China Business

Conversations with China Factories and How Lawyering has its Widgets Too

China Manufacturing Agreements

Silk Road International Blog is one of my favorite blogs. It is written by David Dayton, an “international procurement and project management” specialist with more than twenty years of Asia experience. What I like so much about his blog is that it so often brings us up close and personal with China manufacturers and it just tells it like it is. Though the posts are usually about dealing with Chinese factories, they very often “hit me where I live.” This is especially true of David’s most recent post, Another day, another interesting conversation (headache) with a factory.

The post is about getting clothes produced from a Chinese factory. David worked with the factory for more than a year to line everything up and then, as soon as David’s factory paid the money, the factory’s promises went by the wayside:

We’ve got the PO signed, the deposit paid and what happens? Factory tells us: “We don’t think we can do this order. We’re really busy now.” This, of course, was the response to the payment of the deposit. No indications prior to the placing of the order that there would be anything problems. We’ve talked EVERY day in the two weeks preceding the actual transfer of funds and every conversation was great. “Of course we can meet these dates.” “Of course we’ll work with you QC.” “Of course we’ll meet all the QC standards (you’ll never be as strict as our Japanese clients.)”

David then explains what his company had to do to get the Chinese factory to “keep the commitments they agreed too (signed and chopped) in the contract:”

Fighting about the contract is not nearly as effective as begging. It’s all about face. They know they are wrong but allowing them power can often be as effective as offering them money. The end result of our negotiations is them being in power anyway—they have the deposit, the control the speed for the production line, they monitor the QC, purchase the materials—there is so much that could be sabotaged and be made to look it was just bad luck. So, giving them the face now and admitting that we’re at their mercy is both pleasing to them and the truth. We don’t pay any more (yet) and can still go after them legally if we had too. But at this point they are pretty pleased with themselves and we’re just glad to be back to square one.

Thanking them profusely (gifts) is the correct response. A dinner will cost $100 for the manager that told us “we moved other projects back for you.” A shirt or wallet (brand name but from Ross or another US discount store) gives tons of face and costs $20. It fulfills the social obligation we had to the manager for “helping” and it saves us a bundle of money we would have wasted in transferring the order or suing them or fighting and raising the price. I’ve often said that sometimes the best option is paying more to get what you had already agreed to. When it’s a small gift or dinner it’s almost not even painful. Ego is a bit hard to swallow, but that’s about it.

I feel for David, having been there myself countless times in dealing with attorneys overseas. Just as David needs to engage in creative wheedling to get a widget produced, I often need to engage in creative wheedling to get a legal document filed.

We have an expression in my office on how “a day on the ground is worth a month in the office” and what we mean by that is that to get foreign lawyers to get things done and to get our clients’ cases/matters moving, a meeting with local counsel is oftentimes required. The power of the meeting is that work gets done before we arrive so no face will be lost when we are there and then at the meeting, we can work together so that the plan going forward is theirs, not mine. For more on what it is like to work with lawyers in China and in Korea, check out this article I wrote on working With Korean And Chinese Attorneys.

I am guessing I have had at least as many tug of wars with foreign lawyers as David has had with foreign factories. I am not exaggerating when I say that along with my law firm’s ability to work with foreign counsel ranks right up there in importance with our need to provide great client service and to know the law (both in the books and in the real world).

My favorite part of David’s post echoes something I constantly find myself saying to my clients: Keep your eyes on the prize.

Sometimes you are totally in the right. Sometimes people lie to you. Sometimes there is nothing you can do about it. But the end goal, which is often very very hard to remember, is to get the project done (correctly, on time and on budget). You may not get what you wanted at the originally contracted-for price, but on balance you’re still getting what you want (and it’s still at a savings too!).

5 responses to “Conversations with China Factories and How Lawyering has its Widgets Too”

  1. Why should Chinese factories, lawyers, etc, ever meet “international standards” when they are appeased so?
    I know that the purpose is to reach the end goal, but after having their egos (and wallets) fed so handsomely, and so often, is it possible that this is just going to become permanent? Or will it be that everyone lives with this sort of thing with a shrug?
    It would seem that someone having you by the short hairs so often would… hurt. The savings must be tremendous indeed.

  2. Hi Dan, good post on a very relevant subject. Two things struck me as I read it.
    1) Would you ever want to do business with this factory again?
    2) The real cost of this sort of problem, which is not addressed in the post, is not the gifts/incentives. It is the time your staff have to spend running around chasing this issue.

  3. Very good point James.
    “The savings must be tremendous indeed” – what happens when the savings are not so tremendous? As costs gradually rise in China, there will be a point when foreign companies simply don’t want to bother with this kind of appeasement any more.

  4. Great post, “face” time requires some creativity in China, and it is oh so important. But that is part of the excitement of working here is it not?

  5. I now have the pleasure or frustration dealing with a factory in China. I learned quickly to just be polite with them and use the phrase “No Problem” in chinese i say May wen tee which means no problem. I have used this phrase at least 1000 times and it works. As they have my deposit, i keep in mind the product they are making for me is almost 1/10 of the price i would pay here. When they finish making my products, i will fly over an inspect the product before i make the final payment to them. They are making 50 pieces for me, and they hope to have finished by the end of October. However, i am not going to worry if it is not ready at this time, i anticipate they will tell me soon, it will not be ready at this time. I will just say “May wen Tee” lol

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