counterparty that the multinational company is intimidating it by dint of its strength. In sum, never regard it along the lines of equality, otherwise, it may make both parties unhappy, and harm amity between the parties as well as the negotiation process.
（8） Understand the parties' negotiating position
Negotiating position refers to the place the parties respectively occupy in the negotiation, and it is a question of who is asking favor from whom. An understanding of the parties' respective negotiating position is not only a matter of evaluating the relative strength and weakness of the parties in the negotiations, it is more about preparing an appropriate negotiation strategy. As shown in Case 4 below, buyer's counsel does not know that its client is buying a commodity house at a thirty percent discount and the seller could easily sell it to anybody at the priceand does not care whatsoever whether the parties make the deal. In this case, the buyer's counsel still requests the seller to give a written undertaking not tocall on the deposit, such request is naturally inappropriate. Parties in different negotiating positions should use different negotiation strategies. However, only with a full understanding of the respective negotiating positions of the parties could a tailored and proper negotiation strategy be worked out.
Conversely, even if a party is in a stronger negotiating position, if it does not understand that such superior position may incense the counterparty, and goes pointblank and makes an unreasonable demand instead of compensating for this inherent disadvantage due to its superior position, the negotiators representing the counterparty would be aroused to resist the request adamantly, whereby hindering progress in the negotiation.
Many factors affect the parties' negotiating position, but the main factors are:
（i） the degree to which each party benefits from successful negotiation. The party who benefits more from successful negotiation is in a weaker negotiating position, and the party who benefits less from successful negotiation is in a stronger negotiating position.
（ii） the degree to which each party suffers from failed negotiation. The party who suffers more from failed negotiation is in a weaker negotiating position, and the party who suffers less from failed negotiation is in a stronger negotiating position.
（iv） the parties' alternative plan or ability to launch an attack in case the negotiation fails. A party who has an alternative plan or ability to launch an attack （for example by instituting and winning a lawsuit） when the negotiation fails is in a stronger negotiating position, and a party who has no alternative plan nor ability to launch an attack when the negotiation fails is in a weaker negotiating position.
（9） Prepare a negotiation roadmap
Business negotiations involve many factors, and may last a very long time, and when two or more persons representing the same party get involved in negotiations, coordination between them should also be considered. In order to fully leverage a party's strength and avoid chaos, one must prepare a roadmap before negotiation commences, and then go through the negotiation in accordance with the roadmap and fine-tune the roadmap as the negotiation progresses.
Ideally, a negotiation strategy should give full play to a party's strength and make up for a party's weakness while containing the counterparty's strength and utilizing the counterparty's weakness. A negotiation roadmap represents a visualization of the negotiation strategy and it at least should include the following:
（i） a party's specific goals for the negotiation and the means to achieve such goals;
（ii） the counterparty's possible goals for the negotiation and the means to achieve such goals;
（iii） justification to request concessions from the counterparty;
（iv） justification for a party to make concessions;
（v） all variables in the negotiation, and response plans.
（10） Conduct negotiations around the essential elements step by step, and don't omit any element
Relatively speaking, business deals are subject to the influence of many more factors, and many more issues need to be considered. Business negotiations cover a complex array of things, and in order to avoid chaos, business negotiations should be conducted step by step around the essential elements that affects the project so as to proceed orderly without omitting any element. In business negotiations, the first thing to consider is the basic elements in the project that will affect the deal structure, and then determine the deal structure in light of these elements and negotiate with the counterparty the specific elements involved in the deal.
（11） Negotiate with good faith, but never leave any evidence adverse to one's own case
In business negotiations, the urge to confide in the counterparty and the opposing need to take preventive measures leave the parties exhausted. In order to facilitate a successful negotiation, the parties need to confide in and be truthful and open with each other, however, this may leave evidence that may turn out to be adverse to one's own case. On the other hand, each party is concerned that the counterparty may accuse it of lack of good faith and withdraw from the negotiation on that basis. Then how to deal with this dilemma? Generally speaking, the parties both know the backgrounds to the negotiation either by sight or by hearing or just know it from the guts, and even if some of the information is unknown, the parties know something by experience or common sense, or may obtain information from other sources. In sum, if a party truly wishes to consummate the negotiation, even if the counterparty refuses to make full disclosure, the first party would not withdraw from the negotiation as a result. If the first party withdraws from the negotiation as a result, it is more than likely that the first party either has no good faith whatsoever in the negotiation, or could not continue the negotiation due to other reasons. If the first party withdraws from negotiation on that basis, it may likely allege in subsequent litigation or arbitration proceedings that the counterparty lacks good faith in the negotiation which causes the breakup, and by distorting the judge's or arbitrator' impression of the counterparty, the first party tries to influence the judge or arbitrator to make a favorable ruling towards itself. However, if a party leaves any evidence adverse to its own case, the counterparty may utilize the evidence to force concession from the first party, or use the evidence in litigation or arbitration proceedings after the negotiation breaks down. Furthermore, if a party believes that with the evidence it can win any subsequent litigation or arbitration, it would not make the necessary efforts to make the negotiation a success, and naturally will not make any material concessions in the negotiation. Comparatively speaking, leaving adverse evidence will undermine one's own initiative in the negotiation, and wreak greater harm on oneself. Therefore, if a choice has to be made between the two evils, then don't leave any evidence that may prove adverse to one's own case.
