Our legal team has seen a rise in foreign companies seeking to license their brands, concepts, or technologies in China. This approach allows businesses to enter the Chinese market without needing a physical presence there. Historically, licensing was mostly confined to the industrial sector, but today, it spans various industries, with service sector licensing gaining traction.
Challenges and Solutions
In this article, we highlight common negotiation tactics used by Chinese companies during licensing agreements and provide strategies for foreign companies to counter them effectively.
China’s Licensing Market
The Chinese government’s stance on licensing is mixed. While it supports technology transfers in the industrial sector, it is more cautious when it comes to service industries. This reflects the behaviour of many service-sector licensees, who often adopt a more aggressive negotiating style compared to their industrial counterparts.
Our lawyers have noticed that the negotiation tactics used by Chinese companies in service sector deals resemble those from the 1980s and 90s, when China was navigating joint ventures with foreign firms. These tactics, though old, are still relevant today and require careful handling.
Common Negotiating Tactics and Countermeasures
Endless Issues
A frequent strategy by Chinese negotiators involves raising a continuous series of issues to prolong discussions. This tactic usually takes two forms:
Form 1: As soon as one issue is resolved, new ones emerge, creating a never-ending negotiation loop.
Form 2: The Chinese side bombards the foreign company with unreasonable demands, refusing to address any concerns, hoping to wear down their counterparts and force concessions.
Countermeasure: The best way to combat this tactic is to stay firm. Set clear boundaries and demand significant concessions from the Chinese side before considering any adjustments to your own terms.
Artificial Deadlines
Another common tactic is the imposition of tight deadlines. Often, the Chinese side will arrange a signing ceremony involving government or Communist Party officials to create a sense of urgency. These deadlines create pressure, leading foreign negotiators to make hasty concessions to avoid embarrassment or delay.
Countermeasure: Avoid committing to fixed signing dates early in the process. Be prepared to extend deadlines if needed, showing the Chinese side that you won’t be pressured into making quick, ill-considered decisions.
Revisiting the Deal After the Lawyers Exit
Once the contract is signed and legal teams have moved on, Chinese companies may attempt to reopen negotiations with the foreign side’s operational team. They might claim that new legal or financial requirements necessitate changes to the agreement, often targeting individuals who lack detailed knowledge of the original contract.
Countermeasure: Ensure that any post-signature contract modifications undergo thorough review and involve your legal team. Make it clear that no unilateral changes will be accepted without full agreement from both sides, treating any attempt to do so as a breach of contract.
Conclusion
Entering China through a licensing agreement can be highly profitable, but it requires understanding the unique challenges of negotiating in this market. By anticipating common tactics and implementing the appropriate countermeasures, foreign companies can protect their interests and successfully navigate China’s licensing landscape.
Woodburn Accountants & Advisors is one of China’s most trusted business setup advisory firms.
Woodburn Accountants & Advisors is specialized in inbound investment to China and Hong Kong. We focus on eliminating the complexities of corporate services and compliance administration. We help clients with services ranging from trademark registration and company incorporation to the full outsourcing solution for accounting, tax, and human resource services. Our advisory services can be tailor-made based on the companies’ objectives, goals and needs which vary depending on the stage they are at on their journey.
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