Procurement in China - Intercultural Insights
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Procurement in China
May 26, 2016
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Procurement in China

How should you go about procurement in China? There is no simple answer to this question, however one thing is certain: the ideas behind buying and selling differ greatly from one culture to another. We are often tempted to go with the cheapest option, but have we given enough thought to what people’s true motivations are during negotiations?

Stéphane Roche offers the following anecdote to highlight the impact of cultural differences when buying in China and the need to know the culture well to avoid mistakes concerning your contacts’ true intentions.

Procurement in China. Gone Wrong.

The manager of a Swiss company based in China which markets thermoformed plastic packs was looking for a new manufacturer. He contacts several Chinese companies, negotiates and finally chooses the least expensive of them which is also geographically the closest. He is very pleased with the deal he has just obtained.

Things Start off Well

The Swiss company delivers the mould to the Chinese manufacturer enabling it to produce the first batch of packs. Three weeks later he receives them: they are of the right quality and delivered within the set deadlines.

But Go Down Hill Quickly

Two months later, the Swiss company places a second order, but this time, the manufacturer does not deliver within the set deadline. The manager sends his contact an e-mail but receives no reply. He then calls but is unable to speak to his contact. As the manufacturer is located just a few hundred kilometres away, he decides to go there in person.

When he arrives, he is stupefied to find his mould stored outdoors in the company’s yard among all the other waste. He is extremely shocked, because this type of mould costs several thousand euros and he asks to immediately see his contact.

Eventually, the Deal Crumbles Completely

The Swiss manager is told that his contact isn’t there. He insists on seeing a manager. Finally, a young woman greets him in the hall and explains that they no longer wish to manufacture the packs at that price. The manager expresses his indignation at their lack of transparency and above all at the negligent way they stored the mould in the courtyard, with no protection. The woman tells him that she doesn’t know anything about this but refers him to another staff member who comes to see him in the hall and tells the manager that he can take his mould away with him.

The Intercultural Explanation

Unfortunately the Swiss manager’s attempt at finding the lowest cost supplier resulted in a situation where neither party really benefited. The key issues here were:

  • Profitability – The Chinese contact was not necessarily aware of his company’s production costs, and Management Control (often a poor relation to the other departments) didn’t step in. The manufacturer therefore put in a very low price to win the business, and it was only after the first batch was produced that he realised that he had struck a bad deal.
  • Lack of Ties – The Swiss manufacturer had not sought to forge close links with the supplier. The manufacturer therefore abruptly broke off the few links which had been established, without seeking to renegotiate or even to inform the Swiss company that their business relationship was now over as this would have obliged the Chinese manufacturer to provide explanations and to display his lack of professionalism in the field of management control, which would have caused him to lose face.

The moral of this story is, when planning to do business with any supplier:

  • Build up a relationship based on trust and confidence,
  • Identify a track record of professionalism beforehand,
  • And, do not always look for the lowest price.

 

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About author

Stéphane Roche

Stéphane Roche has worked for 15 years in international companies, mainly in the European and Asian markets. He has spent 7 years in China and Hong Kong. Today he assists leaders, managers, and teams on the challenges related to the internationalization of markets and organizations.

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