3. Skills of Persuasion
1） Persuade the counterparty with objective facts
In essence, business negotiations are a contest between the parties for interests, either may make a mistake from which the counterparty benefits, however, neither will be benevolent towards the other. Therefore, for purpose of persuasion, one must find a reason that the counterparty cannot but accept without feeling the negotiation a disaster. Reasons that meet this description are objective conditions and circumstances, i.e. objective facts beyond control of the parties, a typical example of which is government's administrative regulation, such as the approval process. If a party makes a concession necessitated by objective facts and circumstance, the conceding party will not be concerned that this concession may arouse in the counterparty an undue expectation and insatiable appetite for further concessions, and this will not make the conceding party feel like havinglost its face and been licked at the negotiation.
Persuasion with objective facts has two levels of meaning, the first being to persuade the counterparty with pre-existing conditions, such as government's administrative regulation, and the second being to persuade the counterparty with conditions that are non-existent prior to the negotiation and are actively created before or in the course of the negotiation, a typical example of the latter being the strategy used by Zhao Benshan in the “Sale of Wheelchair” story.
2） Persuade the counterparty that it is in the counterparty's own interest
If the conditions proposed by a party also serve the interest of the counterparty, the counterparty naturally has no reason not to accept such conditions. However, as a matter of fact, the counterparty sometimes is or pretends to be muddled or ignorant, therefore, in this case, the first party needs to clearly point out that the conditions proposed by it also serve the interest of the counterparty, and the counterparty would suddenly realize it or is already well aware it, and will have no further reasons not to accept.
3） Wise concessions
In business negotiations, it is impossible for a party notto make any concession. Concession is an important means to facilitate successful negotiation. However, the issue is how to properly make a concession to achieve the goals that have prompted the concession.
（1） Don't concede easily
In business negotiations, making a concession is not as simple as the giving up of one's own business interest, it may arouse in the counterparty undue expectations and an insatiable desire for more. Therefore, don't concede easily, in particular, absolutely don't concede to any unreasonable requests of the counterparty. If the counterparty is insatiable, no matter whether its requests are reasonable or not, don't make any concession from the outset, as an insatiable party would not feel obliged by the first party's concessions, let alone reciprocate with concessions of its own.
（2） Reconnoiter before making a concession
Don't make any concession just for the sake of concession, and don't make any concession without understanding the insides out. Therefore, before making a concession, one needs to first understand the overall situation, in particular, the reasons the counterparty gives for requesting the concession. A party asks concessions from the counterparty for various reasons, including:
（i） putout a feeler: by asking concessions from the counterparty, one observes the counterparty's reactions to tip the counterparty's hand.
（ii） behave as dictated by habits: a party asks for concessions without specific purpose in mind, and it is unwilling to totally and completely concede to the counterparty's requirements, and nearly all human beings have this mindset.
（iii） make an attack in order to better defend: a party is well aware that the counterparty would not make a concession, nor will the first party make a concession itself. It first asks the counterparty to make a concession, and if the counterparty rejects this request, then the counterparty would not feel comfortable to ask concessions of its own, and even if the counterparty is impudent enough to ask for concessions, the first party would already have reasons not to concede.
（iv） a party believes the terms and conditions of the deal are unequal: it asks for concession from the counterparty on the basis of fairness and mutualbenefit.
（v） a better opportunity has come about: there is another opportunity which offers more favorable terms and conditions, and on the strength of which a party asks for more favorable deal conditions in the present deal.
（3） Improve one's own negotiating position by taking advantage of the occasion of a concession, and try to force the counterparty to make a concurrent concession of its own
Don't merely make concessions just for the purpose of satisfying the counterparty's demand and striking a balance between the parties, instead, the conceding party should take the opportunity to improve one's own negotiating position, at lease by acquiring a psychological advantage. Of course, it is ideal if the counterparty is forced to make a concurrent concession of its own.
（4） provide a good justification
When making a concession, the conceding party should provide a good justification so as to avoid arousing in the counterparty undue expectations for more concession, and avoid being misunderstood as weak or having further room for more concession. In this way, the counterparty is assured that the concessions are based on objective reasons and facts which have prompted the concessions, and the counterparty should not ask for more concessions. Other good justifications for making a concession include acting for the purpose of being fair and mutually beneficial; a change in circumstance; further knowledge of the background that makes a party prepared to make corresponding adjustments; a party has become more assured by the good faith of the counterparty etc
（5） exercise caution in alleging it to be the last or the only concession
4） It could not get any worse
As the saying goes, one without selfish desires fears not. A party will have nothing to fear if the conditions of the counterparty make the deal unprofitable, in which case, the success or failure of the negotiations makes no material difference whatsoever to the first party. In that case, the first party should honestly tell this to the counterparty, and make the counterparty understand that to concede or not to concede makes no difference to the first party, and the only difference is whether the counterparty will benefit. As the first party will not benefit, there is no need to concede. Generally speaking, if the counterparty realizes this, it will adjust its strategy and take the first party's interest into consideration.
5） a party's internal accountability and personal difficulties
The negotiators at both sides of the negotiation table have two roles to play, one as a professional, the other as an employee. Although negotiation is a professional act, it inevitably involves the interests of the negotiators as an employee in the workforce. The most common concern of negotiators is that they have nothing to report back on to the boss or being jabbed in the back by others. Take dispute resolution for instance, it is difficult for the parties to agree on a specific amount, and sometimes the reasons for the difficulty are as mentioned above: the negotiators are concerned that a sum that they believe to be reasonable are accused of being too low or too high, and they stick to an amount clearly favorable to their own party, and the counterparty is also driven by the same psychological consideration, it is only natural that the negotiation could not proceed, and the dispute has to be resolved by litigation or arbitration. After all, the amounts would then be determined by the judge or the arbitrators, and if a party is not satisfied, the responsibility may be ascribed to the lawyers. However, there is also a positive side to this argument, being that if a party is not prepared to concede to the counterparty and there is no way to make the refusal, it may cite its internal accountability or personal difficulties as the ground for refusal and sincerely asks the counterparty to understand. As a matter of fact, this is one of the skills commonly used in business negotiations.
