Doing your “homework” is essential to doing business with China. At least that’s what Selwyn Resources Ltd. of Vancouver says was the key to it signing a $100 million deal with China’s Yunnan Chihong Zinc & Germanium Co. Ltd., for a 50% interest in its Selwyn Project.
The agreement, a partnership that took almost 26 months to finalize, involves Selwyn’s massive zinc-lead deposit straddling Yukon and Northwest Territories’ borders. Deemed one of the largest undeveloped deposits of its kind in the world (7,450 ha of mineral claims in Yukon and 2,162 ha of mining lease lands in NWT), The Selwyn Project serves as a perfect example of what’s involved with partnering with a Chinese investor.
To find out more about the agreement, Canadian Mining Journal’s Editor Russ Noble sat down recently with Dr. Harlan Meade, President and CEO of Selwyn Resources Ltd. in his Vancouver office to talk about the deal and to get Dr. Meade’s perspective on Canada/China relations. Here’s some of what he had to say.
Dr. Harlan D. Meade, President and CEO of Selwyn stresses the word “homework” continuously when talking about signing agreements with Chinese investors, because if North American companies don’t “try and understand what the Chinese want” they will be wasting a great deal of time and money; but most of all, they will lose the respect of their potential investors.
“Respect is probably the single-most important thing in dealing with the Chinese, and one of the first things we did before entering into talks with our eventual partner was acquire Mandarin capability on staff so that we could respond in Mandarin with written materials and during conversations,” said Dr. Meade.
During the 26-month negotiation period with Yunnan Chihong Zinc & Germanium Co. Ltd., Dr. Meade said he can’t remember how many trips he made to China, but there were many, and he says they were all necessary in order to better understand the role of the regulators and how foreign transactions are done in China.
“Political risk and an unfavourable investment policy are taking on greater importance in Chinese foreign investment, but fortunately Canada looks good as a place for sound investment. The prime motivation, however, is for the growth of operations inside China, and their clear objective is to secure a long-term supply of feed for their smelters,” said Dr. Meade.
Knowing their objectives is one thing but Dr. Meade says there’s a whole other part of the journey that Canadians must try and understand when considering a partnership with a Chinese company.
“First of all, a Chinese negotiation is a long process designed to win the most concessions; arguably it never ends, even after the contracts are finalized. Remember, it is a cultural issue and considered good business practice; nothing personal,” said Dr. Meade.
“Also, be prepared to spend more time on negotiation than you imagined possible; their side of the table will include a large number of participants both at the table and in the background. In the background they are also addressing a host of governmental issues and regulatory requirements that exceed imagination. Understanding cultural differences, as they impact negotiations, is also key to concluding a transaction, and business etiquette (respect) is similarly much more important in China than in North America.”
As just mentioned, etiquette-be it on the business or social level-is an important part of Chinese culture, and understanding these functions can make or break negotiations.
“Failure to recognize this or adapt to these needs can lead to ‘losing face’ and remove any ability to complete a transaction,” said Dr. Meade. “Negotiations include social group lunches and dinners that are intended to establish a ‘relationship’ in addition to an ‘agreement.’ Here, body language is very important!”
Eventually, the signing agreements at stages during negotiations are a key part of the overall deal and it’s here where the “homework” really comes into play.
“You need to ask them what is expected, as they simply take it for granted that you know, and failure to provide this can cause much disappointment and ill will,” said Dr. Meade.
“Any loss of face, by challenging on key issues, questioning good faith negotiation, causing embarrassment, etc is to be avoided as it undermines any possibility of reaching a deal, and translators can also make or break a negotiation, because they have the ability to become the negotiator rather than the translator, with the associated possible risks. Again, that’s why having someone fluent in Mandarin on staff is so important,” said Dr. Meade.
Translation of key points in the negotiations is critical, says Dr. Meade, to ensure that Chinese participants understand positions on important matters.
“Translators must be very skilled or there is a high risk of misunderstanding or causing a party to misconstrue the intent of the other party, said Dr. Meade.
“The Chinese want to deal direct with the other party and generally prefer not to have a Chinese advisor at the table; partly to obtain advantage in the negotiation, but also to test/build the relationship without the buffer of an intermediary.”
“Patience” is second only to “respect” when dealing with the Chinese, and Dr. Meade concludes by saying that “North Americans generally give up too many concessions or lose interest due to deal fatigue; but if they want to attract investors from China, they should adjust their expectations and never lose composure – cultivate a disarming smile but still be prepared to walk away from the negotiating table at a critical juncture in the negotiations (when there is no further progress possible) to bring closure.”