The Essence of Supply Chain Success

Chinese Style Negotiation

2008-05-11T09:56:00.000-07:00

Negotiations are generally smoother if you visit the relevant factory because your physical presence gives a loud statement of your seriousness. Without this message from you, you are likely to get no better than standard pricing and co-operation.

To establish a business relationship, Chinese management generally prefer face-to-face contact. They enjoy taking prospects out to lunch or dinner and showing them around their facilities. The cultural influences defined set of elements that underpins the Chinese negotiation style.

How precisely do the Chinese negotiate contracts and other agreements? Do they follow conventions similar to those of European negotiators? To the Japanese? Is there a pattern or style to their negotiations? These are the types of issues examined and resolved in following eight important elements of the Chinese negotiation style in the order most Westerners will encounter them:

1. Guanxi (Personal Connections)
While Americans put a premium on networking, information, and institutions, the Chinese place a premium on individuals' social capital within their group of friends, relatives, and close associates.

2. Zhongjian Ren (The Intermediary)
Business deals for Americans in China don't have a chance without the zhongjian ren, the intermediary. In the United States, we tend to trust others until or unless we're given reason not to. In China, suspicion and distrust characterize all meetings with strangers.

3. Shehui Dengji (Social Status)
American-style, "just call me Mary" casualness does not play well in a country where the Confucian values of obedience and deference to one's superiors remain strong. The formality goes much deeper, however—unfathomably so, to many Westerners.

4. Renji Hexie (Interpersonal Harmony)
The Chinese sayings, "A man without a smile should not open a shop." and "Sweet temper and friendliness produce money." speak volumes about the importance of harmonious relations between business partners.

5. Zhengti Guannian (Holistic Thinking)
The Chinese think in terms of the whole while Americans think sequentially and individualistically, breaking up complex negotiation tasks into a series of smaller issues: price, quantity, warranty, delivery, and so forth. Chinese negotiators tend to talk about those issues all at once, skipping among them, and, from the Americans' point of view, seemingly never settling anything.

6. Jiejian (Thrift)
China's long history of economic and political instability has taught its people to save their money, a practice known as jiejian. The focus on savings results, in business negotiations, in a lot of bargaining over price—usually through haggling. Chinese negotiators will pad their offers with more room to maneuver than most Americans are used to, and they will make concessions on price with great reluctance and only after lengthy discussions.

7. Mianzi ("Face" or Social Capital)
In Chinese business culture, a person's reputation and social standing rest on saving face. If Westerners cause the Chinese embarrassment or loss of composure, even unintentionally, it can be disastrous for business negotiations.

8. Chiku Nailao (Endurance, Relentlessness, or Eating Bitterness and Enduring Labor)
The Chinese are famous for their work ethic. But they take diligence one step further—to endurance. Where Americans place high value on talent as a key to success, the Chinese see chiku nailao as much more important and honorable.

Below is the View from Both Sides which indicates the basic cultural values and ways of thinking:

American	Chinese
individualist	collectivist
egalitarian	hierarchical
information oriented	relationship oriented
reductionist	holistic
sequential	circular
seeks the truth	seeks the way
the argument culture	the haggling culture

How they approach the negotiation process

American	Chinese
quick meetings	long courting process
informal	formal
make cold calls	draw on intermediaries

Information Exchange

American	Chinese
full authority	long courting process
direct	formal
proposals first	explanations first

Means of Persuasion

American	Chinese
aggressive	questioning
impatient	enduring

Terms of Agreement

American	Chinese
forging a "good deal"	forging a longterm relationship

Numbers in Chinese Culture

Numbers in Chinese culture play a significant role based on the belief that certain numbers are lucky or unlucky. In Chinese culture, the luck of numbers is based on the Chinese word that the number name sounds similar to other Chinese words. People try to get lucky numbers or lucky number combinations in their phone numbers, street addresses, residence floor (in a multi-storey building), driver's license number, license plate number, bank account number, etc. Number definitions:

One - (1): represents unity. And it is one of favourable numbers.
Two - (2): represents "good things come in pair" as the Mandarin speaks. And according to the Cantonese "2" means "easy".
Three - (3): represents "live" and all related to living things.
Four - (4): represents the "death" and always related to unlucky things.
Five - (5): represents "me" or "nothing".
Six - (6): represents the salary or the income.
Seven - (7): represents "together".
Eight - (8): represents the prosperity, wealthiness, and fortune.
Nine - (9): represents the "longevity" or lost-lasting.
Zero - (0): means complete or as a whole.

Arranging Shipment

2008-05-04T14:00:00.000-07:00

Whether the firm is large or small, the weight of the cargo is light or heavy, the freight forwarder and customs broker will take care of it from “dock to dock” if requested by a client. They will take care of the logistics for transportation and customs clearance.

