Negotiations, Strategies and Experiences, Part II.

More “learning experiences” today as we negotiate with factories. So that means there’s more to share on working with factories.1. Way too much trust from West to East. This comes back to me almost daily. I assume that everyone starts off on equal ground and that I can take anyone at their word until they prove me otherwise. In the West there certainly are crooks and cheats, but there is also a well functioning and easily accessible legal system to back you up if trust is violated. Business is based on a foundation of trust first, and a lawyer to back you up, if necessary.2. No trust at all from East to anywhere. There is no historical or even recent precedent for trusting strangers in China. In negotiations here you are considered both a potential source for (big) profits and a stranger. That means factories start from the position of: we don’t know you and don’t trust you until you prove to me otherwise. This isn’t morally vacant as many critics like to complain; rather it’s necessary for survival in a system that does NOT have an effective legal system. If you have no (or are unfamiliar with options for) official/legal recourse your only options are to take care of yourself first. It’s not only smart, it’s absolutely mandatory for success. That’s the system here and you’re not going to change it.3. Leverage is the key to any negotiations no matter where you are. If you have no chips to play you are out of the game. You’ve got to keep something from the factory to make sure that you have some control when (not if) problems arise. For large orders an LC is a great option. But for orders smaller than $100k LC’s are not typically used. So be sure that you have a contract that gives you clear options, outs and specifies penalties in detail.4. Face is totally misunderstood, often to the Westerner’s demise. I’m constantly amazed at how Westerners are willing to be totally rude to Chinese—is it the language barrier that makes it OK? The dirty streets and bad toilets that make someone assume they are better than the locals? I’m not sure what it is, but it’s wrong. You need to give respect to them, if for no other reason than so they have no reason to screw you. As a Westerner you probably won’t appreciate (or even recognize) when face is given to you. You’ve probably thought more than once “I just wish they’d tell me directly when there is a problem.” (I think this daily.) I don’t think that Westerners will ever understand the all complexities of face. They key is be polite to others. Yes, just like mom taught you. Yes, even if they screw up. You wouldn’t stomp out of a supplier’s office, call him names and scream obscenities at factory workers in the US so don’t do it here either. One thing you can understand is that if you threaten or embarrass a Chinese factory owner you’ll not move negotiations forward. You can argue and even get angry. Everyone does at some point. But if you embarrass someone you’ll also never now the depth of the consequences. So be polite or script the arguments so there is always options/way out and so that fights are not personal. The goal is to fix your problem and allow them to maintain their dignity.5. History is very important. Personal relationship history between you and your supplier will be the deciding factor if you hit a roadblock. The longer you’ve been working with someone the more “credit” you have with them—especially if you’ve always paid on time and never tried anything cheeky. Honestly is the best policy and your good standing in the past will go a long way to resolving current concerns.6. The “higher ground’ means nothing in China. You will not successfully appeal to anyone’s (Western style) moral virtue or get product by trying to pull on heart strings or detail your current emergency. This is business, same as back home—money talks. You’re not going to get a supplier to “help you out just to be nice” in the West so don’t think that you can get it here either.7. Verification is the key to success. This means everything, not just finished product!! This includes raw materials, money transfers, and specific production processes. If you can’t personally certify that it happened, it probably didn’t—it’s better to be safe than sorry, so check everything. The corollary to this is that you will need to allow a degree of transparency into your procedures too.8. Scarcity vs. abundance—you need to have a totally different frame of mind to understand China. Historically Chinese have never had enough—not enough money, freedom, food, health care, good chocolate cake, legal recourse, etc. But in the West we all grew up with too much of all of these things. These different situations change dramatically how our different cultures think. You have to understand that your supplier may have built his factory from nothing in the last 30 years. Your supplier can probably tell you what it feels like to be hungry—really, honestly hungry. Your supplier probably has parents or other relatives that have died or been seriously injured because of “political problems.” This is not the land of plenty (except for plenty of people). This is probably the angle that your supplier will negotiate from when there are problems.9. There is always another problem. Find your suppliers real problem and you will resolve many of your own issues. No Ancient Chinese Secret here—this is Covey’s 5th habit—Seek first to understand then to be understood. If you are willing to take the time to discover the real issues you will save time (and emotional energy) in the long run.