China Price Negotiation with Foreign Client

Calum Coburn Answered:

At the time your question was received, I was leaving your city (Shenzhen), after having enjoyed training two Chinese sales teams.

Timing is...

I'm always very careful to address a question on price directly - as arguing over price is often a symptom parading as a cause. This is as true for China as for your foreign clients. Those new to sales negotiation often make the mistake of talking too early and at too great a length about price. Yes, there's no denying price is important and needs to be discussed. First you need to understand whether the product or service you're selling is best suited to your client's needs, and what else you can do to benefit each other. Discussing price first will likely stone-wall you from even getting into a meaningful conversation that leads to your understanding their needs and creating value for your client. Also just as you wouldn't want to talk about price first, you wouldn't want to leave price until very last - that's a point for another article.

Foundation of Trust

In order for you to get to understand your client's needs and create value, you need a good level of trust and rapport. If the client is not willing to meet you face to face in China, you're going to have a difficult time establishing trust. Remember that your foreign clients conclude deals with people in their home country far quicker and easier than with foreigners. So if you have anyone in your China team from their country, or anyone who has positive experience dealing with people from their country, or anyone with extensive international foriegner negotiation experience, then draw them into your negotiation team. This will enable you to far more easily build trust and rapport. If your client doesn't trust you, then they won't trust your price.

Culture: China or Foreign?

Who's culture are you negotiating in, Chinese or theirs?
If your foreign client thinks that you're applying Chinese negotiation norms, then your client may be thinking that whatever price you give them needs to be bargained down by a bigger percentage before your price becomes fair. Conversely, if you think your client is applying their local country norms, and lets assume that their culture is German / Dutch / British or North American - then you may give your client a price very close to your best and final price. So think carefully about the assumptions that each of you are making about the other. If you're unsure, then bring this topic out into the light and agree on the negotiation norms you'll be using. This potentially brief conversation can take much of the stress out of the deal for both of you. China's international negotiation skills have evolved so fast in such a short space of time that negotiations with foreign clients are increasingly conducted taking into account the foreign clients' culture.

Who's Pressure?

You mention 'high pressure'.

1. Are you feeling the pressure from your managers? or
2. Is the client trying to place you under a tight deadline? or
3. Is the client themselves really under a tight deadline?

These 3 scenarios need to be handled differently.
First off, you need your managers to give you as much time as you need. If you are under time pressure internally, then there's a good chance you'll bleed in your client negotiations.
Secondly, if the client is under time pressure, find out where the cause for their pressure lies. You may be able to use this to your advantage, or may be setting up for a fall if for example your client's deadline is false and they prolong their first deadline to go into further rounds of bruising price reduction negotiations whilst introducing your competition to the table - after you've given your best deal and price.
Thirdly, if the client is under a tight deadline, then it's up to you as to whether you let them off the hook by allowing them an early agreement. Be careful not to lose the deal because of time, and careful not to have your client feel that you took advantage of them just because you had them over a barrel. Today's victim often turns into tomorrow's vengeful aggressor. We are seeing this play out right now between China's government and the US government, on the issue of the US government's reckless dilution of the dollar. The effect of diluting the trillions of dollar debt owed to China is being responded to by China's veiled threats and clever maneuvering on oil, gold and foreign negotaition alliances.

Best Alternative

So who's likely to get the better deal on price and the rest of the deal? A simple rule of thumb says that the party with the party with the more actionable attractive choices will usually get the better deal in the negotiation. This means that if your foreign client is talking with your closest competitors and they are prepared to to business with your competitors, and if you have no other clients to substitute your client's order with - then your client has the power and will likely get the better of you on price and other terms. Of course the reverse is also true: if you can sell your products or services to other clients, and if your client can either only buy from you, or only wants to buy from you (there's an important difference), then you have the power and will likely get the sweeter deal.

But wait, there's more

Finally, when you come to negotiate price, do so skilfully and don't take it personally. Somehow price raises the hairs on the backs of the necks of both sales and procurement - in a way that no other negotiation goal can. There is much more advice on 'How' to negotiate price, and I would encourage you to read books, ask for stories and advice from those with more experience, and of course being a negotiation training provider - to take a quality sales negotiation course.