Before we just did business together, but now… now we’re friends!

I spent one day this last week translating some new product negotiations for a client that is here visiting a factory that I’ve previously visited as 3PQ.  The boss and sales manager picked us up and we spent 2-3 hours in the factory talking about project specifics before heading out for the obligatory long lunch.  Both the client and I commented that we were pleased and surprised to actually get the business done and out of the way prior to the lunch.As we headed out the door to the restaurant the boss said to me, “you’ve been here two or three times, before we just did business together, but now that we’re going to lunch, now we’re friends!”  My response was that I wasn't really a client before as I was just doing QC for someone else.   The boss didn't buy this for a minute and he told me that I've been here enough that I should have given him face earlier than today.  This, and a couple of other comments to me, confirmed again to me some of the conceptual differences in how business is done over here.

Quick side note: When we go out on QC visits we have a very strict rule that no other party outside of SRI can pay for food, transportation, lodging, time, salary or anything else; nor can our QC take ANYTHING, even a Coke, from anyone while on the visit.  When I go out, which I do at times when were busy or if I’m working for special clients, I follow the same rules—and factories never ever understand.  “But you’re the boss?!  You don’t have to follow the rules.” is usually the response I get.  Some are quite insistent that I “give them face” and let them take me out to eat or at least sit in their office and have a few drinks with them.  Most people eventually understand, but I know I’ve offended more than a couple of people by steadfastly refusing to go out with them.  So be it.  This exercise in and of itself gives insight into the culture of personal relationships and moral relativity that is China today.

First, going to lunch was the Chinese equivalent of a background check. Prior to just a few years ago, it was basically impossible for a Chinese company to run a background check on a foreign buyer.  There are a number of reasons for this, none of which are “they were not available.” Most buyers in China are just that—professional buyers not companies/people going direct.  Getting a background check on a trading company that has an office in HK wouldn’t tell the factory much—and the trading company may have personal connections with the factory in the first place (hence the orders!).  The increased use of and popularity of online sourcing sites and trade shows in China and the surrounding regions are quickly changing that.  Secondly, even if the buyer was going direct, the factory wouldn’t necessarily be wrong to take a cash order from a foreign client with bad credit.  Remember, prior to 2005, the US dollar was really all that anyone over here wanted—and 30% down 70% to ship was safe for the factory.  If the buyer agreed to that and was paying in USD there really was no reason to not accept the order.  Third, many if not most factories didn’t start off with the necessary export licenses 10 to 20 years ago when they first opened their doors (I’m speaking of factories in Guangdong province and SEZ’s as they were really the only one doing export prior to 2000).  So their only customers were locals and trading companies.  And for domestic orders there was no financial information available (except for tax records) anyway.Second, contracts were not nearly as important as the ability to talk directly to the clients. No matter how you paid, the supplier took security in knowing where you were, not what paperwork you had.  Problems are still today resolved by personal negotiations, not via contract arbitration.  There is no Chinese precedent for calling lawyers into the mix for contract squabbles.  Lawyers, until as recently as 5-10 years ago, were VERY limited in what they could actually do and the law surrounding commercial disputes was equally limited.   Factories still want to know where buyers are physically located within China—offices, homes, and where people came from, etc.  The security comes from “I know where you live” more than I have your name on a piece of paper.  Besides, as I said before, Chinese is not a detail language and there will be, of necessity, future discussions about the exact meaning of much of the contract’s details.Notice that both of these statements are in past tense. Chinese companies today both know how to manipulate contracts and do background checks just like anyone else in the West.  Not every supplier is this up-to-date, and a PO for stock items is sometimes enough.  But I suggest that for anything customized or any order over a few thousand dollars you have to have a contract and you probably should have lawyers with China experience write it for you.  And though many suppliers are not as savvy in the English legalese as your lawyers will be, the modern Chinese law both requires Chinese contracts (unless stated otherwise in Chinese) and is much much more detailed and improved in consistency of interpretation than what it was even 5 years ago.  Do both the culturally expected thing and do the safe legal thing--do more because China is risky, not less.While the business environment today is much different than that of even 5 or 10 years ago the social habits of doing business have not changed much in the last 30 years.  While you may be able to visit your factory or company in a 50 story building in the CBD of a major city, don’t be fooled by the physical trappings of western business.  This is still China.  You don’ have to pay any one off or go get totally drunk to cement the relationship.  But you should both go out to lunch and sign a contract.  You should make an attempt to both become friends and do business together.  Really, not a bad combination if you play the game right.Remember that in this game, the playing field is not level.  You are not both coming to the table as even partners in some grand expression of mutual opportunity and equality.  For example, the factory has the ability to control almost 100% of what you will see, test, sample and receive.  You need to spend as much time as possible checking (and double and triple checking) everything you can to confirm that you’re indeed getting what you’ve ordered.  This is not to say that Chinese are dishonest, and going there is the surest way to make sure your supplier loses face and you’ll not get what you want.  But I am saying that most Chinese suppliers will very conscientiously do absolutely everything that they possibly can to save money on each and every order.  If that means that they replace a specific component with a “similar” piece that you either didn’t specify or didn’t test (but didn’t specifically decline), then so be it.  It is incumbent upon you to make sure that you’re getting what you want.This is true for everyone, the most famous example is Bill Clinton’s joke of a visit last decade in which he was shown everything that he expected to see—they gave him the face he expected to receive.  And buyers get the same treatment.  Factories know exactly what you expect and what’s been disappointing to previous clients and what other clients (and auditors) have previously approved.   They want you to be happy.  Happy visitors means more orders (problems can be solved later, over lunch, when we’re friends).Regardless of where or with whom you work with in China, “face,” however you define it is still very important.  Even if it’s just meeting together to break bread (fry rice?), you need to sit down with your Chinese counterparts and give them some face time.  Don’t beat them up over mistakes (and even flat out deceptions) in public.  Publicly support their efforts to improve/grow.  Basically play nice and realize that you probably don’t know all the rules of the game, even if you’re currently “winning.”  Face is still a big deal here and if you recognize that, it’ll help you more than you know.