« Don’t get caught on the wrong side of a Guanxi trade. | Main | Negotiating in China: Partners in Crime »
Negotiating Sales and Partnerships in China
By andrew | April 10, 2007
Approach negotiation as part of the sales process. It’s not an end unto itself; nor is it a minor detail on the way to the final close.
By the time you approach the negotiation phase of a deal, you should have a pretty good idea about your counterparty’s plans, strategies and goals. This is a great time to step back and make sure you are 100% clear on your OWN plans and goals. Have goal-posts been moved? Has the environment changed since you started working on this deal? As you bored down on the details of the deal, have any priorities shifted or earnings models been discarded?
Step 1 is understanding your own motivations and strategies. Assuming that all checks out, do a quick check on the people your are negotiating with. Are you still on the same page? Do you need to know anything about their future business that you don’t already know? Find out as quickly as possible, because once you start proposing deal terms it may be too late.
There are 3 things that characterize negotiations in China.
-
1) The sheer number of potential partners, customers, clients, etc.
2) Emphasis on Price — not value.
3) Scheduling and timing issues.
1) The number of potential negotiating partners is practically unlimited. Most markets tend to be highly fragmented, and there are more new entrants to most Chinese industries than you can keep track of. The good news is that there are always more prospects for you to pursue. The bad news is that there are always more prospects for your counterparties to pursue as well. The message here is twofold — First is to keep your options open. I prefer to have multiple negotiations going on at any given time. Althought this is cumbersome and time consuming, there are some very sound reasons for this that will be discussed below. The second point to keep in mind is that you can’t get bogged down with just one potential partner. There is a good chance that they will take all of your ideas, reasearch, plans and information and dissappear. It’s a very common negotiating tactic here (actually, its fairly common EVERYWHERE, but since the topic of this note is negotiating in China, it merits mentioning).
If you are having trouble finding a suitable client or partner, just be patient. There is a constant flow of new businesses setting up all the time. I tell my clients that their best bet is to look for clients and partners among the expat community. They tend to understand value and deal-terms.
2) Chinese counterparties tend to focus on price more than business-people back home. If you are selling value-added products or services, you may have trouble leading your counterparty to the leap from Price to Value. Make your “thumbs up — thumbs down” decision on each prospect early. If they start out talking about price, then that’s what they will end up talking about. Chinese counterparties tend to discount things like IP, design, service and quality. You simply won’t convince traditional SOE managers that they should pay more for these things. But remember the previous point — there are always new entrants to the marketplace. The key is to make the determination about your prospect early — don’t allow a dead-end deal to dominate your schedule. Keep relationships cordial and professional…but be ready to MOVE ON at any time.
3) Chinese manufacturers have a pretty good handle on schedules and deadlines, but the same is not true on the service side. The usual tactic for Chinese counterparties is to demand a deal proposal with extensive background information RIGHT AWAY, and then disappear for weeks or months after you deliver. The same attitude prevails when it comes to deadlines and deliverable dates. I know of many expat managers who negotiate very aggressively to get a suitable schedule — only to watch helplessly as the Chinese counterparty routinely ignores the agreed-upon timetable. Chinese organizations are simply not as time-sensitive as US companies, and this is often a source of tension and problems. Either build some sort of incentive for meeting deadlines into the agreement (incentives tend to work much better than penalties for missing deadlines), or stucture a deal that is not time sensitive.
This is another great reason to have multiple counterparties and multiple negotiations going on at every stage of the deal. Don’t allow yourself to get locked into a relationship with a single supplier or partner until they have demonstrated that you can work together.
Topics: China Business |
Comments
You must be logged in to post a comment.