Q: Is there a standard way of conducting business and negotiations in China?

A: Business is conducted in different ways throughout China and negotiations on getting to a deal are most strikingly different when dealing with the two major hubs, Beijing and Shanghai.

In Beijing, you will find that deals are put together very slowly in the beginning. There is a slow, methodical process that Beijing projects go through. Building consensus and getting the macro and micro issues resolved early leads to a fast and relatively painless execution of the deal. That means that contracts, once drawn up and signed, are followed very closely and payments are made upon the agreed-upon schedule. This means that invoices follow the normal North American standard net 30 days for payment for Beijing-based projects.

A major point one should remember regarding any new project in Beijing is that all exterior construction will be stopped on January 1, 2007. So all construction cranes must be pulled off sites on this date so that the city can go through an enormous cleaning project to prepare for the 2008 Olympics. If you get your superstructure and envelope completed by this date, you can continue construction for interiors. If you miss this date, there is no chance of exterior construction until after the 2008 Olympics are completed.

In Shanghai, it is almost the exact opposite experience from Beijing. Due to the Boom City mentality that has gripped this enormous city, deals are put together very quickly in order to lock into exclusive negotiations, neutralizing your competitors. This means that you can get to the "idea" of a framework for a Shanghai-based project in a fast timeframe. This is where you hear a lot of news stories about the "booming" economy of Shanghai. Even Time Magazine has called Shanghai the "hottest city in the world today."

It is during the time from when an initial agreement is made, most of the time as an MOU, and the time an actual contract is signed and a project breaks ground that can be excrutiatingly long and painful. It is known within China that business people in Shanghai like to "wear down" their partners, clients, etc. They wear down these organizations by taking the element of time out of the equation, leaving many Western organizations scratching their heads as to what is going on. Meetings are abruptly canceled or changed, meetings that do happen follow the meeting agenda and past minutes to the exact points, leaving time for collaboration or interactive discussion out of the picture. These frustration tactics sometimes wear down a Western organization to a point of not getting the deal done or get the Western organization to the point of agreeing to things they would not normally agree to in order to close the deal. Knowing this, Western organizations should plan on a longer negotiation time than they are used to and manage this properly. Patience is the operative word.

We always make our invoices net 7 days in Shanghai due to the high nature of defaults. We also are very cognizent of the probability that Shanghai will follow the lead of Beijing and either limit or stop external construction a year before the 2010 World Expo, which will be hosted in Shanghai. So when negotiating a Shanghai-based deal, it would be wise to take this possibility into account when planning your project.

The regional nature of doing business in China provides enormous pitfalls if you do not understand how to manage these different processes. The rule of thumb is to be patient in the beginning of deals with Beijing projects, but have patience on the back end for Shanghai projects.

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