You’re sitting across the negotiating table with your Chinese supplier. Your agenda? (1) Lower your cost per unit by 8%, (2) Speed up production time per 40′ container by one week and (3) Get them to accept more favorable payment terms (e.g. 30% down, Net 90 on the balance).
His agenda? To make as much money as possible and (this is very important), to gain as much face as possible. Hence, your request for lower cost per unit, despite quantity increases, isn’t going to go over very well if you ask for it directly. Secondly, your request for increased production speed will reduce his flexibility in scheduling his jobs. Finally, your request for better payment terms means he’s got to pay more in interest on his operating capital.
Note: If you’re Nike, GM, or Wal-mart, none of this applies. If you’re a medium or small enterprise, read on.
If you say something like “We’ve increased our quantity to nearly three times what it was last year, so we’ll need you to cut your costs by 8% per unit,” you’re going to get this response: The boss will furrow his brow, scratch his chin, and say “That will be very difficult” or alternatively, “That is very inconvenient for us.” What that means, in plain English, is…..NO!
The boss will then explain the fact that his own costs have increased over time. Labor, materials, equipment, rent. Everything has gone up. He was thinking about asking you for a price increase! Also, you don’t do things very efficiently. You send POs, then make changes to them. Some of your preferred suppliers are difficult to work with. Etcetera.
Why did you get this response? Perhaps the more cogent question is, how do you get the response you want?
If you’re a typical Westerner, you won’t really like the answer.
You’re going to have to throw yourself at his mercy, and in doing so, appeal to his social obligation to save your face and to his desire to increase his face.
This is why saying to a Chinese supplier “You know, there are several other factories we could work with here?” will only stall and complicate negotiations. You’ll just irritate them by saying this.
So what do you say? You give him the opportunity to help your business as a bona fide partner by saying something like this: “I’m facing serious competitive pressure in my market. You are my partner–without you, I couldn’t get anything done. If I don’t find a way to decrease my costs by 8%, I don’t see how I can stay in business long-term. Please, Mr. Wang, can you take a closer look at your production costs and find a way to lower my cost per unit?” If you can manage to tear up and let your voice shake a bit, even better.
I know it seems counterintuitive for a Westerner to talk like this (it seems like butt-kissing to most of us), but this is what works in China. You aren’t butt-kissing. You are appealing to a very powerful sociological force: The obligation to give face to a customer who has humbled himself before you, and the desire to increase one’s own face by playing the traditional role of the hero. In this case, the damsel in distress is your company.
And if you think about it, it doesn’t really hurt you to try this. If you don’t get anywhere, you can always try the tactics you would normally try in your home country (e.g. find another supplier, strong-arm your current supplier, whatever).
One of my consulting clients was a company whose boss refused to adapt to Chinese communication styles. He comes from an aristocratic family, and could never understand or countenance the need to humble oneself and ask for help. He treated his Asian suppliers the way he treated his American suppliers: You work for me, so get in line, or else. His Chinese suppliers felt insulted and unappreciated, and after a time, did everything they could to rip him off. I had all ten fingers and all ten toes in the dam, trying to keep the relationship from breaking, but after a few years, it did indeed break. The relationship ended messily, with threats of lawsuits back and forth.
Do you want to do your manufacturing work in China? Then you’d better learn to communicate with the Chinese. You’ll be leaps and bounds ahead of your competition, who are thinking “Culture? Schmulture! A supplier who won’t do what I ask can kiss my Western butt!” Meanwhile, you’re getting the unit pricing, delivery schedule, and payment terms you want.
Now, do you want to sell your products in China? I’ll write about that in my next post.