Right now, the power balance is in your favor.  Smart purchasing managers, however, will take care not to alienate their network of suppliers.  In the future, there may be shortages and technological breakthroughs that will give the seller more power in the relationship.

Here are a few ideas for handling the deal-renegotiation call with a western or MNC supplier:

1. Be as direct as you can.  They are expecting the call.  Don’t make it worse by dragging it out.  I know that if the counter-party is Chinese you may be a bit more polite and round-about.  When the counter-party is Western (or has Western bosses) then you are being kinder by being quicker.  Start out with, “I’m afraid I’ve got some bad news.  We have had new orders from the very top to cut costs and review all existing contracts…”.   You can take it from there.
2. Show a little transparency.  Give your suppliers a little information about your situation – particularly when you expect to be big buyers again.  If you are in financial trouble, be as honest about the situation as you feel is appropriate.  Chinese buyers can very tight-lipped at times – and it often serves them well.  This is not one of those times.  Share a little info and learn more about the seller’s situation as well.  
    
3. Don’t let it get ugly.  You remember when the situation was reversed and you were begging for reasonable prices and the other guy showed you no love.  Now is your chance for revenge, right?  Wrong.  Now is the time to secure your future relationship with key suppliers and strategic partners.  You want to come out of this global recession in a stronger position — not just see your suppliers fail.  

Go to www.ChineseNegotiation.com for their take of how Western sellers are handling the renegotiation call.

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Please help with a research project by taking a brief, simple & anonymous survey about US-Mainland negotiation. 

Click here to open online survey:

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My name is Andrew Hupert, and I’m a teacher and writer in Shanghai. I am now working on a project for my International Negotiation class at New York University’s Shanghai campus (in cooperation with East China Normal University). 

Thanks very much for your cooperation in my research. I would be happy to share raw data with any participants who wish to see it, and will publish my findings on ChinaSolved.com , ChineseNegotiation.com and DiligenceChina.com .

Click here to take online survey:

http://app.icontact.com/icp/sub/survey/start?sid=6256&cid=355149

Simply stated, position-based negotiation is about tactics and relative power base.  It is standard win-lose, competitive negotiation.  Interest-based negotiation is about your own long-term strategic goals – and how to best match them with the goals of your partner.  This is a long-term, collaborative form of negotiation that looks beyond bargaining demands and attempts to uncover the true drivers that lay at the heart of negotiating positions.  It requires honesty, transparency, and senior level buy-in.

This is key for purchasers and buyers in China because you are being pulled in two different directions.  On the one hand, you are expected to bargain hard to meet your internal goals and keep prices as low as possible.  In recent months, you’ve probably noticed that you have more power as demand around the world has plummeted.  Your supervisors and bosses have probably notices the same thing — and are pressuring you to take an even harder line with suppliers.

But on the other hand, you know that strategic relationships with key suppliers are going to be important to you and your firm for the long term — well after the global recession is over.  That’s where interest-based negotiation comes in.   This type of negotiation looks beyond short term tactics and focuses on longer term strategic goals.

Position Based

• Goals are ill defined or relative to broad benchmarks.
• Price or cost are the key – or only – variables
• No relationship with counter-party
• Little or no transparency
• Power struggle
• Limited time & deadlines

Interest Based Negotiation

• Goals are strategic and objective
• Wide range of variables
• History of relationship with partner
• Transparent
• Partnership
• Time is not an issue

Purchasing managers in China seem to have an easy job these days – everyone wants to sell and there are very few buyers.  That seems to give Chinese purchasers a huge advantage.  The fact is it makes your life much easier with one counter-party – the seller.  But it makes your life very dangerous and stressful when you are dealing with another negotiating counter-party – your boss!

 Don’t let this opportunity slip away!

Now is the time for internal negotiation.  Your bosses think you can wave a magic wand and produce tremendous price cuts. After all, things are tough in your own company, and HQ expects to make up for their own weaker sales by cutting operating costs all up and down the line – especially from your department. 

