Profit Minded

Global Trading Tips: 7 Practical Lessons for Doing Business With China

Silk Road

China has held a fascination for traders ever since the Silk Road first opened its markets to the world, but never more than now. The items swapping hands may have changed from spices and silks into mass-produced consumer goods, but for newcomers to international sourcing much of the Middle Kingdom’s mystery remains.

Linguistic and cultural differences can conspire to overwhelm the uninitiated. New entrepreneurs often approach China with a mixture of excitement and trepidation, the opportunity on offer weighed against fears of being conned or nightmares about causing mortal offense with a misplaced chopstick.

Alizila asked three old China sourcing hands to share their experiences of dealing with the mainland. Here are the lessons they learned the hard way:

Lesson 1: Don’t believe all the horror stories

We all know what happens when you do business with a Chinese company. If they don’t rip you off or screw up your order you end up eating monkey brains in a backstreet restaurant and throwing up on your host’s shoes after a drinking game during a business dinner. Right?

Sadly for your memoirs, the truth is more prosaic. "We’re in danger of mystifying China," says Paul Greenberg, co-founder of Australian e-commerce pioneer DealsDirect.com.au and now CEO of Australia's National Online Retailers Association.

Turning to China in 2004 "by default rather than design" after local suppliers rebuffed his disruptive, consumer-direct business model, the South Africa-born entrepreneur boarded his flight without the excess baggage of preconceptions.

"My point of departure was people are people. Even though I didn't have experience sourcing out of China I felt that if I just applied the core values of fairness, respect and integrity we wouldn't have a problem. And we haven't," Greenberg says.

Tessa and Nathan Hartnett also got their China training on the job, after dropping out of university and quitting a job as an air traffic controller respectively to start an online jewelry site in 2006. They have gone on to establish eight more online businesses, co-author two books—including a guide to online sourcing—and recently set up a website to share their e-commerce insights at www.talknbusiness.com.

The Hartnetts' restaurant experiences in China have included lunching on pig face, chicken feet and even toad, but the adventurous entrepreneurs picked those dishes off the menu themselves. "We’re a bit funny like that, but everywhere we went we got to order so you don't have to choose the crazy dishes if you don’t want to. They were just amazed when we picked up a pair of chopsticks," says Nathan.

They also have bad news for fans of competitive drinking. "We’ve never been to a factory where anyone has drunk anything. One of the suppliers told us 'You drink beer, we drink tea' —so you will have to drink a lot of tea!" says Nathan.

"The idea of friendship by torture isn’t true," agrees Greenberg. "It's an old wives tale that you have to endure eating strange food and long hours of drinking."

Lesson 2: Don’t sweat the language barrier

Ni bu neng shuo Putonghua ma? No worries, China didn't become the world's factory without boning up on the lingua franca of business. "I don’t recall any supplier not being conversant in English. At least that's my excuse for not having learned Mandarin!" says Greenberg, who has hardly ever found himself in need of a translator.

Much of the communication with your supplier will be done by e-mail, which gives you the opportunity to use another international language. "You need to write clearly, simply and respectfully, but kind of with a smile," says Nathan Hartnett. "So yes, we even use emoticons and they do it back, so emoticons are okay."

Lesson 3: Use the tools available

In fact, sending a smiley could be the closest you come to face-to-face contact with a supplier—at least for your initial orders. Online resources such as Alibaba.com enable entrepreneurs to compare suppliers the length and breadth if China without ever leaving home.

"You can get away with finding suppliers and possibly never meeting them. We didn't go there for years," says Nathan Hartnett. "Neither of us had heard of Alibaba at the time we started out, so we just started contacting suppliers through Google and I went down to the bank and said 'How do I send money to China—and will I ever see it again? ' "

Tessa Hartnett compares those beginnings to the comparative ease of doing business with China today, where suppliers can be vetted at your desk and money worries are eased by Alibaba.com tools such as Escrow and Inspection Service. "The entrepreneurs I speak to that are doing really well start out by doing a lot of research, contacting a lot of suppliers and making sure they go through Alibaba trusted suppliers or AliExpress. None of the people I've talked to that went down that path had any problems," she says.

"There are definitely more tools than I had in 2005. Alibaba was an established brand then but it's come a long way in the last eight years. Part of me thinks 'I wish I'd started now, ' " says Greenberg. "In a connected age, both as business people and consumers, we increasingly trust other peoples' opinions, so keep a close eye on those to get references."

Lesson 4: Develop personal relationships

While you can source from China in your peejays, if you want to take your business to the next level a visit to suppliers is essential. "Digital connection is no excuse for not establishing relationships," says Greenberg, who finds that Chinese suppliers abide by the traditional saying "first make friends, then do business."

Making friends will come easily with such gracious hosts. "They all pick you up from the hotel, take you out for lunch, and won't let you pay for anything," says Tessa Hartnett. "One asked us to be part of a traditional morning tea ceremony that's good luck for business. Another was so proud of his city he took us to all the landmarks on the way back."

