Chinese Negotiation - Negotiating in China

Chain of (Outsourced) Fools

By andrew | May 2, 2007

Know who is really doing the work for you when you hire a China-based consultant or outsourcer!

When you are working with a China-based consultant or service provider, it is a good idea to discuss who will actually be performing the work for you. Don’t assume that the people you are meeting and discussing project specifications are the ones who will be executing your project. In fact, you shouldn’t make any assumptions at all. So ask.

Outsourcing can be a great idea – but you have to do a special kind of due diligence.

If you don’t speak Chinese, then working with a local project manager to access high-quality, inexpensive Chinese workers or subcontractors can be a great deal for everyone. Win-Win negotiation at its best. In fact, building a network of high-quality value-added sourcers, project managers, and BPOs (business process outsourcers) is your key to success in China. You must be very careful, however, to find service providers who are really adding value and not just overcharging you and exploiting locals. That is a lose-lose deal that will result in shoddy workmanship, missed deadlines and wasted money.

In China local intermediaries can add value in three ways.

Transparency
One of the main reasons to work with an intermediary or consultant is to access his experience and local knowledge. You should be walking in with a list of questions, concerns and goals to discuss with the local expert. But many westerners have complained that Chinese businesspeople can be reticent about sharing useful information. “I didn’t say anything because no one asked,” is a sentence that has left many western businessmen shaking their heads in despair. This is why it is so important to work with experienced service providers who understand your goals AND the market characteristics. Don’t assume that people will tell you things you need to know. Experienced westerners know that they can’t take anything for granted in China, and that the ultimately responsibility for investigating the business environment is theirs. Always be able to confirm key facts and data with at least one other source.

Quality Control
Another way for a consultant or intermediary to add significant value is in Quality Control. Again – don’t make any assumptions. Someone has to be in charge of QC. You may BELIEVE that the person in the expensive Shanghai office that you give the money do will “take care of that”. But unless he shares that belief – preferably in writing – you are in for a rough ride. China has made huge strides in terms of QC on the manufacturing side of the equation. The service sector, however, is still a work in progress. If you are paying for intellectual property or business services, you had better figure out how to measure the quality of work being done for you. It is also a good idea to incorporate milestones and intermittent inspections or reports to assure that minimal quality standards are being met. Be explicit about who is responsible for QC when subcontracting and outsourcing takes place. Unless this point is 100% clear, documented and backed by financial or payment terms, then you stand a good chance of being unsuccessful in your China dealings.

Project management.
Two issues here: The Goal and the Timetable. China-based consultants like to subcontract. It’s one of their main values, and they are good at it. The challenge for you is to insure that your business goal and the specifications of your project maintain their integrity as the task gets handed off from one subcontractor to another. Mission creep can lead to mission failure if someone doesn’t take control. And that is precisely what you are paying your consultants to do. A good Chinese consultant will make sure that the work being done isn’t just high-quality – it is also what you have ordered!

The second project management skill you want to pay for is time management. Chinese businessmen are legendary for their patience, and that often manifests itself in terms of missed deadlines and relaxed timetables. If your project is mission-critical and needs strict scheduling, then you should make this clear to your consultant. Once again, put it in writing and back it up with some kind of financial incentive or penalty. Even if your project doesn’t seem time-sensitive, be aware that seemingly simple projects can stretch out forever. When you are checking a consultant’s references, this is a good thing to ask about. One of your due diligence questions should be a discussion about possible delays, bottlenecks and roadblocks.

Red Flags

Can anything go wrong with your business relationships in China? Well, not likely! But just in case, let’s look at a couple of potential pitfalls that you can run into when working with consultants or intermediaries that plan on passing the work off to someone else:

Chain of Fools

Quality problems.

Invisible subcontractors. These are the people who will do the work for you, once your consultant gets around to figuring out what you want done and which one of his acquaintances can do something reasonably close.

All in the family. Someone your consultant knows or is related to ends up doing the work. A husband. A girlfriend. This sort of thing can start out very innocently. But then the girlfriend leaves or the husband gets busy with his REAL job. Suddenly you’ve got delays, gaps and quality problems.