6） make the counterparty believe that the first party has an opportunity cost
If a party has an opportunity cost, then if it reaches a deal with the counterparty, it must give up other opportunities or make other sacrifices, or alternatively it could deal with a third party and not necessarily deal with the counterparty. If it is the first instance, then a party may refuse the counterparty's requirements or refuse to concede on this ground, and the counterparty will not feel comfortable asking the first party to concede or to accept more stringent conditions. If it is the latter instance, then the counterparty will not dare act menacingly or demand more stringent conditions. Therefore, one should try to find ways to let the counterparty believe that one has opportunity costs.
7） let the counterparty realize that its strength and weakness and its requirements and interests are well understood by the first party
One of the basic goals in business negotiations is to prevent the counterparty from gaining anything beyond what is warranted by the counterparty's negotiating position. Therefore, a party needs to fully understand the counterparty's strength and weakness, its requirements and interests, and let this understanding be known to the counterparty. Conversely, if the counterparty mistakenly believes that the first party does not understand the situation and attempts to win the war psychologically based on the unequal access to information, even if no advantage is gained, it may probably affect progress in the negotiation. If a party is not aware of this at all, then it may be misled by the counterparty under the complex situations of the negotiation, and make concessions incommensurate with its negotiating position.
8） let the counterparty believe that if forced to accept unfair conditions, one would rather deal with a third party under the same terms and conditions
If a party is inferiorly positioned in a negotiation, the counterparty often believes that the first party naturally should accept or be forced to accept unfair conditions. In that case, the first party should unambiguously tell the counterparty that if the counterparty insists on the unfair conditions, the first party would rather deal with a third party and such third party is also willing to deal with the first party under the same terms and conditions. To put it simply, a party would rather be taken advantage of by a third party than by the counterparty. If the counterparty is made aware of this, it may worry that the negotiation may breakup, and nothing will come out of the negotiation, and it may thenmake concessions.
9） build up faith and confidence, and lower the counterparty's requirements
In a successful negotiation, both parties are rewarded with satisfactory results. To make the counterparty satisfied, one should satisfy the counterparty's requirements on the one hand, while lower such requirements on the other hand. In business negotiations, both aspects need to be taken care of. Before or when the negotiation commences, one should try to find ways to lower the counterparty's requirements, for instance, it could tell the counterparty that being a listed company, the headquarters exercises stringent oversight, and being in a global operation, the headquarters could not give any special treatment to a particular project, and therefore it cannot and could not make any concession, in this way, the counterparty may likely no longer insist on concessions.
4. Case Analysis
Case 1: In this case, Company A tactfullypins the responsibility on Company B on the ground of objective facts and circumstances, which helps dispel Company B's hostility, and creates amity, both pre-conditions to a successful negotiation
Company A is a privately run refinery in China, and Company B is a gas station operator based in a country in Southeast Asia. Through intermediation of a third party, the companies intend to cooperate and jointly build a refinery in the home country of Company B. Company A sends two separate delegations to the home country of Company B for negotiation of the deal. The first delegation is composed of business and technical personnel, whose main task is to understand the siting of the refinery and to discuss with Company B the means and type of cooperation. In the end, the representatives of both parties believe that all material issues are basically resolved, and the type of cooperation is also “discussed and agreed.” The representatives of Company A also indicate to the representatives of Company B that its chairman will soon come to discuss with Company B the specific cooperation plans and sign the cooperation agreement. However, after listening to the reports of the technical personnel,Company A'slegal counsel believes that the title right to the contemplated site of the refinery needs to be further verified, and the type of cooperation as discussed between the parties is unclear, and the business and technical personnel of Company A could not be sure whether it is a EPC turnkey type of cooperation, a BOT, or a joint venture. In that case, the board of Company A could not decide whether or how to cooperate with Company B. Therefore, Company A decides to send another delegation, comprising of its legal counsel, business and technical representatives, to discuss with Company B again, mainly toverify title right to the contemplated site for the refinery and discuss possible types of cooperation. However, the contact person at Company A fails to make the purpose of this upcoming negotiation clear to Company B, and Company B still believes that through this second round of negotiation, the parties intend to discuss specific cooperation plans and sign the cooperation agreement. Company A's legal counsel takes note of this during his research of background information, and realizes that the chairman of Company B,who is a local big shot, has misunderstood Company A being impudent, rude and unserious about the project. Unsurprisingly, when the parties meet again, the chairman of Company B is vehement with strong dissatisfaction.
A basic prerequisite for a successful negotiation is that both parties desire a successful negotiation. Therefore, before the negotiation commences, a party needs to find ways to dispel the counterparty's animosity, gain its trust and confidence and create amity to help propel negotiation towards a successful conclusion. Conversely, the negotiation will be beset with difficulties, and even if a deal is ultimately reached, the animosity between the parties will extend to the implementation stage and will be adverse to contract implementation. Therefore, the first issue facing Company A's legal counsel is how to mollify Company B so that the negotiation proceeds smoothly.
The night the delegation arrives at the place of Company B, Company A's legal counsel immediately requests a meeting with Company B, so as to express to Company B that Company A indeed has good faith. At the meeting,Company A's delegation behaves respectfully towards the representatives of Company B, especially Company B's chairman. In addition, this eagerness to meet with Company B in spite of the tiring long journey also helps win some degree of understanding from Company B. Conversely, if Company A mechanically follows the principle of “don't negotiate with the counterparty unless and until one is ready,” and chooses to rest first before meeting with the counterparty on the second day, it may further infuriate the chairman of Company B, and plunge the negotiation into stalemate.
