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Written by David A. Dayton
I had an interesting experience (interesting, as in: I learned a lot and didn’t get screwed) today with a factory that is working with us on a couple of projects. Basically the owners and the manager came to talk with me about the fact that we are “too strict” on our quality standards and the high number of rejected products is costing the factory more than what they originally budgeted for.

Of course there were lots of issues that they, as owners and not project managers, didn’t know about like their late delivery, dirty product, incorrect product, etc. Once we got rid of the self-serving manager and listed out all the details we were able to have a relative straightforward discussion. Of course there are still many little twists, turns and subtleties that are sometimes hard to pick up (in Cantonese/Mandarin).

After it was over I made a list of things that I was able to take away from the experience:

1. If you don’t know that your negotiations, factory visits and dinners are planned and scripted then you don’t know what you’re doing in China.

Roles are defined, what can and can’t be offered is clear before negotiations start and who you will meet and what you will see is typically controlled to a large degree (as it is in the US and anywhere else—think about it). Learn to play the game and play your role—just like in the West, you have a job description and a specific responsibility. The difference is that that in China you are expected to know and play your part in the CHINESE script whether you speak Chinese or know their culture or not. The obvious problem is that Western and Chinese scripts are radically different. As one China hand put it, this is their sandbox and if you want to play in it, you’d better know the rules.

2. Talk with the people that have the authority to do something about the problem.

Just like anywhere else, the higher up the food chain you can climb the easier the resolution will be. If the owner of the factory will attend than you know you have both a serious issue and the opportunity to get the real story and a real answer.

3. There is often both a cover story and the real story.

The only way to get to the real story is to ask tons of questions and take copious notes. The stories will come out in the end. As important as finding the real issues are, this is often where Westerners most often fall short—we take too many things at face value. McGregor, in his One Billion Customers, states clearly that foreigners come to China with way too much trust—we transfer our legal system and cultural baggage to China because the suites, office buildings and computers put us at ease that all is the same. The latest news about the absolutely NON-independent judiciary should leave you with no doubt that things are different here.

4. Don’t openly push the inconsistencies too hard

—i.e. don’t cut off your (or some one else’s) nose to spite your face. There are stories and white lies (and big black ugly lies sometimes too) you’ll find and when you put the puzzle pieces together. Once you figure out the real situation you’ll have the upper hand—remember, if you can name the game you no longer have to play it. The trick it is to find out what’s really going one and then deal with it in way that allows the most people the most face as possible. If your goal is to get someone fired or make someone so angry that they spit on your burger before they serve it too you, you certainly can do this. But the really goal ought to be getting production done on spec and as close to on-time as possible—keep this in mind even if you feel that you have been totally wronged.

5. White face, dark face.

This is a very common and very conscious strategy employed by many negotiators, both Chinese and foreign. A.k.a. good cop, bad cop, in this scenario one guy will be the instigator and a partner will be calming voice of reason. This both raises the stakes and gives the instigator the ability to be the peacemaker at the same time. Threaten to cancel or not deliver with one hand and offer a (advantageous to you) solution with the other. Typically Chinese like to have the boss be the white face (good cop) and the manager be the black face (bad cop). I usually see foreigners doing the opposite. But since face is more “expensive” for the boss than the manager it most often works this way in Chinese culture.

6. The sacrificial lamb.

Like the black face, white face, this strategy allows the instigator to cut someone loose or give in on a specific issue without losing the war. This is another fairly common strategy in China where labor is (over) abundant and replacing people is easy. For example, it’s often much easier to fire a QC manager and blame the issues on him than to accept the face losing issues that could be the real concerns. The use of this strategy is not just convenient for the instigator but often a sign that the factory is willing to make some significant concessions, if they don’t publicly lose face or privately lose money. Often times a manager will be both the black face and the sacrificial lamb—he gets angry forces issues and then will be sent off or just leave the negotiations thus allowing cooler heads to continue. I even fired myself once to make a point over a ½ million dollar project (I told them that their mistakes had cost us so much that my boss fired me). I’ve never worked with that factory again since then.

7. The closing offer.

Once everyone is friends again and all the issues are worked out there will invariably be a last issue that’s just thrown in at the very end. Often literally on the way out the door—“Oh, by the way, this material is going to cost more on the next order. We’ll eat it this time, but the price is now this much more.” My theory is that this happens because meetings between Chinese usually end with dinner or Karaoke so there is still time to work out issues. But foreigners usually have work meetings during the day and then go home. Whatever the reason, it’s almost comical to me—it’s something they have to bring up, but don’t want to so they wait until there is no possible way to procrastinate it any longer and then, just off the cuff, throw it out.

8. The way out.

When ever I’ve been asked to pay more, I always come back with “I can’t ask my client to pay more after the order has been placed. Where do you expect this extra money is going to come from?” The truth, of course, that the supplier won’t say is: “you’ll just have to lose some of your margin because of our mistakes.” But what they usually do, after some hemming and hawing is to offer me a way out—just not in so many words. It typically goes like this: The supplier will offer an improvement to the product that will cost very little but could be added to existing production and then used to cover the costs of the price increase so the end client doesn’t realize that they’re paying for both the (unnecessary, but perhaps useful) alteration and the other cost increase. I personally don’t ever add costs that cannot be specifically account for—it’s not worth the potential fall out with a longtime client. The offer actually is helpful because you can always procrastinate making a decision (if necessary) by saying you’ll talk with the client about the “improvement.” In addition, these options, if you remember them, can give you leverage for future negotiations as well as inside pricing information directly from a factory that’s trying to cut a deal.