Payment up front. You think you can save some time and out-smart a contractor of questionable ethics by only paying a small amount up front and withholding the bulk of the payment until later. It would be a better plan if it had some chance of working. In fact, local charlatans will happily take your upfront money and vanish forever. You won’t believe this the first time you read it. Ask around, though.

Too much flexibility. Flexibility is a wonderful thing, as is self confidence. But you don’t want your contractors to have too much of either. Just because they had a roommate in college who studied graphic design doesn’t mean that they are qualified to act as project manager for your e-commerce website…or does it? Only deal with specialists.

Do the Due Diligence:

See the shop if possible. Is there a sign over the reception desk? Does it have the name of your consultant’s company on it – or someone else’s? Does his business card state a specialty? Is that what you are discussing? Use common sense. Take a look at his offices, and go with your gut. Chinese offices are as nice, modern and well equipped as offices in the US or Europe.

Do the numbers. Chinese companies tend to overstaff. If they have 50 clients and 3 staffers, they are outsourcing. Not a necessarily a problem, unless your consultant is promising to do the work himself.

Ask about his subcontracting relationships. Get specific. Talk about fees, length of time he has been working with his subcontractors and their specialties. Most people won’t go into too much detail with you (nor should they), but you can still learn a lot from the answers. If he clearly doesn’t use the same people all the time, then you have no assurances over quality or scheduling.

Ask for something slightly unreasonable. This can be a little manipulative and dishonest, but is useful. Ask if your consultant can do something clearly outside of his specialty or beyond the scope of his normal operation. If he is candid and honest with you, then you are in good shape. But beware of consultants who will promise anything at the drop of a hat.

Contract. Structure a contract that includes QC terms that are measurable and enforceable, scheduling and staggered payments triggered by milestones achieved.

References. Ask for references IN THE KIND OF WORK YOU ARE PAYING FOR. Make sure the consultant has international experience AS AN INDEPENDENT CONSULTANT and not as part of a large team at the MNC he worked for last year. Check references, using words like “integrity”, “competence”, “quality of work”, “on schedule” and “on budget”. If you don’t check references (anywhere, but particularly in rapidly developing markets like China) then you are simply asking for trouble.

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Negotiating in China: Partners in Crime

By andrew | April 11, 2007

If an American counter-party asked you to issue a fake receipt, forge a contract or commit fraud, you’d probably tell him ‘no’ and then terminate your relationship with him. At least I hope you would. Yet when many newly arrived westerners are asked to do the same type of things in China, and a surprisingly large number actually do it. This is NO A GOOD IDEA.

China has laws.
The days of back-room deals, special favors for connections and outright bribery are largely over for run-of-the-mill transactions. (Ok, there may still be a lot of corruption and back-channel deals at higher levels, but if you are reading this for business entry information then you shouldn’t be dealing with that sort of thing yet.) China has a new legal system that it is very proud of. So proud, in fact, that they are excited about showing it off to their new foreign friends. Trust me, you don’t want to see it close up.

Not everyone does it.
You’ll be told that everyone breaks the rules. That the government expects you to cut corners. That no one does the paperwork. That you’ll never be caught. Well, they don’t, it doesn’t, they do, and you will. Plenty of Americans evade taxes and break laws in the US, but that doesn’t make it a good idea. You certainly wouldn’t recommend that a newcomer to your town start his new venture by committing fraud and forgery. Well, don’t be that guy in China.

What’s good for them may not be good for you.
Yes, your local lawyer, accountant and partners have had a ripping success evading the authorities and living by their wits. But that doesn’t mean it will work for you. The Chinese government is very sensitive about foreigners it perceives to be exploiting China or taking advantage of Chinese people – and breaking business laws will put you in that category.

What’s your defense going to be?
Ok, so let’s say that you allow yourself to be persuaded by a local partner or consultant that everyone in China does, in fact, routinely break the law and violate regulations. And then you get caught. What exactly is your argument going to be? Are you really going to go before a judge and say, “the laws here are a joke, the system is corrupt and violations are rampant?” I’m no legal expert, but that seems to me to be a great way to get on a judge’s bad side.

