Treat your first China negotiation as a pure learning experience
Here’s an interesting way to avoid making expensive mistakes on your first deal in China – enter your first negotiation KNOWING you plan on not buying (or signing, as the case may be). Chinese have been using this tactic… well, pretty much forever. You engage in negotiations without the pressure and stress of worrying that your ignorance will work against you. Ask basic, naïve questions, probe for information, and make unreasonable demands. Do as much as you can by phone and email, but by all means – GET OUT TO CHINA AND DO YOUR OWN LEGWORK. Once your counter-party has made his proposal, drive the price lower. And lower. When have you reached his bottom price? When he gets angry.
I learned to do this in the old XiangYang market – Shanghai’s famous collection of stalls where hundreds of Chinese merchants all sell pretty much the same assortment of clothing, house wares and souvenirs. (Unfortunately closed down to make room for another HK real estate development.) They knew the tourists were coming, so they marked up their prices by 300 – 500%. You’d go to buy a fan that the bicycle cart guys will sell for rmb 15, and the XiangYang merchants would start off at 180. You say – 50 (having read that you should pay 25% of the first offer in one of the tourist guides), and you’d end up at 90 or 100. You bargained them down by almost 50%! Tai ban le! And how do you know you got ripped off? They are smiling at you as you leave. Come again! Bring your friends! Bring your money, is more like it.
So you needed to learn to do this: Start off at the first stall, bargaining for the fan to determine your first benchmark – maybe 90 rmb. Then walk away. They will yell for you to come back and lower their price. Don’t go for it. Keep walking. The next stall that sells the fans is close by. Now start at half or a quarter of your benchmark price. It doesn’t matter. You are probing for the bottom price, and will keep moving on until you have that information. How do you know when you’ve reached it? They fold their arms and look away. If they don’t answer you, you’ve gone below their cost and it’s not worthwhile for them to engage.
NOW you’re ready to really negotiate. You’ve been to a few different places, and you have a pretty good idea what the REAL cost to them is. At 25 they still smile at you, at 20 they are still making eye contact but not smiling so much, at 10 they cross their arms and look away. 15 is your price. You can apply these same principles to your own B2B negotiations.