9. A show of anger vs. a loss of face.

For me this one of the hardest things to understand—at what point is a Chinese conversation (argument) too personal and offensive? As a foreigner, I see/hear Chinese people shopping and yelling like a beating is immediately forthcoming. But two minutes later the transaction is done and both parties walk away as if nothing happened. Just so you know that it’ not just foreigners that think this, Thai’s say about the Chinese “Chinese talk like Thais fight.” It’s quite amazing if you’ve never experienced it before. If you have then you know that it’s not totally inscrutable. There are a couple of general rules that will keep you within the lines of acceptability.

First, don’t make it personal—don’t be rude, condescending or insulting. This is a give in any culture and especially true in face conscious China. Second, try not to throw any one specific person under the bus. The factory boss may disrespect his own manager, but you can’t. Likewise, you can chew out your own QC manager, but they can’t. Detail issues that are specific to one person without pointing fingers at him directly. Third, try to resolve specific concerns with general solutions. I know that sound’s crazy, but if, for example, you can both agree that your QC is the final say in the production process you then don’t need to bust their chops over all the minutia that got the product rejected in the first place.

10. Know the numbers better than your counter parts.

This is straight from Sunzi’s art of war and the Chinese know it well and will beat you with it every time—unless you’re prepared. Know the costs, the production times, the delivery schedules, who’s in charge of what, where the break downs occurred and what are the specific options to fix things. If you know the numbers you can’t be taken advantage of—no mystical Chinese wisdom in that. It’s just good business sense. Now the catch is balancing this overwhelming knowledge of minutia with the ability to play “non-specific” games. You can always counter price with price and times with times—abstract details about processes and products aren’t as offensive as or don’t cost as much face or good will as personal accusations.

11. Chinese don’t know the concept of win/win.

True, this may be sweeping generality, but everything I’ve experienced and read agrees. Why? Two reasons. First, most of the upper level people you’re dealing with in China are products of China tumultuous past. Second, the lack of an effective legal culture means that change is the only constant. Under these circumstances wining is still a zero sum game. If you can win the money game and they can win the face game without losing money, that’s probably about as close as you can get to win/win. The guys as Sinocidal said it best: As far as most Chinese are concerned “Win Win is a panda bear in Sichuan Province.”

12. No one, not anyone ever makes product for a loss.

Don’t ever believe this line. Regardless of the negotiations, every factory I’ve ever talked in China, Vietnam, Thailand or India with has brought this excuse up at one time or another. In my book, it’s the dumbest line ever. No one agrees to make product for a loss and usually the price increase are so minuscule that there is no way that the factory’s margin is that small. The answer to this excuse is simple, call the bluff. “Ok, let’s call this deal off and I’ll move on to another supplier.” In 10 plus years in Asia I’ve only ever had one factory take me up on this offer—they were so busy they didn’t want my business.

In China is common to find factories that think that they have their Western counter parts by the nether regions. Sometimes it’s true, but usually only if you’ve not been careful or on-site. In most situations if you’re committed to a project financially, unless you’ve been seriously lied too, so is your supplier. At that point no one really wants out—and if you’ve planned ahead, you can counter the temptation to raise the prices in your initial PO’s. Additionally, in today’s China if push does come to shove, there is always someone else how can make your product. If you’ve got the time and patience to find someone else, they are certainly out there.

Now there are times that I’ve later agreed to pay more to just get what I initially contracted for—and felt good about it. Sometimes factories make honest mistakes and miscalculations. The RMB strengthens, oil prices rise, etc. There are legitimate reasons for price increases just make sure it’s not just a rouse to get you to pay more.

13. Time is on their side.

Sometimes called the “iron ass” strategy, this is definitely something that China has learned that the West has not. The longer they wait, the more desperate we typically become. We are an instant gratification society. The classic Chinese tactic is to have meaningless meeting after meaningless meeting to overwhelm you with nothing. The solution? First, arrange a meeting with someone that is important and has other business to do—e.g. a factory owner or high level manager, like you, has little time to waste doing nothing. Second, a couple of days is not a long time—learn to wait. Third, if you need to, sit them out. They can’t put you off forever and they will be increasingly uncomfortable the longer you hold them to their promises of “the boss will be here soon.” This strategy then extends to meetings as well—they may be long, but keep on your points and get what you came for. I’ve see many foreigners leave China with less than they wanted on a project worth hundreds of thousands of dollars because they had a two thousand dollar flight to catch to get back home.

Organization, details, politeness, a strong will and a healthy does of patience will help your negotiations in China.

Good luck!

David A. Dayton is the CEO of Silk Road International (SRI), an U.S.-owned and managed international procurement agency based in China. Click here to visit SRI's Website.

Our valuable Editor David A. Dayton has been with us since Monday, 02 November 2009.

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