Making the money and keeping the money are two different things
Another issue in China is the exit strategy. You may be able to buy the property, you may be able to sell the product – but collecting the money, selling the business and getting the money out are all much different things. You will see the same bureaucrats on the way out that you saw on the way in – so you’d better have all your paperwork.

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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 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.

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Don’t get caught on the wrong side of a Guanxi trade.

By andrew | April 4, 2007

Whether you’re new to China or an “old hand”, the Guanxi issue is going to come up during your negotiations. There are only 3 questions you really need to answer when it comes to Guanxi in China.

1)What is it?

2) Can it help me?

3) Will it help me?

Yes, it’s a horrible, horrible thought – but it happens pretty regularly. Any time someone mentions how he is going to use his guanxi or connections to help you, take that as the START of the conversation – not the conclusion.

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Winning Negotiating Techniques for China – Multiple partners

By andrew | April 3, 2007

Here’s a negotiating technique that will make your China-based counter-parties hate you – and your US investors and partners love you. Have multiple potential partners in China, and play one off against the other. You’re going to find yourself with lots of time on your hands, waiting for the other guy to make a decision anyway — you may as well put that time to good use by getting more players on the field. It’s easy to keep a lot more balls in the air when everything is moving in slow motion.

You should also be on the lookout for ‘meeting-mania’ when negotiating in China. A common technique is for potential partners to load the visitor up with so many meetings, visits, site tours and other “relationship-building” events that the western businessman has no time to establish other contacts. Control the pace of your meetings — and don’t allow yourself to be led around by the nose. Also, don’t hesitate to let your potential partner or supplier know that you are speaking to others. Foreign partners are still a scarce and valued commodity in China – make sure you are not being sold short.

Another tactic to be on the lookout for is the tendency for Chinese counter-parties to “run in place”. You’ll see lots and lots of activity and energy being expended – and it might give you the impression that rapid progress is being made. But then you’ll show up to what you think is the final meeting and find out you are really back at square one. If you have just one negotiation in progress, you may be going home empty-handed – or worse, with a bad deal that has loose ends and lacks adequate protection.

As for the banquets and formal dinners – thankfully they are becoming less common and less challenging for westerners. But if you do find yourself seated at ‘the big round table’, you no longer have to treat the occasion like some kind of rite of passage. If you don’t want eat sea-cucumber and sheep’s stomach, then don’t get pressured into putting on a show. Just say no. Be polite, but be firm. These are the guys you’ll be working with for years to come, and you will have to rely on their good offices, understanding and cooperation. If they are jerks to you during the courtship, you can bet the marriage will be pretty awful.

The bottom line is that the situation for westerners trying to negotiate deals in China has gotten more transparent and familiar. (On the other hand, the really great bargains and opportunities are getting scarcer and pricier.) Western investors and partners have more options then ever, and Chinese counter-parties have been climbing a very steep learning curve. If you are negotiating in major business cities, the people sitting across the table from you should be sophisticated, educated and experienced. And if you don’t like the offer or trust the partners, then terminate the relationship and move on. The range of potential partners in China has never been greater. You have plenty of options. You’re main constraint is TIME, so don’t waste it on negotiations that won’t go anywhere.

We still see many western business guys getting off the plane with business etiquette guides, trying to make their Chinese hosts comfortable. You are better off being yourself and making deals based on sound business principles and realistic financial goals.” Good advice in China – and anywhere else.

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Technorati registration. Ignore

By andrew | March 30, 2007

Technorati Profile

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Negotiating in China: Split the Difference

By andrew | March 28, 2007

Here’s another gem that you’ll run into in your Chinese negotiations, which I like to call, ‘Split the Difference’.

Al and Bob are negotiating the price of Product X. Al, the seller, offers a sale price of 500 – knowing that he will be satisfied with a price between 450 and 470. Bob, the buyer, counteroffers at 400 – knowing that he will be willing to pay between 420 and 450. It doesn’t take our boys long to reach the 450 point, and everyone walks away happy.