Forwards and custos brokers will deal with many of the details involved with the logistics of exporting their goods. The process of transportation includes the correct filing of export documentation, packing, crating, storage and customs clearance needs. In addition, freight forwarders typically have access to shipping discounts so that they charge modest rate.

Issue a power of attorney for your customs broker to act on your behalf when the goods arrive in your country. However you may be called on for additional information.

What is a freight forwarder?

The forwarder advises and assists clients on how to move goods most efficiently from one point A to Point B. A forwarder’s extensive knowledge of documentation requirements, regulations, transportation costs and banking practices can ease the exporting process for many companies.

What is a customs broker?

A customs broker performs transactions at ports on behalf of other parties. It guides goods into a country. The broker can also estimate the landed costs for shipments entering the country. The transactions costs for the importer will include the entry of goods into a customs territory, payment of taxes and duties and duty drawback or refunds.

Exporters typically do not book shipments directly with a foreign customs broker, because freight forwarders often partner with customs brokers overseas who will clear goods that the forwarder ships to the overseas port.

Correctly use of Incoterms will provide the legal certainty upon which mutual confidence between business partners must be based.

What are INCOTERMS and when are they used?

Incoterms is an abbreviation of International Commercial Terms. They are standard trade definitions most commonly used in international sales contracts. Devised and published by the International Chamber of Commerce. The Incoterms provide a common set of rules for the most often used international terms of trade. The goal of the Incoterms is to alleviate or reduce confusion over interpretations of shipping terms by outlining who is obligated to take control of and/or insure goods at a particular point in the shipping process. Furthermore, the terms outline the obligations for the clearance of the goods for export or import and packing requirements. The Incoterms are used quite frequently in international contracts and an official version of the Incoterms should be referenced in the text of the contract.

What are some examples of INCOTERMS?

Incoterms fall into four different groups:
Departure (E)
Main Carriage Unpaid (F)
Main Carriage Paid (C)
Arrival (D)

EXW Ex Work (delivered at seller's premises)
FCA Free Carrier (delivered at carrier's premises)
FAS Free Alongside Ship (port of departure)
FOB Free On Board (port of departure)
CIF
CFR Cost, Insurance and Freight (named port of destination)
Cost and Freight (named port of destination)
DES
DEQ Delivered Ex Ship (named port of destination)
Delivered Ex Quay (named port of destination)
DDU
DDP Delivered Duty Unpaid (named place of destination)
Delivered Duty Paid (named place of destination)

Caution must be exercised when using Incoterms because they relate to particular modes of transportation. For example, Incoterms such as FOB (Free on Board) and CIF (Cost, Insurance and Freight) are only applicable to sea transport. FOB indicates that the shipper (seller) has upheld his/her part of the agreement when the goods pass the ship’s rails at the port of exit. The receiving party (buyer) assumes risk and costs associated with the goods once they pass the ship’s rail in the seller’s homeport. Due to the specific mention of the ship's rails, an aircraft or other mode of transport could not be used with FOB. For a shipment scheduled for delivery by air, rail, or some other form of transport with the same agreement as FOB one would need to use the Incoterm FCA, or Free Carrier. FCA can include other modes of transportation such as road, rail, inland waterway and air. Whereas transfer under FOB takes place when the cargo passes the ship’s rails, transfer with FCA occurs when delivery of goods has been made at a destination previously outlined by the buying party.

These examples are not a definitive guide, but serve to highlight common Incoterms used in exporting.

Quality Assurance and Pre Shipment Inspection

2008-04-29T20:08:00.000-07:00

When companies outside of Asia do business in China, quality is often the biggest problem. This can be due to several reasons including: Cultural differences in business etiquette, differences in quality standards and quality assurance, or sometimes just communication problems. These are compounded by the physical distance between the two parties.

You may choose some of the folllowing methods to assist in getting qualified product from China.

1. Import from China without a quality certificate
This is when the importer depends solely upon a sample to judge product quality. If so, please check the company website (if it exists). Every website must have a unique ICP number and it must placed on the home page which is mandated by the Chinese government.

It is necessary to check the company in Google and Baidu to check whether this company has a good reputation. It is possible if a company has provided bad quality to buyers, complaints may be on the internet.

2. Set up an office in China
Shanghai, Guangzhou, Beijing should be the first choices.

3. Travel to China
You will examine the factory to inspect merchandise to guarantee the product quality. This is suitable for the initiating phase for a new product or important products.

4. Seeking a 3rd party inspection company
A long term, cooperative Quality Check and Inspection partner is very important. If the relationship has been set up, you will benefit from it.

A third party inspection service will perform your quality inspections and audits. It will minimize your defect rates and maximize your shipment quality. They will inspect products on your behalf at all stages from the factory audit, through the manufacturing process to deliver in regards to main check point as below:

1. Evaluate the product if it matches with product specifications, packaging, packing and marking.
2. Evaluate product for safety, design, function, appearance, and performance.
3. Assess packaging slip.

