Case StudyCase Study
The Price of Giving Face in China
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Chando, a Chinese shipbuilder, had agreed to change the main engine in a ship it was building for the Danish shipowner Danske. Although this would involve a lot of work and great expense for Chando, it was willing to substitute a low-speed engine for one of medium speed.
Prior to this, Jurgen Martens, Danske’s vice-president and technical director, had made a very good impression on the senior Chando people, as had their sales and marketing director. Usually, a shipyard is entitled to refuse to change the type of main engine once a contract has been signed and, were a shipowner to insist, a charge could be levied.
But this is not how the Chinese in this case wished to do business. They believed they were obliged to reciprocate past kindness they had been shown by the Danes, according to the Chinese saying: “If you honour me a foot, I will honour you ten feet in return.” In their eyes, Martens had previously honoured Chando and it was now their turn to honour Martens. When asked how the Chinese had been honoured, Qing Hua, the general manager in charge of the project, explained at length.
“I always thought Martens was a very reasonable man. For instance, we had failed to realise that the specifications for the vessel’s paintwork made the job of painting something we could not do, because the specifications prevented us from carrying out any welding once painting was finished. At that time, our shipyard lacked experience, and so the person responsible for painting had not recognised this problem when reading the specifications.
“I talked to Martens about the problem and he said, ‘Okay, then do it by sectional painting. The price can stay as it is.’ His answer helped us solve a big problem of our own making, and one we could not have solved otherwise. A shipowner has the right to refuse to accept a vessel that is not built exactly to the technical specifications. It will not pass inspection if the paintwork is not in accordance with the contract. So when Martens wanted us to change to a low-speed main engine, we were willing to cooperate.
“I then had to finalise the ship classification, and so went with five people from our shipyard to the Shanghai office of NOR [one of five classification companies in Shanghai], which had been recommended by Martens. Everything had been finalised except the price.“
‘This is the first time we are doing business with NOR,’ I said to both the company’s Shanghai representative, a Hong Kong Chinese, and his assistant, a Shanghainese. ‘You know our Chinese customs. Today, I would be very grateful to get even the slightest discount from you. I would regard it as you giving me face.’ ”
Cold Shoulder Treatment
“There was no response. We sat in silence for thirty seconds, six Chando people on one side and two NOR people on the other. Finally, the Hong Kong Chinese broke the silence and said brusquely: ‘$240,000. Not a dollar less!’
“I slowly took out my pen and signed the contract. ‘I agree with you, $240,000,’ I said. After the signing, the NOR people invited us to stay and have dinner, but I declined, saying I had no time and had to go. I also said: ‘I don’t know if my colleagues would like to stay. I can ask them.’ Bear in mind here that I was the team leader and that, if I wanted to go, no one would dare stay to eat. So we all left.
“As we were leaving, I left the NOR representatives in no doubt as to my true feelings. They certainly would have understood that I believed their price to be too high and that we would not work with them again because we had lost face badly in that encounter.” Chando stood firm, not accepting NOR as the vessels’ classification standard, even though the company eventually reduced its price to a level lower than that of its competitor, LL.
Months passed and the time came for Chando to negotiate a new shipbuilding project with Danske. Agreement had to be reached regarding the classification standard to be adopted: that of NOR, LL, or another. Since a NOR representative had made them lose face once, they decided to use LL. But this needed a new provision in the shipbuilding contract that would allow the shipyard to choose from among the various classification societies. Qing recalled: “NOR did not give me face, cornering me by using the fact that they were the only option in the specifications. This was not a personal matter: NOR looked down on my shipyard, a Chinese enterprise.”
From the shipowner’s point of view, there was little to distinguish NOR from LL. However, the shipbuilding contract that was subsequently drawn up between Chando and Danske—allowing Chando to choose from among NOR, LL, or an equivalent classification standard—provided Chando with an opportunity to take revenge on NOR.
When NOR managers approached Chando in connection with the Danske project, Qing was ready. He explained: “The NOR Shanghai office was managed by a Norwegian, who had once been NOR’s regional manager in Dalian. One day, he came to the shipyard at around 11 A.M., accompanied by the Shanghainese I had met previously.
“I was in a meeting. When I was informed that the general manager of the NOR Shanghai office was looking for me, I realised immediately what it was about. I wanted to show him how displeased I was, but out of courtesy I told my colleague to ask them to wait fifteen minutes or so as I was in an important meeting.
“The two visitors were left alone to cool their heels in the waiting room. In fact, I could have left the meeting, which was not as important as I told them. About fifteen minutes later I came out to meet the gentlemen. The Shanghainese introduced his new boss to me and we exchanged a few words of courtesy. No doubt my behaviour was cold.
“The visitors invited me to go out for lunch. I replied, ‘Not necessary. If you wish to talk business, we can do it right here.’
“ ‘Yes, we are here to talk business, but we can still eat and talk,’ they said.
“ ‘Let’s do it this way,’ I suggested, ‘You have come to visit me; you are the guests and I am the host. Let me entertain you at our shipyard.’” Qing then telephoned to arrange three working lunches.
He explained to me: “Frankly, I have never entertained guests at a working lunch before. Whenever I receive guests, I always do so in decent restaurants, never in the shipyard canteen. This time, however, I intended to offend them, placing them and me on a par with the shipyard workers. We went to the works canteen for site supervisors and overseas service engineers, many of whom wore oily working clothes. I was in casual clothes that day, but the NOR visitors wore suits.”