If Al is in China, there’s a good chance that he’ll play “Split the Difference” – but instead of starting out with a price of 500, he’ll probably go to 2,000 or 3,000 as an initial offer. When Bob starts to walk away, Al will suddenly seem desperate and ask Bob, “Well, how much are you willing to offer?”

And that’s the point of Split the Difference. It’s to get you to state the initial REAL potential offer and start the bargaining at a higher level than you ordinarilly would. The Chinese seller doesn’t expect you to pay his price – or even anything close. He DOES expect you to validate his higher offer as the stating point of your negotiation.

Let’s look at where Bob is going to make his mistake:

Al starts by offering to sell at 2,500 (roughly 5X his expected transaction price). Bob will probably offer to buy at 400. Al will come down sharply – to 1800, which pressures Bob to move up his offer. Even if Bob only raises by 5%, he is up to 420 – which is entering his initial comfort zone. Al, meanwhile, is still in realm of fantasy. Al now knows that as long as he keeps Bob engaged in the process that Al will end up the winner. So he drops his price again – to 1100. Bob thinks he’s doing OK – Al’s price has dropped by more than half already with fairly minimal work. He wants to see how far this will go, so he raises his offer a bit – to 430. Al can’t believe what he’s hearing, and is quite sure that Bob thinks he is a fool or a crazy man. But just to be fair, Al will go to 900 and Bob returns with 450. Movement will stop there for a while, until all offers to split the difference and let Bob rob him with a price of only 700. Bob inches up again – first to 460 and then to 475. Suddenly Al agrees, and is all smiles. Bob feels like he just beat the crap out of Al, having brought his initial price down from 2,500 all the way down to 475. Al feels that he has pocketed an extra 25 for a few minutes of work.

Ok, now YOU are Bob. What can you do to avoid overpaying when confronting a “Split the Difference” negotiatior?

3 things.

1) Know your market. You’ll notice that by the end of the transaction, Bob had some very valuable information about Al’s true costs and price limits. Unfortunately for Bob, he felt that he had vested so much energy and time into this process that he had to walk away with a deal. Up until the moment that money changes hands, Bob was actually doing great. If he had only taken the PRICE of 475 and used it as a starting point with his next negotiating counter-party, he would have been much more successful. WHEN NEGOTIATING IN CHINA, YOUR FIRST GOAL IS TO GET GOOD DATA ABOUT PRICES, AVAILABILITY AND OPTIONS!!!

2) Walk away. Every successful negotiation I’ve ever had in China was on one foot. I was in the process of walking away each time. If Bob had walked away from this transaction AND the next one, his third session may have yielded him a price closer to 420 – because he would have had the knowledge he needed to do it right.

3) Know the priorities of the other side. If your counter-party is still smiling, then you haven’t negotiated well. He knows EXACTLY where his limits are, and if you don’t then you are at a significant disadvantage. He is used to working off razor thin margins, and you have to take him down to the limit. In most cases, you can forget about after-sale benefits, Win-Win relationships, guanxi, next deals, or anything else that doesn’t carry a specific price and fit in your hands. He wants an extra mao ( $0.12) on the deal, and doesn’t care if your business gets destroyed in the process. He’ll sell you the wrong thing, the wrong size, the wrong quality or the wrong terms – his only priority is THIS deal and THIS profit.

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Negotiating in China: Ignorance is Power

By andrew | March 23, 2007

If your China business model involves B2B selling, there is a good chance that you will spend a lot of time negotiating with people who don’t know – or care – about how your product or service works. You are an expert in something that your counter-party is unfamiliar with. In the US, that would give you an advantage in the negotiation process. You would be able to play a large role in framing and scoping the project, and would get instant credibility as an authoritative expert.