At the outset of the meeting, Company A's legal counsel takes upon himself to explain to the chairman of Company B that there is regulatory oversight in China over international contracting and outbound investment. When reporting the project to competent Chinese authorities, Company A is required to file detailed information including the title right of the contemplated site for the refinery, and the type of cooperation etc Until the information is made available, the parties could not discuss specific cooperation plans, and until approved by each level of competent Chinese authorities, the parties could not sign any cooperation agreement. Ascribing those difficulties to objective facts and circumstance makes it easy for the counterparty to buy, and the counterparty cannot but buy the idea. Company A's legal counselpulls this off magnificently, and he delicately makes it clear to the chairman of Company B that if Company B refuses to provide detailed information about the title right of the contemplated site for the refinery, or refuse to further discuss with Company A the type of cooperation, the project cannot and could not move forward. Conversely, if Company A's legal counsel simply expresses this view to the chairman of Company B without good justification, the chairman of Company B would believe that Company A is making threats, and were the view of Company A accepted, it is like conceding to Company A's threats, then Company B would be hard pressed to accept Company A's view, and the negotiation would deteriorate into stalemate.
Then, Company A's legal counsel reviews with Company B the discussions of the last meeting, and respectfully points out that at the first meeting Company B has not prepared specific information regarding the title right of the contemplated site for the refinery, and the idea about the type of cooperation was immature with many particulars left unanswered, and it is necessary for the parties to have a further discussion. Letting the counterparty understand that itself has some responsibility would help persuade the counterparty, however, the key is how to delicately suggest this without arousing resentment from the counterparty. Company A's legal counsel takes the opportunity of reviewing the last meeting to suggest that Company B is also responsible for the cursory results of the last meeting.
In the end, Company B accepts Company A's viewpoints, and the parties agree to meet for further discussion the next morning. Company A's legal counsel successfully resolves the first issue facing him.
Case 2: In this case, Company A neglects the impact of administrative regulation, and has to live with the consequence.
Company A is a foreign operator of commercial properties, and Company B is a local property company in China. Company A intends to acquire a commercial property developed by Company B. In addition, Company B tells Company A that there are several thousand square meters on basement level 1 that could be sold to Company A as commercial property, but no pre-sale permit has been issued for the said basement. The parties sign a sale and purchase contract for the commercial building, and complete an on-line filing. Company A pays the down payment as agreed, which amounts to hundreds of millions of Renminbi. The parties also sign a separate agreement which specifies that once Company B is issued the pre-sale permit for basement level 1, Company A must purchase basement level 1. In this agreement, the parties also agree that Company B should be responsible to process for the pre-sale permit for basement level 1, and sign a contract with Company A and complete an on-line filing after being issued the pre-sale permit. However, the agreement fails to specify the specific procedures for processing the pre-sale permit for basement level 1or the procedures for the contract signing and the on-line filing.
Shortly after the parties have signed the agreement, Company B tells Company A that basement level 1 is part of the commercial property, and is to share the common areas with the other parts of the commercial property, and under the relevant rules of the competent construction authority, no separate pre-sale permit will be issued, and no annotation is allowed on the existing pre-sale permit, and Company B must apply again for a new pre-sale permit which will cover the entire property including basement level 1. In order to apply again for a pre-sale permit, the on-line filing of the current sale and purchase contract has to be cancelled. As Company A has paid Company B hundreds of millions of down payment in Renminbi, and once the on-line filing of the sale and purchase contract is cancelled, Company B could practically sell the commercial property to a third party. With the property market going up, even if Company B is required to refund the double amount of the down payment, it will still benefit. Thus, Company A faces a great legal risk, which is confirmed upon consultation with the competent construction authority. Company A is thus left between a rock and a hard place. If Party A chooses not to do so, with the commercial property market rising, the loss from termination of contract would be so enormous, and if it does so, the legal risk is too great. After balancing the pros and cons, Company A chooses to cancel the on-line filing of the sale and purchase contract.
Government administrative regulation plays a pivotal role in business deals, and the arrangements of a business deal must consider the impact of government administrative regulation, and specific provisions thereof should be incorporated in the relevant contract. If a party thinks that the ball is in the court of the counterparty once a particular obligation is given to the counterparty and it no longer needs to care and worry, it would be wrong, and the results would be quite unexpected. In this case, if Company A has contemplated to specify in the agreement detailed procedures for securing the pre-sale permit for basement level 1 and for signing the agreement and completing the on-line filing, it would have uncovered the problem in advance, and would have had the chance to make other arrangements for how to pay the down payment and mitigate its own legal risks.
Case 3: In this case, Company B douses Company A's undue expectations with calculated numbers, and urges Company A to act with good faith, fairness and reason.
Company A is a foreign trading company, while Company B is a Chinese oil company. Company A has production rights to two oil blocks respectively in its home country and a third country, however, Company A does not have production capacity of its own. Upon intermediation by a third party, Company A intends to work with Company B to jointly develop the two oil blocks, under which, Company B will be responsible to develop the oil blocks and provide all necessary development funding, and the parties will share production proceeds, but Company A must guarantee Company B gets a minimum annual earnings. From the outset of the negotiation, Company A proposes and insists on a minimum annual earnings amount which is unacceptable to Company B. Company B has further complicated the situation by proposing to Company A that the parties have a signing ceremony on the third morning which is to be presided over by the vice governor of the home province of Company B. Company B is plunged into this dilemma by its eagerness to cooperate with Company A, and in order to show its own strength and its confidence in the cooperation, it has decided to have a ceremony presided over by high level governmental officials. As the schedules of high level governmental officials must be determined in advance, it is very difficult to change the date for the signing ceremony. In addition, if the parties do not reach an agreement, and Company B cancels the signing ceremony, this would inevitably undermineCompany B's image with the local government. Company A is clearly aware of this, and it hardens its attitude and proposes an exorbitant price. In this dilemma, the main issue for Company B's legal counsel is how to rebut the unreasonable requests of Company A and urge it to proceed with good faith, fairness and reason.