A quality assurance company will offer product testing and quality verification and report so that you can make the decision to have the shipment sent or returned to the manufacturer.

When considering an Inspection Company, consider not only the price, but also their efficiency, speciality and reliability.

Attending The Right Trade Shows

2008-04-20T19:55:00.000-07:00

You need to choose the trade shows that will give your business the best return on investment (ROI) in terms of your goals.

Being prepared will help you make the best use of your time. Find out what the particular trade show's objectives are, and investigate and evaluate the show's exhibitors. Remember, you spend thousands of dollars coming to trade shows, and you only have this one shot to get it right.

So what are the best ways to spend your time for the few days while you are at the show? Get the right information and plan your time on the floor.

First, prioritize your needs and outline your best chances for success. Take some time each morning to map out where you will go, find out who will cover which halls, and figure out which companies you'll talk to first. An hour spent planning could save you an entire day walking the wrong hall.

After you know where you are going, it's time to decide who to talk to. Make sure you come to the show with a "qualifications" worksheet -- a list of minimum qualifications that a factory must meet to be considered. As you sit down with each factory, even those recommended to you by others, use your minimum standards to decide immediately if they meet your needs. Don't spend more time than you need to eliminate factories that don't meet your standards.

As you talk with exhibitors about your projects, make sure to ask the right questions. Here are some suggestions:

* Are they an actual factory or a trading company?
* Is the person you are talking with at the fair going to be at the factory after the fair?
* Is there someone that speaks English at the factory?
* Who is going to talk with the engineer regarding the specifics of your project?
* What experience do they have with outside QA?
* Do they have an export license?
* Have they worked with clients in your country/industry before?
* Will they give you any client testimonials?
* Will they give you regular reports on production including photos?
* What kinds of international certifications/training do they have?

While trade shows can provide you with hundreds of options, be careful before you make financial commitments. Be specific, be clear and be patient. And be prepared to spend significant time after the show to sort through, question and investigate each factory that you pre-qualify.

Again, spending time up front in research will save you hours, dollars and headaches down the line. Eventually, this will help you get the maximum ROI from your time at a trade show.

Establishing Business Relationships at Canton Fair

2008-04-13T18:59:00.000-07:00

April is the beginning of Spring, which means of course, the 103rd Canton Fair is getting underway. It is a comprehensive and multi-functional event of international importance.

Canton Fair began in the spring of 1957. It is held twice a year in Spring and Autumn, two phases a session, two sessions a year; 6 days each phase, 2 phases each session:

Phase 1:   April 15th-20th
Phase 2:   April 25th-30th (Spring Fair)

Phase 1:   Oct. 15th-20th
Phase 2:   Oct. 25th-30th (Autumn Fair)

Suppliers and buyers establish business relationships at the fair. Canton Fair attracts delegations and buyers from the whole country and all over the world. Buyers will meet verified suppliers from across China, face-to-face.

Shows typically last for seven hours a day; six days at a show means you've only got 42 hours to built up business relationships with suppliers. Here are some tips to get-to-know and meet suppliers:

Arrange a translator

Book hotel ahead of time

Bring enough business cards

Take their business cards and catalogs

Take samples

Make sure that you take notes on the spot

Talk with other buyers at the show

Buy off-the-shelf products

Visit as many suppliers as possible

After the show, it's time to follow up on your business cards and catalogs to decide which suppliers you'll be working with on your purchasing projects.

Good luck!

Sourcing at China Trade Shows and Fairs

2008-04-06T17:46:00.000-07:00

Sourcing with Internet

2008-03-31T18:48:00.000-07:00

The Internet is a resource for finding the product for you are looking for since it is highly intuitive and accessible sourcing tool. It is an essential first step to search for product information.

Each website has its own specialty. To maximize your search, review all the websites below.

Some recommended websites:

Alibaba.com : Now the world's largest online business-to-business marketplace
Made-in-china.com : Leading internet-based directory of China products & China Suppliers. Its resources connect global buyers & China Suppliers
Dhgate.com : An online business platform where you can buy directly from China.

Import From China

2008-03-15T20:43:00.000-07:00

Saturday,Mar.15th, 2008

There are many sources to find the product you are interested in, such as internet, export commodity fair, government authorities like Canada Business Service for Entrepreneurs, and my blog.

Post the products of your interest, I will advise products supply information.

Before placing any order, you will need to confirm with your suppliers about shipment terms.
After that, you should select a forwarder and an Inbound Customs broker in order to properly comply with relevant import regulations. A few days before the expected shipment, contact an inspection company in China to check your goods on site (i.e. in the factory) to avoid receiving defective goods.

Your freight forwarder and customs broker will take care of your transportation and customs clearance.

After receive your products, you can sell your products and make profit.

I will suggest some internet sources in my next post.