Betrayed in China: One Entrepreneur's Hard Journey East
Akasha's annual revenue remains steady at around $12 million. Since 2009, the company has struggled to operate at a profit. The fiasco with Wang left it with $1.9 million in debt.
Kasha now negotiates deals with suppliers himself. He follows a simple set of rules. He introduces his business and his big-name customers--he paints a picture of the future the supplier could have with him. Next, he doesn't ask for the lowest prices or the highest-quality products. He asks for information. "I want your real lead times, your real capacity," says Kasha. He ends by prohibiting his potential partners from ever saying "Mei wenti--no problem!" and "Mei guanxi--no worries!" Then he goes out and finds two more just like them.
Yadan Ouyang provided research assistance for the story.
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How to Protect Your Interests in China
"There's an old joke in China," says Andrew Hupert, a consultant and author of The Fragile Bridge: Conflict Management in Chinese Business. "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."
So build those relationships. And while you're waiting for friendship to blossom, keep in mind these keys to setting parameters and building trust:
Set expectations from the start.
Audition several suppliers for any project. Make it clear to each that you are working with multiple vendors. Try to anticipate anything that could go wrong, and set clear ground rules for how you plan to deal with problems. "If you bring these things into the relationship later on, they will read it as a sign of distrust," says Hupert.
Put it in writing.
Contracts are now common in China, says Dan Harris, a lawyer at Harris & Moure and author of a blog at chinalawblog.com. Make sure any agreement clearly explains your requirements in English and Chinese.
Be flexible, to a point.
To an American, negotiation ends when the contract is signed. "Traditional Chinese negotiators don't feel that way," says Hupert. They see it as an understanding of the business relationship at a given point in time, not a hard-and-fast set of deliverables. If circumstances change, they expect their partners to adapt with them. Still, if a partner isn't holding up his end, "let him know you know what's going on," says Harris. "And if it happens again, you'll need a new agreement on that."
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You Messed Up. What Now?
After Akasha couldn't satisfy Walmart's orders in the spring of 2009, the retailing giant wanted compensation. Here's what you can learn from the back-and-forth between the two companies.
The injured party calls the shots.
Retailers can and do sue vendors for damages, says Curtis Greve, a retail consultant who spent 12 years in Walmart's supply-chain department. But it is much more common for penalties to be worked out informally. Walmart sent Akasha a spreadsheet detailing its weekly shortfalls and calculating that Akasha's failings cost it up to $609,809 in lost profits.
But you can negotiate...
Akasha countered Walmart's math, saying it believed customers substituted in-stock products for missing items and offering calculations that showed it owing Walmart $267,018.36. In a few days' worth of email negotiations, the two sides settled on $300,000.
...to a point
Akasha also agreed to lower its future prices. And if it fell short once in the next eight weeks, Walmart would levy a penalty of $10,000 per week, per product.
Your alternative?
Suppliers that refuse to pay rarely end up in court. Retailers "just don't buy from them, or they don't pay their bills," Greve says. "Keep in mind, even the biggest manufacturers pale in comparison to a Walmart or a Target. If you're a manufacturer, you're under the sword." For a company like Akasha, there's one thing worse than forking over hundreds of thousands of dollars: losing the world's biggest customer.