Company B's legal counsel finds that there are no technical personnel who specialize in the oil industryamong the negotiators of Company A, and that Company A's negotiators don't understand the conditions of the oil blocks, and the proposed minimum annual earnings lack technical and market basis. Therefore, the legal counsel works together with the business and technical personnel of Company B to come up with some figures based on the production success rate, daily production quantity, international crude oil price and production costs for similar oil fields in the home country of Company A, so as to prove to Company A that its proposed minimum annual earnings amount makes no sense, and even if Company B calls off the signing ceremony slated for the third morning at the expense of undermining its corporate image, it is still worthwhile in comparison. Presented with straightforward and reasonable figures, Company A's representatives feel uncomfortable to insist on the proposed minimum annual earnings amount again, and become convinced that Company B cannot and could not accept the unreasonable request. Company A agrees to continue the negotiation with Company B to agree on a reasonable amount. Company B also takes advantage of the opportunity to remind Company A that only if Company A acts with good faith, fairness and reason and consider reasonable interests of Company A, could the parties continue with the cooperation.
In business negotiations, if a party thinks that the counterparty is unaware of the facts of the matter and set some undue expectations on that basis, the going will be tough in the negotiation. In that case, the best way to douse and dampen the undue expectations is to let the first party know that the facts are well understood by the counterparty, and the counterparty cannot and could not accept any unreasonable demands. In this case, Company B's legal counseluses this technique to douse Company A's undue expectations and to help the negotiation go forward smoothly.
Case 4: In this case, Company B disregards its own business position and makes an unreasonable proposal which plunges it into passivity.
Company A is a Chinese property development company, while Company B is a foreign company. Company B's China Rep Office intends to purchase the remaining units of a housing development of Company A at a thirty percent discount. Company A and Company B's China Rep Office signs a subscription agreement, under which, Company B's China Rep Office pays Company A deposit in the amount of RMB 20,000.00, and within ten business days as of the date of signing, Company B's China Rep Office and Company A shall sign a formal purchase contract, failing which, Company A is entitled to terminate the subscription agreement and call on the deposit paid by Company B's China Rep Office. Then Company B changes its mind, and decides that it will sign the purchase contract directly with Company A, as a result, Company B's China Rep Office fails to sign the purchase contract as agreed, triggering Company A's right to terminate the subscription agreement and to call on the deposit. In addition, Company B intends to modify some provisions of the purchase contract. Therefore, Company B sends its legal counsel to discuss with the legal counsel of Company A, to demand i） that Company A not call on the deposit; ii） Company A agree to sign the purchase contract directly with Company B; and iii） Company A agree to modify the relevant provisions of the purchase contract.
Company B retains the service of a well-known Chinese law firm, and during the negotiation, the legal counsel representing Company B could not refrain from feeling good and smart. At the outset of the meeting, he directly demands that Company A first undertakes in writing that it will not call on the deposit, and then the parties discuss the details of signing the purchase contract. Company A's legal counsel does not answer directly, but instead he asks Company B's legal counsel whether Company B will sign a purchase contract with Company A, to which question, Company B's legal counsel answers that not necessarily. Company A's legal counsel rebuts that Company A does not care whether it signs the purchase contract with Company B or its China Rep Office; Company A is entitled to call on the deposit, and if neither Company B nor its China Rep Office sign the purchase contract with Company A, why should Company A give a written undertaking not to call on the deposit? Company B's legal counsel is left speechless. Company A's legal counsel further points out that the remaining units are sold to Company B's China Rep Office at a thirty percent discount, and at that price, Company A could have easily sold it to anyone, and it does not care whether Company B buys it or not. If Company B still intends to buy the subject units, it should sign the purchase contract forthright with Company A, otherwise, Company A will terminate the subscription agreement, and call on the deposit. Company B has no other choice but to sign the purchase contract to the terms of Company A.
The parties' business position in a deal will directly affect its negotiating position. In this case, Company A could easily sell the subject units at the discounted price, and it does not care at all whether the negotiation succeeds or fails, furthermore, Company A is in a position to call on the deposit paid by Party B's China Rep Office. Company B's legal counsel makes the request at the outset of the meeting, and even if Company A's legal counsel is originally prepared to accept Company B's modifications of the purchase contract, he would not have accepted after the false step by Company B's legal counsel as it would not only make Company A's legal counsel lose face but also make him not able to report back to his client. In business negotiations, the legal counsel of each party should first learn from his client the relative business position of the client in the business deal, and then determine a proper negotiation strategy on that basis.
Case 5: In this case, Company A takes advantage of Party B's propensity to maximize benefits and avoid hazards, and manages to persuade Company B to accept its reasonable proposal.
Company A is a Chinese property development company, while Company B is an internationally reputable hotel management company. Company A has built a hotel and intends to retain Company B to manage the hotel. In the parties' negotiation over the license agreement, Company B insists on Hong Kong law as the governing law. The license agreement is primarily about Company B licensing the hotel to use Company B's hotel management brand and other relevant IPRs. IPRs are the most important assets for Company B who has always protected them with vigor and vigilance, and it insists that the relevant license agreement be governed by the laws of its place of operations or by a familiar law. However, Company A insists that the license agreement be governed by PRC laws, and Company A's legal counsel tries to persuade Company B to accept this proposal.
