“I am currently planning my first deal with a Chinese supplier. Experienced sourcing experts tell me that Chinese apply their own, different negotiating strategies and techniques. Can you give me some general pointers on what these are and how to deal with them?”
Our expert Peter Pronk answers:
“First: one should always know if their supplier is a respectable company with the proper export license to supply the goods you agree. Requesting for references is not a problem when this company has a good name. Success also depends on the relationship you can build with your supplier. ‘Friendship first and business later’ is the motto in China! We advise to take enough time to negotiate with your supplier and to bring with you a good interpreter. A translator is a different person but an interpreter can help you to have a good deal. As a buyer, don’t be afraid to offer low since Chinese are used to do negotiate long and don’t give in too easy. Stay patient and stay firm but at the same time always use humour and jokes to keep a pleasant atmosphere. Always keep in mind that doing business with China usually does not work well via email. Invest time to visit you partner regularly or have a representative to do this for you. When you buy quality goods it is advisable to set up a quality control system before shipment of the goods. Many local specialists can support you in this!
Our expert Richard Jiang on how to negotiate in China:
1. Personal Friendship
In China, personal friendship is a prerequisite to doing business. Chinese suppliers usually try to establish a friendship with their counterparties before an official negotiation. So don’t be surprised if a dinner or late night drinking turns into a business negotiation. Suggestions: prepare some interesting topics in advance. Topics like food, family, education and sports (e.g. soccer and basketball) can be useful. Try to avoid talking about politics (e.g. Tibet, Tiananmen or human rights).
2. Endless Toasts
Toast is an important way for Chinese businessmen to show their respects. However, sometimes they use this as a method to get their counterparties drunk for obtaining extra business information or impairing their judgment. Suggestions: rejecting a toast is impolite in China. Heavy drinking can be delegated to one of the team members.
3. Real Intention
Chinese businessmen are good at flattering their counterparties. They usually praise your offering and try to avoid a direct rejection. This usually leads to a time-consuming negotiation. Suggestions: be careful when your Chinese counterparties become silent. This is usually the way they express dissent. Better to have a Chinese or someone is familiar with Chinese culture on your side.
4. Time-consuming Negotiation
It is normal that your Chinese counterparties renegotiate the issues previously agreed upon. If this happens, try to be flexible and well prepared your plan that there may have to be changes. Suggestions: be very clear on who is going to be making decisions in your Chinese counterparty. Be prepared to walk away if the negotiation takes too much time.
5. Cheap Price
Sometimes your Chinese counterparties will offer an extremely cheap price to attract you. However, an unreasonable price usually comes with low quality products. Suggestions: try to know the cost structure of your suppliers (e.g. labour cost and materials cost). Check their factories and ask them to produce a few samples in front of you.
6. IP & Know-how
Some Chinese suppliers care about your IP more than the purchase order. If your IP is involved, make sure they agree to sign a well-drafted confidentiality agreement. Suggestions: engage a lawyer who is knowledgeable about Chinese law to draft relevant agreements which cover delivery, storage, products quality & specifications, IP, know-how and penalties, etc.
Richard Jiang, Associate at HIL International Lawyers & Advisers in Shanghai, graduated from ECUPL in 2009. After passing the PRC Bar Examination having worked as an in-house lawyer at AEGON-CNOOC, Richard specializes in corporate law at HIL’s Shanghai offices.