What to do when there is no incentive to continue

No matter what the reason, when your factory has officially passed the we’re-losing-money-on-this-project point, expect to see product laying around, no more QC, no managers, and expect no one to answer your calls.This is what happened to us last month.We had a project worth hundreds of thousands of dollars and about 10 containers in size.  We had spent more than a year setting up the deal with three suppliers.  By October 1 we had completed work with two of the three suppliers and the other supplier was completing their production and packing.  We were doing QC the entire time, and rejected a frustratingly large amount of product from supplier #3.   They were replacing it as we rejected it, but the larger than expected qtty’s of rejects were starting to delay packaging and were making both us and the factory angry.  They were, to their credit willing to replace things that were their fault, but the costs were mounting and we could tell that any more problems would be met with some serious resistance.Well, there were more problems. (They seem to come in bunches, don’t they?)  There were some serious fulfillment issues and that turned out to be the final straw.  The factory basically stopped working on the project.  They’d past the we’re-losing-money point long ago and now, to the factory, there didn’t seem to be any value in dumping more money down the same hole.  It didn’t matter that there was a contract.  It didn’t matter that they’d shipped 6 of the 10 containers already.What to do?1. We continually reassured them that even though things were late we were indeed still interested in the remaining qtty’s.  This was a major point of emphasis for us--we still needed the other 40% of the order and couldn’t renegotiate with our clients to just not deliver almost 1/2 of the order.  Of course this put us in a bad position with the factory as they figured if we really needed it we’d pay (a lot) more for it--which was simply not true.  So we pressed both for the remaining qtty’s and the terms of the contract, not a strong position in China, really.2. We then reassured them that we were going to not only pay for what we ordered, but we would pay on time and pay for any additional costs that were due to changes or our mistakes (of course, there weren’t any, but we doing everything we could to be fair and empathetic to get product).  This is a fine line--paying for what you’re responsible for and nothing more can be a tricky proposition.  We try to be fair, we are willing to give a bit extra to get things done right.  And more than once we’ve paid for other people's problems just to get things done--sometimes it’s the best option.3. At the point that things ground to a stop, sending project managers into negotiate with other managers wasn’t going to solve anything.  Sometimes it’s more about face than money--and that was the case here.  I went into the factory and met with the owner.  We discussed 1. what the problems were (they knew it was their fault), 2. we’d gladly work with them to get things done right, 3. we’re not going away until this got done.  At the point that the owner had some face time, the managers were more conciliatory.  Both being in their factory every day and having someone other just a QC engineer gave us the physical and social presence that we needed to press our case.4. To get what we wanted (product done correctly, at the same price, ASAP) we basically gave in on everything that we could that didn’t affect product quality or cost us cash out of pocket.  We waved late-shipping penalties, we extended shipping dates and re-booked containers ourselves, we adjusted container packing/SKU qtty requirements, we brought in our own project managers and QC from other projects and added them to the factory’s daily rotation so that they could still take care of their other clients while working to finish our project.In our situation we had two positions of strength--the outstanding balance of payments and our physical presence in the factory.Even though the factory was losing money with every re-do and delay the owner recognized the value of the contracted payments still sitting on the table (worth more than both the value of the product that had been shipped and the value of what was left).  This was our trump card.  While the factory was indeed losing money they were not going to ever lose as much as they stood to lose if we walked away from the final payment.  They didn’t want to spend any more money but they didn’t want to lose any more either.  Them not finishing anything else meant two things: one, they got nothing but the deposit and two, we were going to make the unfulfilled contract even more expensive for them via court.What made the money real to them though was the fact that we were in the factory each and every day literally waving cash at them to ship portions of the production.  We wanted the product and we kept promising them that we were willing to pay 100% for everything that was correct (even if it was late).  AND, and this is a big and, we were a pain in the butt every day.  They weren’t getting rid of us until we got what we’d been promised.Other random lessons learned here:It’s not always a bad thing when your factory tells you that they screwed up and they fire their manager and some QC people.  At that point you know that all that you have the attention of someone that will actually do something for you.  Also, now you have a couple of new people in positions that are publicly sensitive because of what just went down.  As long as the boss hasn’t told them to ignore you, you’re going to get more attention.Sure the boss is listening, but is it too late?  Since we were here and already in the factory it wasn’t too late.  If we had had to fly from around the world after either receiving crappy product or after realizing after days or weeks of delays that things weren’t coming then, yea, it would have really been too late.  But we knew before it all hit the fan that there were problems. We could both document the issues and we were pressing to fix things even before it all went south.  No possible way we could have done that had we been out of the country.Managers, the very people that you’re depending on to help you push through difficulties, may be the problem.  Just like back home, different departments in large organizations work on budgets and they allot time to specific projects.  They when they overspend in either time or money, they get in trouble.  Precisely because they are tied to these specific limits they can’t always see the big picture.  Sometime a single project that busts their budget is the worst thing they can imagine and so they freeze up or stop the hemorrhaging in their department.  When this happens, you need to get up a level, get above the managerial trees and recruit a GM or owner to direct these lower lever guys to do what’s best for the factory (as opposed to what’s best for their personal fiefdom).You need to realize that you’re working in a vacuum over here.  The factory isn’t worried about their reputation.  They aren’t worried about seeing you again.  They aren’t concerned that you will complain to the HKTDC or Alibaba or Global Sources.  They aren’t even worried about getting taken to court.  Appeals to reason or morals will always fall on deaf ears if they’re losing money.  Negotiations based on obligations, contracts or agreements will similarly go nowhere.  You can threaten legal and other actions all you want, but they aren’t scared of that; remember, they’ve had little to no experience with going to court so it means nothing  to them.  And if they have had experience then they know that enforcement of a verdict is next to impossible in China. They are worried about two things and two things only--getting paid for the work that’s already been done and making money on the project, or losing as little as possible.  This is why I always say that paying more to get less than you original wanted is sometimes the best bet.