Company A's legal counsel realizes the importance of IPRs to Company B, and explains to Company B that PRC laws will be more conducive for the protection of Company B's IPRs. In the end, Company B accepts the argument put forth by Company A's legal counsel, and agrees that the license agreement be governed by PRC laws.
Generally speaking, the general public has a propensity to maximize profits and avoid hazards. If a party could satisfy the counterparty that a proposal of the first party will also serve the interest of the counterparty, the counterparty will be more inclined to accept the proposal of the first party.
Case 6: In this case, Company A ascribes the antagonism between the parties to the contest between the parties for interest, and it uses personal relationship to move the negotiation forward.
Company A is a multinational public company, and Company B is a local Chinese company. The parties intend to develop a property project under joint venture arrangements. Relatively speaking, Company A is commercially stronger, and it has drafted the joint venture contract, in which is included risk control provisions tailored to its own special situation. In the course of the negotiation, Company B repeatedly points out that those provisions are very unfair and unacceptable. The chairman of Company B even claims outright that those provisions are king's provisions. Under immense pressure, Company A's legal counsel has to bunker down and persuade Company B to accept those provisions. Undaunted by the claims of the chairman of Company B that the provisions are king's provisions, Company A's legal counsel calmly explains with a friendly smile that those provisions are indeed king's provisions, however those at the negotiation table are not the kings, and the provisions are included are as a sole result of Company A being a multinational public company:
（1） being a multinational public company, the management at the headquarters exercises stringent risk control over cross border investments. In addition, the management is made up of professional managers who for the sake of their own professional and career interests, avoid taking on responsibilities for investment failures, and they strictly manage the risks of cross border investment.
（2） Company A has investment in many countries, the conditions in each country differ substantially, and to improve operation efficiency, the management at the headquarters has formulated broad risk management provisions that apply everywhere in the world.
Company A's legal counsel further explains that as a result the joint venture contract drafted by Company A has included those risk control provisions which are unacceptable to Company B, and this is only normal, and if Company B is in the shoes of Company A, it likely would have done so too. As Company A is commercially stronger and Company B is eager to partner with Company A, the above argument of Company A's legal counsel makes Company B feel that it would not lose face by accepting such risk control provisions. In the end, Company B willingly accepts the risk control provisions proposed by Company A.
In business negotiations, the parties, no matter how big and well-known they are, are represented by individuals, and intermingled in business negotiations are the personal relationship between the negotiators. The managing of those personal relationships plays an important role with regard to the outcome of the negotiations. In particular if the parties are distrustful of each other, or if one party proposes any unequal or incommensurate terms with regard to which the counterparty feels badly, then well managed personal relationships between negotiators would be quite helpful in moving the negotiation forward. In this case, Company A's legal counsel ascribes the risk control provisions of Company A to a necessity due to Company A's nature as a global listed company with cross border investment in many countries, and describes it as making common sense, Company B, who is eager to partner with Company A but is in a disadvantaged position in the negotiation, naturally could accept those risk control provisions.
Case 7: In this case, Company A unveils the essence of equivalent terms and conditions to move the negotiation smoothly forward.
Company A is a multinational operator of department stores, while Company B is a Chinese property development company. Company B has developed a commercial property, and Company A intends to lease, and operate a department store in, the commercial property. Company A drafts a tenancy contract, the breach provisions of which specifies that if Company A fails to pay rent to Company B as agreed in the contract, Company A shall pay daily liquidated damages equal to 0.02% of the overdue rent, and if Company B breaches its obligations under the tenancy contract, making Company A unable to continue operation in the ordinary course, Company B shall pay Company A liquidated damages equal to 50% of the daily rent for the leased property for each day over the period that such breach remains uncured. Company B holds that the breach liabilities of the parties are not equivalent, as Company A only need to pay interest, while Company B has to pay 50% of the rent, as liquidated damages. Company A's legal counsel points out that a liquidated damages regime is instituted so that the party in default compensates the losses of the party not in default. If Company A is in default, the losses of Company B, the landlord, would be confined to interest on the overdue rent only. If Company B is in default, the losses of Company A, the department store operator, would be its operating profit as well as damages payable to third parties. Therefore, the provisions on liability of breach are fair. In the end, Company B accepts the breach provisions.
In business negotiations, a party （in particular a Chinese party） often asks for equivalent terms and conditions, however, it should not be treated as equivalent just in form or in appearance. The legal counsels of the parties should unveil to their respective clients the essence of equivalence, so as to avoid the progress of the negotiation being hijacked by a party's insistence on equivalence in form or in appearance.
Case 8: In this case, Company A douses the counterparty's confidence and causes it to abandon unrealistic goals for the negotiation.
Company A is a wholly foreign owned property development company, one of its resort development project uses wells to supply water for the residents, and specific provisions are expressly included in the sale and purchase contract with regard to the water supply from the wells. One year after the units are handed over to the residents, a hospital is opened close to the development project. Although the hospital uses separate water supply and discharge systems which do not contaminate the surrounding water sources, the residents of the development project are concerned that the well water would be polluted by wastewater from the hospital. Therefore, the residents require Company A to connect pipes from within the resort to the nearest municipal water supply system, and change to municipal water supply from well water supply. After careful consideration, Company A believes that it is not obligated to make the change, and besides, the costs of the change would be enormous and the pipes need to cross the properties of other housing developments, and it therefore asks the residents to bear some of the costs and be responsible for coordination with the other housing developments. The residents are dissatisfied, and dozens of them gathered at the headquarters of Company A in China, intending to put pressure on Company A, and forcing it to take on all the costs and the responsibility of coordinating with the other housing developments. Company A has to arrange its legal counsel, and the project manager of the project to negotiate with the residents. In the course of the negotiations, the residents threaten that if Company A refuses to fund the change, they will disclose this to the media nationwide, and spread the word that the water supply system installed by Company A is inferior in quality, and Company A disregards the interests of the residents and stand by while the water supply to the residents is contaminated by the wastewater from the hospital; and this will hurt Company A's image dearly, and it appears that the residents would not be deterred until their requests are met.