 Now is your time to be pro-active and ‘get in front’ of this cost-cutting trend.  You know who you want to keep as a key supplier, and who you want to get rid of.  This is a great opportunity to present your bosses with your top suppliers and a wish list of other

 You have to get out in front of this new trend and take leadership.  What kind of changes, new metrics or improved processes would you like to see implemented?  You have leverage with your suppliers – but you also have more leverage with your boss – and with HIS boss.   Sit down with them and determine exactly what they expect of your department, and where you all want to be in a year.  Make sure everything is consistent and logical.  They can’t tell you to cut all prices by 40% but still maintain good relations with your existing key suppliers.  If there is a relationship you want to protect and you have good reasons for staying with someone who may be a little more expensive, talk to your people about it NOW.  If you wait, you may be too late to save the relationship — and you just might see your favorite supplier go bankrupt.

 The worst situation you could find yourself in is when your bosses complain you are being too soft on suppliers but your suppliers think you are driving them out of business.  This time, they might not be exaggerating.

 It’s true that your negotiating position vis a vis your suppliers has gotten stronger.  Now you have to make sure that your position vis a vis your BOSS is equally strong.  You have to take the time to re-affirm your goals and make sure you are on the same page.  Otherwise, they will expect too much of you and be disappointed when you only cut costs by 25%!

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Please help with a research project by taking a brief, simple & anonymous survey about US-Mainland negotiation.http://app.icontact.com/icp/sub/survey/start?sid=6256&cid=355149

 My name is Andrew Hupert, and I’m a teacher and writer in Shanghai. I am now working on a project for my International Negotiation class at New York University’s Shanghai campus (in cooperation with East China Normal University). 

Thanks very much for your cooperation in my research. I would be happy to share raw data with any participants who wish to see it, and will publish my findings on ChinaSolved.com , ChineseNegotiation.com and DiligenceChina.com .

http://app.icontact.com/icp/sub/survey/start?sid=6256&cid=355149

Purchasing managers in China can expect to meet up with 3 kinds of overseas suppliers.  Some know China well and have good experience operating here.  Others are new to China, and don’t know much about doing business here – but they know it.  This is a great opportunity for building a solid relationship and securing a key supplier.  But there is a third group that doesn’t know China at all – but believes they do.  This is trouble.  Whether it’s a manager with experience in Korea and Japan or a young overseas Chinese who knows a few words of Mandarin, these guys are going to give Chinese purchasing managers a lot of grief.  Make sure the business justifies it.

Dealing with the 3 kinds of western counter-parties.

• They Know China.  Don’t make problems where there aren’t any.  Deal with this guy in a professional, businesslike manner, and you’ll win the day.   You be a pro and he’ll be a pro.  He doesn’t want to hear how good his Chinese is or how he’s been her for so long.  He probably knows the market and can judge how reasonable an offer is, so make sure your expectations are reasonable and you don’t go for too much at the beginning.
   
• They Don’t Know China.  This can be a great contact – if you handle it the right way.  Is this guy a new hire or transfer with one of your long-term suppliers, or is he cold-calling for the first time.  When dealing with a China newbie, your first job is to figure out how long he’ll be around.  If he works for a small firm and is just testing the waters with a few sales calls, then you don’t have to invest too much time or energy into teaching him too much.  But you can expect to see more and more expats and overseas managers ‘cycling through’ Shanghai for a few years.   As China becomes a more developed market, you can expect to see more young management-types put in time here in order to round out their global management skills.  These can be valuable contacts, so take the time to orient new suppliers and salesmen to the way you do things – and to the way things are done in China.
   
• They don’t know China but think they do.  The problem here is suspicion and inexperience.  If your counter-party ‘thinks he understands’ your situation, then it usually means that he is skeptical of your claims and suspicious of your motives.   Your best bet with these guys?  Be their second deal.  They’ll be fine – once they make their mistakes with someone else.  But if you have to deal with a skeptic, go right to the issues he cares about:  price, payment, scheduling and referrals.   If you can make a new Western counter-party comfortable with your firm in those areas, you are well on your way to a successful deal.

One thing is certain:  As businesses around the world try to access the China market, there will be a wider range of sellers trying to convince Chinese purchasing departments.