As they looked around the noisy canteen, the NOR visitors realised something was wrong.
Qing went on: “Then, I spoke to the Shanghainese in Chinese. ‘You are Chinese, too,’ I said. ‘You know Chinese seldom hate or love a person too much. What the Chinese believe is Li shang wang lai [Courtesy demands reciprocity]. Please remember that.”
Qing wanted both his guests to understand that the word “li” here meant not only a gift, but also something negative, such as an insulting action or a blow from the opponent. “Then, they asked me about the price offered by LL. I said: ‘Sorry, that’s a commercial secret. You shouldn’t ask such a question. I’m not in a position to reply. I can tell you that LL’s price is on my desk right now. Just do your best.’ ” They whispered for a while before the Shanghainese said to me: ‘$300,000,’ looking straight into my eyes.
“Smiling, I said: ‘What I need is a written, not verbal promise. You may say $300,000 today, but forget and say something else tomorrow. To whom would I turn for help then? I must have your offer in writing.’
“After lunch, we went to the shipyard’s guest house for visitors from abroad to drink tea. I answered their questions, one by one, except those concerning LL’s price. They certainly found me annoying.
“Finally, before they left, the Shanghainese said: ‘If $300,000 is still too high, would you give me a hint please? We can do $240,000.’ I smiled without saying a word, only asking him to send me a written offer. That evening, he sent a fax to my home. The price: $220,000 per vessel.
“NOR had reduced its price from the previous $380,000 to $220,000 per vessel. The offer was very close to LL’s $210,000.
“We stood firm,” Qing recalled. “At the next meeting with the NOR people, I felt the need to say a few words, in English, to the general manager, but I changed my mind because few of my colleagues understood English. “Instead, I said to the Shanghainese: ‘I will speak Chinese and you translate. Our cooperation for the first vessel was very unpleasant. I had never met anyone who treated me so poorly.’ ”
Forget Face at Your Peril
“I was looking at the matter not from the perspective of my personal face, but from that of the shipyard. I wondered why NOR had dealt us such an unmerciful blow when they had been in a negotiating position of strength.
“Further, I said to the Shanghainese: ‘The Chinese attach great importance to the word ‘li,’ but I had no sense that you had understood the meaning of the term. So I definitely will use LL this time, even though your price is lower.’ ”
“The Shanghainese wondered how I could justify my decision, so I explained: ‘I can say that your price is lower but your service is worse than that of LL. You may report this to the shipyard director, complaining about my having selected LL even though its negotiation price is higher than yours. But I believe that, were you to do so, you would lose our business forever. This time, what I want is to give you a lesson on how to deal with both Chinese shipyards and the Chinese. You are Chinese; you should help Western people deal with the Chinese, not just make money out of the Chinese.’ ”
Qing went on: “That evening, NOR invited us to dinner. We all attended, although we did not reach an agreement. I made no secret of my point: ‘I did not sign the contract because you pushed me too hard the last time. I have taken revenge. This is Yi ya huan ya [A tooth for a tooth].’ ”However, Qing reflected later: “Taking revenge should not go too far. Once you have let people know your strength, you should try to get along with them.
“My approach followed the maxim: En wei bin shi [Use the carrot and the stick]. The bottom line was that the vessel was being built in our shipyard, so whatever style was adopted, either en [the carrot] or wei [the stick], the purpose was to achieve he wei gui [peace and harmony].
The case clearly demonstrates how the Chando manager acted naturally and spontaneously, adapting to the other party on the basis of the Chinese value of reciprocity in negotiation relationships. This Confucian value is well illustrated by two Chinese sayings: “If you honour me a foot, I will honour you ten feet in return” (or, “If you dishonour me a foot, I will dishonour you ten feet in return”), and “Courtesy demands reciprocity” (or, “Deal with a man as he deals with you” and “A gift needs to be reciprocated”).
The Chinese values that stand out in the case are those of moderation and face. The NOR decision not to chase after the business it lost to its opponent reflects the traditional Chinese value of moderation. Moreover, face is a key issue in the Chinese business negotiating training process and is critical in the first encounter between negotiating parties. Sincerity and the need to give face are expressed in Qing’s appeal: “This is the first time we have done business with NOR. . . . I would be very grateful to get even the slightest discount from you. I would regard it as you giving me face.”
The fact that NOR did not care about giving face or could not recognise the need to give it lead to retaliation. It showed little appreciation of the nuances of Chinese business behaviour. Qing took it upon himself to educate those involved, and they were fortunate in that he held no long-term ill will toward NOR. Qing’s approach provides a very focused set of lessons on face and Chinese sincerity. Even more important, his lesson on giving and returning honour is well worth our noting here.
Nothing in Western mercantile or economic negotiating theory can prepare those educated in Western ways for such a disjunction, for such generosity (honouring tenfold) when events go well, or such seeming venom when things go badly. Also noteworthy is Qing’s total lack of resentment once his corrective measures had achieved their aim. It shows that a relationship can be repaired if cool heads prevail and bridges are not burned in anger or frustration.
This negotiation case is published with permission from Dr Bob March’s excellent book “Chinese Negotiator” (adapted from Fang 2001, 51–63).