The residents are confident that wholly foreign owned property development companies like Company A care about their corporate image very much, and Company A definitely would accept the requests. For Company A's legal counsel, the primary issue is to dampen the confidence of the residents, and he begins by making an honest analysis for the residents: Company A's management for the China region is made up of professional managers, and when making any decision, they will consider their own professional duties. Under the sales and purchase contract, Company A is not obligated to make the change to municipal water supply. If the residents disclose this to the media, of course it is likely that the image of Company A could be affected. However, comparatively speaking, to make the change, Company A would be burdened with huge costs and sizable responsibilities. If the residents disclose it to the media, as Company A is not obligated to make the change, Company A could make a follow-up press brief, and clarify the situation to the media, which would likely dispel any adverse effect on Company A. Therefore, no matter how the residents may try to put pressure on Company A, the senior management of Company A for the China region cannot and could not agree to the request. After hearing him out, the residents feel his arguments to be reasonable, and their confidence dissipates, and they then begin to discuss with Company A with equanimity.
In business negotiations, if a party is confident of its superior position, it naturally would make undue requests, in which case, the counterparty must first dampen the first party's confidence and make it realize its negotiating position and abandon unrealistic negotiation goals, only in this way could the negotiation be moved forward smoothly.
Case 9: In this case, the party who takes the lead in the negotiation turns the show of strength into a home game.
Company A is a wholly foreign owned property operator under a multinational property development company, while Company B is a Chinese domestic property development company. Company B has developed a multi-purpose property, and Company A has bought the commercial property to operate a department store. For reasons of its own, Company A fails to pay an installment of purchase price according to the project progress in breach of the framework agreement signed by the parties. Under the framework agreement, if Company A delays any payment for ninety （90） days, Company B is entitled to terminate the framework agreement. However, Company B miscalculates the dates, and sends out the termination notice before the triggering date. Company A is unwilling to terminate the framework agreement, furthermore, after giving the termination notice, Company B still continues its negotiation with Company A. Company A asks Company B to confirm that the framework agreement is still valid, while Company B asks Company A to pay the overdue purchase price first before it could confirm validity of the framework agreement. Under the framework agreement, if a party breaches the agreement and result in termination of the agreement by the other party, the breaching party shall pay the non-breaching party liquidated damages equal to the full purchase price. Company A is concerned that if it pays the overdue installment of purchase price, Company B may still refuse to confirm validity of the framework agreement, and use the payment as a set-off against the liquidated damages. However, if it does not pay, Company A is concerned that Company B may send another termination notice upon expiry of the ninety （90） day period.
Company A's legal counsel believes that if Company A persists and refuse to pay the overdue installment of purchase price, Company B would find it hard to determine whether to resort to arbitration under the arbitration clause in the framework agreement. The liquidated damages specified in the framework agreement is equivalent to the full purchase price, which is more than RMB one billion, and the arbitration costs would be up to RMB ten million. As Company B has given the termination notice earlier than specified, Company A has reason to believe that the framework agreement is in a state of uncertain validity, and there is a possibility that Company B might lose the arbitration case. Furthermore, the liquidated damages are evidently much more than possible damages that Company B may suffer from the breach, Company A would definitely request the arbitrator to bring down the liquidated damages, and even if the arbitrator rules in favor of Company B, he may likely bring the liquidated damages down to about 30% of the purchase price. If Company B loses the arbitration case, it would lose all the arbitration costs, and if Company B wins the case but the arbitrator brings down the liquidated damages, Company B would also suffer the loss of a large amount of arbitration costs. If Company A persists and refuse to pay the so called liquidated damages, and Company B does not bring an arbitration case, the parties would be locked into an impasse, which is unsustainable for Company B. If Company B brings an arbitration case, and fearing that the arbitrator might bring down the liquidated damages, it makes an arbitration claim for a lesser amount of liquidated damages, but nobody dares to determine the specific amount of such lowered liquidated damages as nobody likes to take responsibility. As a result, upon meticulous deliberation, Company B thinks the best way out is to negotiate with Company A. In the course of negotiation, Company A points this out to Company B calmly, and also states that even if Company B resorts to arbitration, the situation for Company A would not get worse, instead it might turn out to be better. In the end, Company B agrees that Company A pays liquidated damages for late payment, and the parties continue to implement the framework agreement.
In business negotiations, the party in a superior position also has its weakness, and if the negotiation fails, such weakness would cause it losses worse than would be the case for the party in an inferior position. A party in an inferior negotiating position should find and use this weakness, and the table would be overturned in favor of the inferiorly positioned.
Case 10: In this case, Company A looks at the issue from a viewpoint favorable to its own position, and takes the lead in the negotiation. It persuades the counterparty by claiming the solution serves the interests of the counterparty, and whereby the disagreement is resolved.
Company A is a wholly foreign owned subsidiary of a multinational company, it has a commercial property which is leased to a local Chinese company, who in turn has sublet the property to various subtenants. Because the local Chinese company has defaulted payment, Company A has terminated the lease contract with the local Chinese company. However, the subtenants think their lease agreement with the said local Chinese company is still valid, and refuses to vacate and hand over the property to Company A. Company A has no choice but to institute a suit against the subtenants, demanding them to vacate and return the property. However, because there is no privity of contract between the landlord and the subtenants, and the subtenants are so numerous in number, the case progresses slowly, and the court is slow in making a verdict. In the course of the proceedings, Company A intends to sell the commercial property to Company B on the condition that Company A is not responsible for evicting the subtenants, and if Company B does not want to keep the subtenants, it has to do the eviction and recover the commercial property on its own. Company B is very eager to buy the commercial property, however, it is unwilling to take on the responsibility of evicting the subtenants. Therefore, the question of who should be responsible for evicting the subtenants becomes one of the core issues of the negotiation.