You’ll hear it when someone owes you money or a supplier is trying to defend his price (or other bad news).  ”If you push any more I’ll go bankrupt and then you’ll have nothing”.   It’s a pretty common tactic when a small or shaky business partner is the counter-party.  The bad news is that it may not be an empty threat. The worse news is that this guy may be using the same line all over town, and the first one to call his bluff loses less than you do.   

Is there a defense or counter-tactic?  The only thing you can do once it happens is to assess the situation objectively and decide how much you need the other party in the short term.  If they are strategic or leaving them will cause a short-term bottleneck, then you’ll have to find a compromise and keep them around long enough for you to find a replacement.  If the only leverage they have over you is the recovery of money they owe, then this is a much riskier proposition.  You might be best off cutting your losses.

In order to prevent this kind of thing from happening, make sure you A) have a deep list of suppliers and B) try to gain transparency with key and strategic suppliers to assess their finances and production capacity.  Consider expanding the number of suppliers you work with to minimize the impact of one of them going out of business or shutting down production temporarily.  

Negotiating in tough times requires you to shift from Win-Win to Win-Lose and back again quickly.  This is a fact of life for everyone in business, but is particularly true for purchasing managers negotiating in China.

Like:  L is what you would like to get from the negotiation.  This is your opening position.  If everything goes really well and you score a big success from your negotiation, L is what you are going home with.  Make sure you start off asking for enough — but not for so much that the other side thinks your are crazy, naive, dishonest or all three.   If your L is too high, then you may not get a second chance at negotiating — particularly if your counter-party is a MNC sales or purchasing department that works with a ’short-list’ system.  The goal of their first round negotiations may to set a short-list of 3 – 5 counterparties, and then conduct the real negotiations only with members of that group.  Set your LIM too high, and you may find yourself out in the cold — or forced to offer a price concession just to get to the second round.   

Intend:  I is what you can reasonably expect from the negotiation.  This is industry average or your existing arrangement.  I changes over time as international business cycles and prices shift.  You have to know what your I is likely to be — and to make sure that your boss agrees with you.  Figuring out I can be easy if you work with a stable, deep market that has many buyers and sellers.  If you are selling a unique or new product, figuring out I can be tricky.  For most of us, I is an established industry benchmark, price of a major local supplier or the price you are already getting (or giving).  Watch out for inflation-indexing schemes that can change your I as the economy changes — and make sure the terms are favorable to you.

Must:  M is the point at which you say ‘take it or leave it’.  M slots in just above your BATNA, which we talked about last week as your Best Alternative To No Agreement.  Professionals know not to do the “walk-away” too often — but they also know that sometimes a slow walk to the door is the best negotiating technique in China.  When the other side says, ‘no deal’ to your last offer then you have no choice but to leave the table.  

Make sure that everything is cordial and professional,however, since there’s a good chance that they will try to call you back to the table.   Try this:  “I’m sorry, Bob, but it just doesn’t seem like we’ll be doing business this time.  Good luck, and if your situation changes please get in touch.  I’d love to be able to do a deal in the future.”   It’s much better at keeping the door open than saying, “Go to hell you lying, cheating bastard”.  Just a thought.  

M is relatively easy to set.  It’s marginally above your BATNA.  If your BATNA is maintaining the arrangement you have with an existing supplier or client, then you can figure it out to the 3rd decimal point.  If your BATNA is bankruptcy, unemployment and ruin — then you had better know that walking in and set your targets accordingly.

1)  Find new suppliers each year — assuming that competitive pressure and hungry new sellers would ensure an endless stream of new suppliers, because you have to find a new source every couple of years.

2)  Build a long-term relationship with a single key-supplier and negotiate a long-term plan based on your requirements.

Most Chinese purchasing managers have been doing #1.  And this may work great during the early stages of a bear market.  But once the bankruptcies and buyouts have taken affect, there are going to be signficantly fewer players in the market.  Then you are going to have to learn to do #2

Hint:  Now is a great time to negotiate longer-term key-supplier relationships with solid companies.  Every company doing purchasing in China needs a solid list of key-suppliers.  Now is the time to forge long-term, friendly, mutually beneficial purchasing terms with your China supplier.