Successful Negotiation in China: Fool me once, shame on me.

If a counter-party lies to you once, they will lie to you again. This is true ANYWHERE IN THE WORLD, but for some reason, western investors and managers looking to do their first deal in China need to be reminded of this.

Just for the record, a lie includes:

Saying they have already have ISO 9000 certification when in fact they are planning on sending one of their junior operations people to a seminar on quality control next spring.

Telling you they have dozens of US and European customers when actuallythey were visited by one delegation from an Italian company 3 ½ years ago.

Stating the company is 12 years old when in fact the management team has a combined experience of 12 years.

Misrepresenting Chinese law or regulations –WHETHER BY DESIGN OR ACCIDENT!! (Note: It is their responsibility to know the rules under which they operate. The same western managers who would rip the head off an accountant for a minor error seem willing to overlook obvious gaps in the knowledge of potential Chinese partners.)

Telling you they are profitable and then not letting you see the books.

Telling you they have exclusive rights to a product or marketing channel when they do not. Saying they have 35% market share when they do not.

Telling you they own certain trademarks, patents, copyrights, or other IP when they do not.

Telling you that the company has 20 engineers with college degrees when in fact they have 20 resumes from engineers.

Telling you they know how to solve a technical problem when all they really know is how to hide the technical problem.

I’m going to repeat a basic, rock-solid rule of due diligence in China;

“Counter-parties do not get more honest, competent or cooperative as the amount of money on the table goes up.”

Have we all gotten that yet?

I know – finding a partner, supplier or investment target in China is hard. This is a frustrating place to do business. But that increases your need to do thorough, hard-headed due-diligence – it doesn’t lessen your burden.

If you were walking through Penn Station or Port Authority in NYC and you found someone’s hand in your pocket, you would quickly come to the conclusion that he was up to no good. For reasons that I can’t completely understand, many western investors and managers in Shanghai are willing to let that same guy keep fishing around until he finds what he is looking for.