“Doing business in China you always play the games or they will eat your weakness.”

I was told in once in a sales course that if you can name the game you don’t have to play it.  It’s just as true in China as it is in the US, although the Chinese version I was told this week “Doing business in China you always play the games or they will eat your weakness” seams a bit more vicious.  Here’s how we played the game with a factory this last week.First, we’re working on a rather large project that involves more than 10 different suppliers and testing for countries on three different continents.  So of course we had contracts (in Chinese) and NDA’s and had spent a few months getting both preliminary testing and correct samples from everyone.  And of course, prices, timelines, quality standards, et al were all approved and agreed to.  We had worked with suppliers to confirm with their sub suppliers that they’d have enough materials in advance too.But now that the order is placed, the molds are “more difficult” than they expected and the price is going up—about 200%.  Funny thing is, we were told that after our meeting to confirm the spec’s of the CAD drawings the molds had already been started!Of course both the facts that we were told something that was not happening and that the price is changing was completely (expected) unacceptable.  So we said no—but how we said no was the key to the game.We said no and reminded them, politely that we had a contract.  They said that if we didn’t pay they would have to return our money.  So we said, “Fine, we’ll pay you 1000RMB for your time and you give us the rest of the money back.”  Then we stopped talking to them. Within a day they had returned with a much lower price increase and a newfound willingness to complete the project.About two weeks later, after we had confirmed that the molds were started (we went to see them this time), they called us again.  Again, they wanted more money.  This time the problem was that our products “were not typical” and so the molds were more expensive than previously estimated.  We told them, again, that we had gone over the CAD details and that the contract stated that the mold price was fixed.  They said that we could keep the same contract and just increase the payment per piece to cover the additional mold costs.  Of course we said no.  And they responded with the “if you don’t pay we won’t work with you any more” ultimatum.  We said we were sorry they felt like that and we would compensate them a few thousand RMB for their time and efforts and they could return the product deposit and the balance of the mold costs to us and we’d find someone else.  Then we stopped talking to them and waited.They called us back a couple days later, said they had a new engineer and some better “skills” and would continue the project for us.This happened again too, and we resolved it the same way.This is a very simplified version of what happened.  In real time, there were behind the scenes arguments about what we should do, if they were lying or telling the truth, what other options we had, etc.  And we’ve had this scenario happen to us over and over again over the last 10 years in Asia.While negotiations are often different in their specifics negotiations like these are often quite similar in general and there are a number of lessons that can apply across the spectrum.1. Sometimes the request for money is true—and that’s both why you call the bluff and have a back up prepared at the same time.  If you call the bluff and you don’t have a back up, you’re in a worse position then you were with them asking for money as you now have no credible supplier.For example we molded a new PP product for a client this last year and found that the specifics of the design required a skill set that was not common at many of the factories that typically built this kind of product.  When our chosen supplier called to tell us that the prices would be going up, we expected it—we negotiated the amount but kept them as our primary supplier and paid them to keep the project going.2. There are times when it is indeed worth it to pay the new costs and keep the same supplier.  This is different than #1—sometimes the request for money is not based on a true increase in costs, but you want/need/like the supplier (or don’t have any other options) and so making a payment is valuable to you.3. Delays often mean that either they are stealing your money, they can’t do it and won’t tell you or they have price issues they are trying to outsource themselves without telling you.  In the first case above, they couldn’t do what they had contracted for and were trying to not let that cat out of the bag.4. When the offer to pay more comes, and it will, you can offer to cancel the project and send bank info then wait.  If they are bluffing they price will come down, you can then make a counter offer, wait and repeat.  If the price drops you know it was a ruse to get money.If he returns your money, he’s telling the truth, they can’t do it.5. If you pay each time they ask, they will keep asking until you are so far down the line that you can’t back out and you’ll get screwed (a la hostage payments to release goods).6. Nominate only one person to talk with the factory.  Tell the rest of your staff to NOT talk with them.  Anyone that is not the point can only take calls and say thank you and then goodbye.  Why?  Because, even if staff says something as simple as “I’ll talk with so and so about this,” that means that there is room to negotiate.  Be strict and tell them to respond when asked about The Point person, “We can’t find so and so. Sorry.”7. Always talk direct with the factory and the boss that can make decisions—remember, they’re playing the same game you are.8. On the bright side, the request for money is not always a bad thing. Tie some additional quality standards or dates to any new payments to make.  If you didn’t have before, now you can get a legally enforceable Chinese contract signed, for example.And, if the money shows up you know three things.  1. What the cost of good should be within a small %.  2. What the mold costs really are.  3. The factory is honest—so if you can’t find anyone else you can go back to him and pay more and get it done right.9. The exact same words do NOT mean the same thing to you as they do to your Chinese counterparts, so be careful and consult with some trusted bilingual staff.  For example, one time the factory told me, “If I have time, I’ll return your money.”  My staff was really offended while I thought it meant that they get to it as soon as they could.  Our Chinese negotiator knew though that this meant that the factory boss was fighting with himself—do it or don’t do it?  Turns out he later came back and negotiated to keep the project going.10. If you let your supplier “win” the first time they ask for money you will never know if you can trust them or if they will do it again or what your real costs/prices are.11. No matter what, you can’t make your Chinese counterpart lose face in public (unless you calculate it very carefully).   Once he’s lost face, he’s lost all desire to help you out, maintain civility or even complete the current project.12. Your Chinese supplier has to retain hope that there is more business coming or there is no reason to keep the current deal going.  If they think that this order is dead they will fight for all they can get now.  You play the game too—Tell them if they want the order next time and you’ll give them 2% more. “Next time I’ll let you make more profit.”  You need to act as if you’re trying to help them as much as you possibly can.13. Never tell them, before you place the order that you’re going to place the order.  You cut the prices and lead them along, get them to cut the price and then place the order.  If you tell them “I’ll place the PO tomorrow” you know the factory will raise the price tonight.