In China, this is often not the case. Don’t be surprised if the negotiator isn’t fazed by his relative lack of expertise. It’s not unusual for him to point out shortcomings, deficiencies and problems in your proposal that don’t make any sense. (I remember drafting a very involved analysis of a company a client was interested in buying, only to have a Taiwanese senior manager who spoke only basic English send it back to me marked-up with wildly inappropriate ‘corrections’ and rewrites. It was unreadable.)

Purchasing and HR managers in China are notorious for this. Their senior managers task them with finding a supplier or hiring a consultant. If your counter-party doesn’t understand the assignment he won’t ask for a clarification or explanation, as that would result in a loss of face. Instead he’ll scan the internet or a magazine for a trendy buzzword or recent industry headline and base his interview with you around that. If your proposal is over his head (it will be) or you try to explain things to the decision maker, you will lose the deal.

They usually resort to focusing on the only metric that they understand – COST. Don’t be surprised if they try to bargain on points that will result in making your product or service completely ineffective. The result is classic lose-lose negotiation. (How much of a discount can you give me if the truck only has 3 wheels?) You receive less than you think you should and deliver a product or service that is lower-quality than you would like it to be.

Don’t wait for economic rationality to catch up with them. This is a boom-town market, and economic rationality could be long off in the distance. You are better investing the time to find a suitable counter-party, rather than try to educate a low-level staffer who is indifferent or has his own agenda. Try to avoid being someone’s first international supplier or client – and don’t waste a lot of time if the initial offer or specification is too far off base. China is huge and growing – there are always new clients or sellers. You will grow old and hungry trying to raise the skill level of your counter-party. It is a much better bet to find someone who already knows what they are doing.

Topics: China Business, Business Entry, Due diligence | 1 Comment »

Hide the Bride

By andrew | March 21, 2007

American weddings have a charming custom of not letting the intended groom see the bride until the ceremony is well under way. Chinese negotiators have a similar custom – though it’s a good deal less charming. In many companies, the real decision-maker never takes part in the actual face-to-face negotiation. Instead you deal with a subordinate – who may have a great title and seem to be in a position of authority. But he doesn’t have the power to say YES — only NO. Someone behind the scenes is calling all the shots, and the person sitting across from you is just following instructions. He will seem to have a lot of authority when he is trying to get you to make concessions, but every time you ask him to reciprocate he tells you that the company has a policy against this.

How do you deal with this?

1) Make the initial negotiation about information. Find out who makes the decision, what they care about, who your competition is, and what their boss’ goal is. Your negotiating partner may be willing to give you lots of useful facts and figures. I’ve had people tell me exactly how I should structure my proposal so it had a better chance of success. But you should also expect to run into your share of tight-lipped, anally retentive jerks as well. There are 1.3 billion Chinese people, and every single one is different. Take your shot at building a rapport, but don’t count on it.

2) You may be dealing with a low-status person who can’t make any important decisions. Accept it, and act accordingly. Either use him as a conduit to the hidden decision maker, or call it a day and go home. Don’t waste your time arguing, cajoling and getting worked up. It’s not his fault – he would probably love to engage in a genuine negotiation with you if he could.

3) Gather as much information as possible and face the facts that you will probably be walking away from this one. There’s a reason Chinese companies use this strategy, and it’s not so that they can raise your comfort level and build long term, win-win relationships. They do it because it’s an effective way to gain a one-off advantage and evade responsibility. The customer service and quality at these places probably isn’t that great – and they are a real pain to try to collect from if you are the seller.

4) In the end, your only leverage is to make the counter-party lose face. They don’t care about profit or deal terms – they care about what their boss says. If they have to tell the boss that the Great White Whale has gotten away, it’s going to make them look terrible. This is not a great option if the person sitting across from you is a decent person, but your not here to make friends.

5) Have multiple counter-parties. Don’t let one uncooperative counter-party control your schedule. Take your time and find acceptable alternative partners. The person you are trying to negotiate with may not be helping you get the deal with HIS company, but he may help you get the deal with someone else. He will explain to you what the market is like, what quality levels you can expect, what general price levels you can expect and what your baseline deal terms are.