Before the negotiation is commenced, Company A's legal counsel learns that Company B operates no department stores or shopping centers, and he thus surmises that Company B is buying the commercial property solely as investment, and Company B either will divide and lease the commercial property in exchange for rents, or resell it later at a markup. Even if it is resold later at a marked up price, the commercial property would not be left vacant for the period before such resale, and would instead be leased in return for rents. Therefore, Company B may be prepared to retain some good subtenants. Those subtenants who are unwilling to return the property are exactly good subtenants for Company B as they have always paid rent on time to the local Chinese company. Company B is asking Company A to be responsible for the eviction of the subtenants in the hope of persuading Company A into lowering the sales price. In addition, Company A's legal counsel has coordinated with the competent court of the legal proceedings, and the court has agreed that so long as the parties are ok, the court can issue an order for novation of the parties without requiring Company A to withdraw the case and Company B to bring a new case.
In the course of the negotiation, Company B insists that Company A should be responsible for evicting the subtenants, and in particular the legal proceedings should continue on the ground it is unfair for Company B to evict the subtenants, and Company B has no way to continue the legal proceedings. Company A's legal counselfirst points out to Company B that Company A is a wholly foreign owned enterprise and it would not forcibly evict the subtenants as a local company might have done, otherwise it would not have brought the suit in the first place; one of the reasons that Company A has decided to sell the commercial property is that Company A could only evict the subtenants through legal proceedings, however, the legal proceedings could not be concluded within a short period of time. Therefore, the question of who is responsible for eviction of the subtenants should not be decided on the basis of fairness. Reading between the lines, it would appear that Company A would not have chosen to sell the commercial property if it has to evict the subtenants. Apart from good faith, the reason that Company A's legal counsel honestly tells Company B the reasons for the sale is because he knows that Company B would have made a due diligence on the commercial property, including the status of the legal proceedings. It is therefore unnecessary to conceal anything from Company B, if he is honest towards Company B, Company B would feel Company A is trustworthy, and the costs of the deal would be reduced.
Then, Company A's legal counsel proposes to Company B that as Company B is buying the commercial property not for the purpose of operating a department store or a shopping center, and the commercial property is not suitable for such purpose, and as the subtenants has not defaulted on payment of rents, it is advisable that Company B keep those good subtenants, so that it has rent incomes from the very beginning of the handover, and in this way there is no need to evict the subtenants. In addition, Company B needs to negotiate with the subtenants as soon as possible so that the subtenants start to pay rent to Company B once the commercial property is handed over to Company B, and Company B's joinder in the legal proceedings would help it reach a settlement with the subtenants in the course of the proceedings, and furthermore the competent court has agreed that it would issue a ruling for novation of the parties once a purchase contract is signed between Company A and Company B.
By then, Company B is aware that the plan to force a cut in the sale price on the ground of the need to evict the subtenants would not work out, and it therefore obligingly agrees that it will continue with the legal proceedings.
Looking at a problem from different viewpoints would result in different conclusions. In this case, Company B holds that Company A as the seller should be responsible for evicting the subtenants. If Company A follows along the lines of Company B, the parties would be bogged down, and there are no right answers to the question as, commercially speaking, whether it is the seller or the buyer that is chosen to evict the subtenants, both make sense, and the key is the pricing. The sale price proposed by Company A is neither high nor low, and it is a normal market price, thus Company A could not ask Company B to evict the subtenants on the basis of the price alone. Conversely, if it so requires, Company B would have cause to request Company A to lower the price. Company A finds another way to dissuade Company B from insisting on the request.Company A's reasons for the sale, as related by its legal counsel,subtly conveys to Company B that if it insists on requesting Company A to evict the subtenants, Company A would not sell the commercial property. However, Company A's legal counsel does not say this outright, thus preserving the face for Company B, otherwise, Company B may have angrily left the negotiation table to save its face.
No matter how complicated the situation may be, the ultimate purpose of business negotiations is to maximize commercial interests for one's own party. Company A's legal counsel advises Company B not to evict the subtenants, notwithstanding that Company B initially intends to negotiate a cut in Company A's price on that basis, it cannot but agree to the arrangement obligingly upon hearing this advice of Company A's legal counsel.
邓永泉，律师，大成律师事务所高级合伙人、北京仲裁委员会仲裁员、中欧仲裁委员会仲裁员，《商法》（China Business Law Journal）“法律精英100强”（China's Top100 Lawyers）。
The name may vary from bank to bank.
At least let the counterparty understand that the matters of the company are not decided by the largest shareholder or the chairman alone.
Project companies are mostly shell companies incorporated in tax havens such as the Virgin Islands, Cayman Island and Hong Kong.
Such as when the counterparty asks for a joint liability guarantee by an affiliate of the multinational company, especially a controlling company, to provide security for the obligations of the assignee, and the request is refused.
This paper focuses on business negotiation, and will not further elaborate on those elements.
It should be noted that Company A's legal counsel does not say “would certainly have done so too”, instead, he says “likely would have done so too.” In saying so, Company A's legal counsel is trying to avoid incensing Company B into further arguments that under similar conditions Company B would not have done so. This is an important principle in business negotiations, i.e. try to avoid incensing the counterparty into a debate.