When you do business in China, you may come across a common contractual clause.
This clause stipulates that if issues arise, the contracted parties will discuss them and the contract may potentially be redrafted.
China is a relationship-based culture.
Someone from a rule-based culture, like most Western societies, will likely take issue with this clause.
Contracts are supposed to be black-and-white. They are supposed to be unambiguous. They are supposed to regulate specifically every aspect of the business relationship.
Contracts exist to effectively end the negotiation stage and begin working together.
The clause makes it clear that the contractual agreement may be renegotiated at any time. That means, for instance, when the parties do face a dispute, it might not go to court in the city in which the contract stipulates, but rather in a city court where the established law may work in the other party’s favor.
So, why even negotiate a contract in China? If it’s so ambiguous, what does the contract stand for?
Relationship-based Values vs. Rule-based Values
The relationship-based culture of China values a mutually beneficial and respectful business relationship. The contract is symbolic as such.
The contract signifies that personal relationships exist amongst the parties, therefore future disagreements may be negotiated.
While in Western cultures, a signed contract might mark the end of the negotiation process, in China – and in other relationship-based cultures – it marks the beginning.
You might think you’ve nailed down prices, but even those can be renegotiated days or weeks after signing.
Although those from Western cultures might see such a contract as pointless, its signing is still very important in relationship-based cultures.
In fact, it’s so important, that a contract signed with a Chinese company traditionally involves a luncheon or ceremony when making it official.
As soon as a contract is signed, it signifies that the two parties – especially the leaders – are publicly friends and will be respectful of their business relationship.
Relationship-based societies also view work life and personal life as inseparable to the point that “personal relations” and “business relations” are concepts that don’t exist in these societies.
That’s because company rules are dominated by relationships, particularly if an employee’s in-group is their family or tribe.
This means that if you have a conflict with an employee, it can often extend to a conflict with his/her family, kin, or any other member of his/her in-group.
Next week, we’ll discuss how this situation might manifest, along with other conflicts that crop up in business in relationship-based cultures.