Part 2: Combating changing terms, agreements and the cultural negotiation differences you face when working with Chinese Suppliers.

November 25, 2010 Uncategorized 0 Comment

As discussed in the article ‘Part 1: The nature of changing terms, agreements and the cultural negotiation differences you face when working with Chinese Suppliers’ working with Chinese manufacturers is challenging. When the goal posts are constantly being moved around how on earth are you able to kick a goal? There are so many horror stories online about people, who for one reason or another have had a bad experience with China. Most of the time, the sub-standard outcome has resulted from poor preparation, lack of experience or unrealistic expectations.

In this article we discuss how to prepare you to combat the nature of changing terms and agreements and the cultural difference when negotiating with Chinese suppliers.

Protecting yourself against these issues.
So how do you combat these ‘typical issues’ as discussed in Part 1? The answer is;
- Due Diligence
- Contracts
- Evidence
- Good Relationships

Due Diligence
This is the process you take to qualify the supplier or company that you’re choosing to deal with. Things you may see as important could be; their ability to supply the volumes you need ongoing, the key export markets they currently work with, their financial position and resources available and their core product lines. Many of these questions unfortunately can’t be 100% substantiated until you visit the premises. See the Silk Road article ‘The Importance of Due Diligence – Sourcing or Importing from China’ for more information.

There are various types of contracts you may raise with a Chinese supplier, ultimately all to protect your interests and hopefully decrease the chance of something going majorly wrong. Types of contracts may include;

  • Proforma Invoice – this is the invoice the supplier will raise for the goods when you are ready to pay the initial deposit. In most cases, this will only be very basic and will not have all the terms and conditions of your negotiations to usefully protect you.
  • Purchase Order Contract/Supply Contract – this is a contract you have drawn up to better protect your broad interests. The areas the contract covers may include things such as; IP, quantity, quality, payment terms, time frames, liability for breach of contract and methods to settle dispute or arbitration. A contract like this would be best drawn up by professionals with experience in Chinese law. The time and expense to both raise a contract like this, and enforce it in the event of any problems would be significant. You would need to weigh up your investments and risks before going to the expense of doing this.

At every opportunity, get evidence. It may be evidence that the factory exists, evidence that the supplier has produced this product type before or anything else. In many cases, you’re only going to be able to get the evidence by visiting the factory. Don’t necessarily rely on what your sales person contact in the factory is telling you, they could tell you anything. It’s important to validate any important claims the suppliers is making. When you start sampling, make sure you get samples and have them signed off by the supplier and yourself. Where possible, quarantine the samples you’ve signed off and have your inspector take them to the factory to compare with the production run. Follow up regularly, keep your supplier accountable and always collect evidence.

Good Relationships
So much about business in China is about the relationships behind it. The importance of continuing to build on your “guanxi” or your network in China is very important. The most important part is your relationship with the people within your network. In China, any business partnership is built around the relationship you have with the people in that business. Hence it is very important to have regular contact (preferably in person) with your supplier and if it is not viable for you to have this relationship due to time or you are unable to visit China on a regular basis because of the cost, it is vital for you to have a presence on the ground in China to maintain that relationship for you.

There’s no possible way to completely avoid risk when importing from China. However, if you do everything you can to stick to the rules above you’ll be far more likely to remain in control of the process and less likely to come across any great surprises.

- Do your research on the suppliers you plan to work with.
- Gather as much evidence as possible along the way.
- Develop and implement contracts where possible
- Nurture the relationship with a long term view.

Make sure you have a presence on the ground in China to help you validate claims, minimise the risks and read between the cultural lines. This will help insulate you from most of the games you’ll otherwise end up playing – completely out of your depth.

Related posts:

  1. Part 1: The nature of changing terms, agreements and the cultural negotiation differences you face when working with Chinese Suppliers.
  2. Chinese supplier agreements and purchase orders – How important are they?
  3. The Six Steps to successful Quality Control on China Suppliers
  4. International Trade Terms – What don’t you know about importing from China?
  5. Chinese New Year – What is it and how does it affect you?

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