Many of my more successful negotiations have taken place while I had one foot out the door. You don’t have to make it personal. Practices this phrase until you know it by heart and can say it while faking a smile, “Unfortunately we won’t be able to do business this time, but maybe at some point in the future our situations will be different.” Then start walking.

The key to successful negotiating in China is to gather as much information as possible. Don’t get emotionally involved with a deal by feeling that you have already invested so much time and energy to get as far as you did that you become unwilling to walk away. Remember – no one in China gets more cooperative after the money changes hands.

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Negotiating in China: Swiping the Cab Fare

By andrew | March 20, 2007

Western business people put a lot of faith in Win-Win negotiation. They believe in the notion that if both sides are willing to accept less gain now, they can increase the overall profit potential of the relationship and both come out ahead. That can lead to problems when negotiating in China, because not all Chinese counter-parties are willing to forgo potential gain in the short term.

IN OTHER WORDS: Western negotiators who try to use promises of a big payoff in the future aren’t necessarily protecting themselves from being ripped off in the short term.

The most obvious example of this is the “up-front fee”, set-up fee, good faith money or deposit. A US business owner – let’s call him ‘Al’—contacts a Chinese counter-party –‘Bob’ — with the aim of having bathroom fixtures produced in Shenzhen for resale in the US. Al discusses the technical specifications with Bob, and lays out his plans for a long-term, win-win business arrangement. Bob will be Al’s supplier for years to come, with orders growing in size and value until both are rich and happy. Al feels that the prospect of having such a valuable stream of business in the pipeline will insure that Bob deals with him honestly and fairly. They agree on an initial order worth $25,000 to Bob’s factory. Al doesn’t worry when Bob asks for a relatively modest payment of $8,000 to set up the factory run or take care of regulatory obligations. Al wires the money, and waits for a progress report and sample of the production.

Al waits and waits and waits, but nothing happens. His calls and faxes to Bob don’t get returned, and when Al does manage to finally reach Bob, the conversation is vague and inconclusive. There are unspecified problems and vague promises that the situation will be resolved shortly. Bob may even ask for more money to clear up the delays.

What happened? Well, there’s always a chance that Bob is telling the truth and has encountered unexpected delays in filling the initial order. But it is very possible that Bob feels that their business is complete. That $8,000 may not seem like much to Al – or to you—but to Bob it is a good return for a few hours on the phone and a couple of international faxes. He’s satisfied. What about the hundreds of thousands of dollars worth of potential business? Well, to some people a small bird in the hand is worth more than a flock in the bush. The eight grand is real – pure profit. All of those other promises don’t necessarily mean a thing to Bob.

But another scenario is also possible. Maybe Bob really intended to honor his side of the deal, but couldn’t. His company didn’t have the necessary skill or equipment or ability to complete the order. Bob may not want to admit this to Al – it would be a humiliating loss of face. Pocketing the deposit and terminating the connection with Al is a much more dignified solution.

How can you protect yourself against counter-parties that are willing to destroy long-term value for the sake of tiny short-term gains?

Check references. Make sure that your counter-party has experience in this specific type of transaction, and that there are satisfied clients that will vouch for their honesty AND ability.

Don’t be anyone’s first international deal. Make sure your counter-party has successfully completed other overseas deals. Not all Chinese businesses have experience with foreigners, and encounter unexpected problems.

If a deal seems too good to be true, it is. The people who get ripped off in China are the ones who look for bargains. Go for value, not ‘cheap’.

Assume nothing. Don’t expect your own values, methods and skills to be the universal norm. Chinese managers are notorious for their weak problem-solving abilities, yet are surprisingly sensitive about their image and pride. Don’t count on them asking for help or admitting that they don’t know how to complete a transaction.

Put in your face time. If you have regular business in China, then plan on getting out there and visiting factories and suppliers. It’s a lot easier for a Chinese counter-party to pocket your initial payments if they think of you as just a fax number.

Find local partners you can count on. There are ex-pats and JVs based in China that perform due diligence on Chinese companies. Make use of them. Start your search here.

Topics: China Business, Business Entry, Due diligence | No Comments »

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