China Negotiations Still Far From Transparent – But Getting Better

Engineers use the term “black box” to refer to a process that isn’t clearly understood, but transforms inputs into observable results.  In other words, you know what goes in, and you know what comes out, but you don’t necessarily know or care HOW it happens.

Unfortunately for us, negotiating a deal in China is often a ‘black-box’ process.  We submit proposals, bids, and recommendations, and then they just kind of disappear into the Bureaucracy.  Sometimes there’s good news, sometimes bad – but more often there’s NO RESPONSE at all.
This Black Box process represents two dangers to international managers in China.

1) You have no control over your own sales process, and thus cannot effectively monitor the performance of your own people.
2) Your own company may be falling into the Black Box procurement trap.

Chinese companies traditionally place barriers between real decision-makers and sales people.  Ok, ALL companies do this – but Chinese organizations take it to an extreme.  US managers consider a face-to-face meeting with all suppliers as a basic component of due diligence.  Eyeballing the guy who gets the order is common practice at any successful US company.  In China you may get a significant order without even knowing who the real decision-maker is.  This leads to problems for sales organizations.

First of all, it reduces the sales process to bureaucratic paper shuffling.  Your people are being conditioned to submit proposals to low-level procurement or HR people and wait quietly for a response.  This is generating LOTS of activity on your sales floor, as your team scurries around making connections and preparing proposals, but doesn’t make your organization any smarter.  Even when you are getting orders, you can’t be sure WHY your bid was chosen.  In some cases, the ensuing sales relationship offers your team plenty of opportunities to build meaningful bridges with real decision makers.  Often, however, the deal is not a perfect fit for either side and the result is a one-off sale that doesn’t lead to strategic relationships.

A second negative result of Black Box Procurement is what I call the “Bad Compromise”.  A senior manager is attracted to your company’s product or service because of your quality or unique set of solutions, and they direct their lower-level staffers to initiate contact and gather information.  But the staffer, working with incomplete information or a different set of priorities, focuses on price, quantity or scheduling factors.  They don’t have the technical or strategic abilities to follow-up on their senior manager’s vision, so they reduce the bidding process to numbers that they CAN understand.  They try to cut price, advance the schedule and “streamline” the process according to their own priorities.  You and your team respond by dropping quality, eliminating features, and protecting your own bottom line.  The end result is a Lose-Lose negotiation that leaves both parties worse off than they anticipated.

There are 3 approaches you can take to minimize these difficulties.

1) Try to climb the Decision Making ladder where possible – which may mean getting more senior people on your end involved.  Many ex-pat managers complain that their sales people aren’t independent enough – but that may not take structural factors into account.  There are times when a senior manager can open doors and get meetings that no one else can. 

2) Negotiate differently.  If your people can’t move past the gatekeeper then you must train to negotiate for information first, then set terms once they have a clearer understanding of their counter-party’s priorities.  I constantly hear from salesmen who try to sign contracts with gatekeepers and messengers, when they should be negotiating about information and access.

3) Know when you have to walk away.  Your young salesmen tend to get emotionally invested in the deal because it seems within reach after a long, difficult effort.  You should know better.  Set firm limits at the beginning.  If you aren’t willing to say NO to a bad deal in China, then that is the only kind you will ever make.

This is also a great time to review your OWN procurement, buying and outsourcing processes.  Is your organization a Black Box that engages in Lose-Lose negotiations without your knowledge?  Make a complete audit of your buying process one of your priorities for the New Year.

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