By Gary Huang
In China, negotiations are a way of life.
The first key is that in China, negotiations are a way of life. Whether it’s shopping, salary, benefits, or rent negotiating very common in your day-to-day life.
Unlike the US and many parts of the Western world, in China negotiations are a way of life. Having lived in Shanghai, Nanjing, and Beijing, I’ve started getting used to negotiations with Chinese suppliers in my business.
I remember when first traveling to Beijing, and visiting the local marketplace I saw that there were tons of knockoff Ralph Lauren polo shirts and leather belts! But I noticed something missing — there were no price tags anywhere! The only way to learn the price was to ask. They would take a glance at me to size me up and then make a starting offer. “Yi Bai Kuai” or 100 RMB or roughly $15. They would offer a high starting price and expect me to come back with a counteroffer. Over visits to several street stalls hawking the same wares, I quickly learned that the opening bid is high but there is also a market price for this item. For example for the polo shirts it was around RMB80 or roughly $10. They would expect you to bargain them down.
But don’t expect to be successful on your first try. I failed many times. Sometimes after thinking, I got a good deal I later found out that I paid too much in the beginning. Later I tried the other extreme and tried to be ultra aggressive and come back at RMB40. The seller was furious and was offended by my offer… even though I said it with a smile on my face!
Later I learned to tone it down to a more reasonable price but still below their price and say it with a smile.
Money ain’t a thing — Be THICK-SKINNED when negotiating
The second mindset to understand is that in China people tend to be very transparent talking about money. For example asking someone how much they make is not rude! Or how much they paid for that Louis Vuitton handbag. Or how much for their apartment.
So the takeaway is that you must be THICK-SKINNED when negotiating. Don’t be afraid to ask. And keep in mind that the worst thing that can happen is that they say no. Unless you really are trying to lowball someone, few Chinese suppliers will be offended when you try to negotiate. They know it’s all part of the game of business.
In fact they’ve already embedded some margin into the price they offered you. Which leads us to the next point…
They EXPECT you to negotiate
Negotiations are EXPECTED. Like the Polo shirt street vendors, Chinese suppliers expect you to negotiate. In fact they’ve already added a premium in their opening price as a cushion against your negotiations. So if you don’t ask then you’re leaving money on the table. Be sure to negotiate before accepting their first offer.
Remember that Chinese suppliers expect you to negotiate for a lower price. They are thick-skinned and are not likely to be offended. Finally when preparing to negotiate, you should cast a wide net and ask many suppliers to learn of the range of prices of the market.
Avoid analysis paralysis — Enter the 70% Rule
But at the same time, once you have this information ready, it’s vital that you avoid ANALYSIS PARALYSIS. Many sellers, new and old, suffer from this disease. Once they have enough information, they keep going back and forth over the numbers. Or they keep trying to research for more information. They keep putting off making the call, or asking for a better price, or submitting the purchase order, or wiring the money.
It’s human nature but this will not move your business forward. To avoid analysis paralysis, collect enough information, about 70%, to take a smart decision and move your business forward.
I love Jeff Bezos’ 70% rule. As the founder of Amazon.com he clearly knows a thing or two about doing business. In his 2016 Annual Letter to Amazon Shareholders he wrote, “Most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow. Plus, either way, you need to be good at quickly recognizing and correcting bad decisions. If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.”
This article is an excerpt of The Online Seller’s Guide to Negotiation with Your Chinese Suppliers eBook, available to download for free here. In the eBook you will also learn six things you can negotiate for besides price; when you should email, call, or meet a supplier face to face when negotiating; avoid common mistakes that both newbies and veterans make that can leave money on the table.