Tessa recommends visiting just one factory per day if your schedule allows it. "On our last trip we were rushed and had to visit two suppliers in one day so we couldn't stick around for lunch with either, and one in particular was quite upset about it," she says. "They really like that time outside the warehouse to sit down and get to know who you are and build that relationship."

The benefits go well beyond a free meal. "I got such a new appreciation for our jewelry. In your mind you picture this conveyor belt process: something goes in one end and it comes out the other, but when we actually visited suppliers it was phenomenal to see the craftsmanship that goes into every single piece," says Tessa. "It definitely changed the way I talked about our products to our customers."

A peek behind the curtain also ensures you've found the right supplier. "You’ll start to get a feel for who's really interested in working with you and who wants to get that one order and is happy," says Nathan Hartnett. You'll also get a better understanding of your supplier's own set up—and their potential to meet future orders or grow with your business. "We went to two different factories that made the same product and they couldn't be more different," says Nathan. "One was big, multi-level, clean, neat, lots of staff, with safety everywhere. The other was a room with a fan and three people and a crazy, crazy owner."

Lesson 5: Don’t go 'all in' straight away

Whether you’re doing business with new friends or total strangers, it pays to keep your wits about you. Scammers and con artists do exist, although rookie mistakes on the part of the buyer are a more common cause of financial hardship.

"We started off by not risking too much and that's one of the best things we did," says Tessa Hartnett, who recommends ordering a small quantity of samples from several prospective suppliers before placing a large order.  "You hear a lot of horror stories, but usually they're from people who don’t even get samples. They go straight in and order these large minimum-order quantities and wire transfer $10,000 or $15,000 without ever having conversations with the supplier."

"No business landscape the size of China can be without problems," says Greenberg. "Trust is earned, not gifted and builds over time." Like most entrepreneurs who source from China, he puts more value in a handshake than a contract—a philosophy that comes full circle to building strong personal relationships with your supplier.

"With DealsDirect we've had very few problems and the odd times that things have gone wrong we've found our suppliers more than willing to make good. Things going wrong is not really the problem, it's how they’re rectified," he says.

If you encounter a supplier that won’t play ball, Alibaba.com and AliExpress both have dispute resolution processes, but throughout your dealings try to remember that suppliers are people, too. “It’s easy for us to forget that they are small businesses as well and they also have horror stories when they’ve dealt with bad buyers," says Tessa. "I understand why they can sometimes play hardball as well."

Lesson 6: Negotiate with a smile

Lunches and tours of the town are all very good, but don't expect your new friends to do you any favors when it’s time to set a price. "Don’t mistake kindness for weakness—that's an error I’ve seen young entrepreneurs make," says Greenberg. However, playing hardball is an equally ill-judged move.

"In negotiation style we pride ourselves on strength, even a little bit of table banging. That is not the Chinese way," says Greenberg, who highlights the importance of ‘face’ in Chinese culture. "There's no humiliation, no win-lose where someone's got to get the upper hand. Negotiation is quite a languid dance.”

Greenberg's tip is not to obsess on getting the best price, but the best deal. "Whether we're from the West or the East, good relationships are about win-win," he says. "Sustainable, long-term relationships are based on manufacturers making profits, retailers making profits and customers being happy with what they've purchased."

"The Chinese are the best negotiators on the planet,” says Nathan Hartnett. His advice: "Go hard! But always negotiate with a smile. There’s no doubt that friendship side of things helps then. After a lunch you can negotiate better and they are willing to make a few more concessions."

“Don’t be afraid of offending,” adds Tessa Hartnett. “You’ve got to do what’s best for your business and they’re going to do what’s best for their business. The point is to be respectful and meet each other somewhere in the middle.”

Price isn't the only negotiating point. Minimum order quantities can also be haggled over. "When we started our supplier would say: 'You've got to get 200 pieces of every size in every style' and they came down to 30 very quickly," says Nathan. "That's a massive gap, especially when you're starting out."

Lesson 7: Have a Plan B

The best way to strengthen your negotiating hand is to court several suppliers. "We always keep competitive tension in our negotiations—good manufacturers and suppliers in China respect and expect that," says Greenberg. "The big fairs are often a good way of price checking, but the Internet is a wonderful way to comparative price and you can do it from the comfort of your desk."

Tessa Hartnett isn't shy of informing a factory if another supplier can offer her the same product with a lower price or smaller minimum order quantity. "Sometimes they will come back and match it, then you have the choice of whichever company you feel has given the better service," she says.

One caveat: always be respectful and honest, rather than playing one manufacturer against another. "On our first visit to China we saw a district with half a dozen coffin factories and it turns out that's where coffins get made in China. That's the same for pretty much every product that we’ve come across—they all know each other," says Nathan Hartnett. "So you can try to lie to them if you like but they'll probably know exactly who you're talking to—and then they're not going to want to do business with you." And you’ll never eat toad in that town again.

Originally published by Alizila, the e-commerce news website of Alibaba Group.

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