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Culture crash case study: Chinese suppliers and foreign buyers negotiate a purchase order

by Mike Bellamy in the book "The Essential Reference Guide to China Sourcing"

Expectations of partnerships/PO Westerners often complain that they thought the negotiations were complete only to learn that the Chinese supplier wants to make further adjustments.

In the Chinese mindset, the partnership is like a boat on the ocean and the agreement sets the general destination. But if storms come up en route, the boat may have to change course. And the partners should work as a team to get out of the storms.

In short, if the general environment changes, then the partnership is subject to alterations. In the West, we do not see the buy-sell as a partnership but rather an explicit contract to buy an item with exact terms and conditions. If those terms are not achieved, then the contract is void along with any cooperative partnerships.

A good analogy would be that the Chinese are looking for a marriage (partnership between two businesses), Westerners are happy with a series of one-night stands (repeat purchase orders).

Typical case

The following scenario happens all the time: Buyer and seller meet in China and verbally agree on a price and delivery date. PO is placed and hands are shaken. Between the time the meeting takes place and the order is about to be processed, the price of raw materials goes up and the seller asks the buyer to pay a new higher price. Buyer gets angry at the Chinese for going back on their word. Chinese feel slighted that the buyer will not pay the higher price claiming the partnership was designed for two companies to help each other sell a product to the world and as partners they should share the burden when the environment changes (in this case, the cost of raw material).

The Chinese will claim they feel it is unfair that they are being punished for something they perceive as being beyond their control. While most buyers in the west would clearly feel that the supplier is responsible for controlling their internal costs, the Chinese often claim this is outside of their control and is an external environment issue rather than internal partnership issue.

Strategies to avoid problems

The way to get around this potential pitfall is to put in writing under signature with explicit detail the items that need to take place in the short term in order to have the potential for more business / deeper long term partnership. The key is to keep the supplier focused on the immediate tasks rather than get them focused on the long term partnerships. Avoid long-term commitments, or even implied commitments, like “I am thinking about buying 100 containers of product over the next 18 months” and focus on the more tangible, “I need 3 containers of X product per agreed specification” by a certain date. Then put the terms for the 3 containers into a writing PO with supporting terms and conditions. Get it signed.

You would be surprised at the number of new to China buyers who do not even set up a PO or let the supplier issue an invoice with the supplier’s terms and conditions (which are usually very vague). Any lack of definition will come back to haunt the buyer.

Remember: if you do not put it down in writing, you cannot expect that it will happen.

Mike Bellamy is an Advisory Board Member & Featured Blogger at the not- for-profit China Sourcing Information Center. He is also the author of "The Essential Reference Guide to China Sourcing" and founder of PassageMaker Sourcing Solutions.

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