Just saw an Inc. Magazine article entitled, “How to Partner in China in 2013.”  The article makes a number of good basic points about what it takes to succeed in doing business in China today and I am saying that not just because I contributed two of them.  The article’s premise question is “How can you take advantage of [China’s] lower costs and the prospect of over 1 billion new consumers while minimizing risk? The following were proposed:

Start Small and Tough.  Arie Lewin, professor of International Business and strategy at Fuqua School of Business at Duke University advocates testing your China partner with “a small, low-risk project to set a high bar for quality and timing.”

Get everything in writing. The article quotes me as saying that ten years ago, the “typical entrepreneur would not have had a written contract with their Chinese suppliers” but now “it’s foolish not to have a written contract,” since most Chinese businesses, especially in places “like Shanghai and Shenzhen” are accustomed to them. The article then advocates making sure that the contract is “spelled out in both English and Chinese, and clearly states the product specifications, the quality requirements, the trade secrets policy, and so forth.”  I disagree a bit with this in that we strongly advocate doing China contracts in only one language, usually Chinese.  For our reasoning behind single language contracts, check out Dual Language China Contracts Double Your Chance Of Disaster and China OEM Agreements. Why Ours Are In Chinese. Flat Out.

Realize a contract is just the beginning of the conversation.  Andrew Hupert talks of the importance of Americans realizing that in China a contracts is “an exercise meant to help the two sides understand the dynamics and expectations of the relationship—not to determine a hard and fast set of deliverables.”  I agree with Andrew, but the problem here is that the Chinese side expects to be able to make changes but it also complains when the American side seeks to make changes. In other words, the flexibility goes only one way and it is up to the American side not to allow that, which leads into the next thing….

Don’t let them get away with things—even if you let them get away with things.  Even if you plan to let one bad shipment slide, it’s important to let the partner know you noticed. “Let them know you know what’s going on,” says Harris. “And if it happens again, you’ll need a new agreement on that.”

Get to know them—and their friends.  “There’s an old joke in China,” says Hupert. “If your partner doesn’t have a picture of your family on their computer, then you’re just a transaction. And that doesn’t count for much.” Reach out to local government officials, and make them aware of you and how you’re helping their economy, says Lewin. “If you’re creating employment, they’re very interested.” By gaining importance as a community member, you gain importance as a business partner, too.

What would you add?

  • Good tips.
    # 1 strikes me as very ironic becuase just today I recieved an email from an past client of mine who says that she gave an order to an apparel factory in Shandong and the first order went very well. Their quality and pricing was much better than the factory she is using in Shenzhen. However, she said that when she discussed the next order with them they raised the prices and MOQ significantly, She was not happy about this and asked me what she could have done better. I told her that it is a good idea to discuss price hikes and MOQs with your vendors before you do orders with them and tell them you will not tolerate substantial increases in either. You have to send the message to vendors at the beginning that your target costs are based on order projections for the forseeable future and that if prices and MOQ go up significantly ( small increases are understandable) , you will walk. And you have to be prepared to walk.
    Some other things as follows:
    Interesting about the contract in one language only. I had not thought about that. Makes sense.
    Let them know when they have messed up. Yes. But also let them know when they do something right. Vendors appreciate the praise. As I always like to say: work with your vendors not against them.
    As far as reaching out to local govt. offciials for big companies with substantial investement in the area, yes, of course. For small companies who really are just doing a few orders with a local vendor, I am not sure this is practical advice. Overall, I do think it helps to try to be on friendly terms with your vendor ( though not too friendly) and this is where I advocate learning some Chinese and knowing about China, its history and culture, when you do business there. When you don’t acknowledge China, that is when you become, in Hupert’s words, “just another transaction.”

  • Dan writes: “I agree with Andrew, but the problem here is that the Chinese side expects to be able to make changes but it also complains when the American side seeks to make changes.’

    No, this isn’t quite accurate. The Chinese sees the written words as what we would call a Memorandum of Understanding, against the back drop of a Civil Code.

    They also know we don’t know the Code as well as they do – so they push aggressively for an interpretation that favors their position. Knowing that most don’t understand the Civil Code background.

    Anyone with a decent background in collective bargaining -not mutual gains bargaining- would pick this up and adjust accordingly.

  • Tip 6, let them think that I will be a long term partnership. Win Win situation I win you win, but If I lose you lose too.

  • I have some comments to add as to chinese language contracts. I do recommend dual language contracts, but always with a clause that states that if there is a difference of interpretation, the english version controls. I also always include an enforcement provision in a location outside China- arbitration in Hong Kong or Singapore, to get a place where my clients have a chance at fair and effective enforcement of their rights- most Chinese companies are now fully comfortable with these clauses. But finally, since I’ve found that the language of chinese contracts is much more formal and stilted, and the meanings of the terms so different than what a western businessperson would expect, that written contracts have a less important role in business success than in many other countries.

    I believe such success still comes down to your on the ground people and the level of trust and self interest you’ve built into the transaction

  • China Newz

    Don’t let them get away with things – even if you let them get away with things…

    Never signed a contract with a Chinese business firm but have read a few books on doing business in China. It seems like Chinese factories will cut corners on product specs just to save a penny (imagine this will likely increase as factory wages increase).

    Because it will be so difficult and costly to switch to a new supplier, once American businesses contract with a manufacturer, they almost have to let their Chinese partner get a way with things. That this is a part of the “normal” businesses relationship with China and it should be anticipated.