Complete Manufacturing & Distribution Blog

The Top Mistake Made Negotiating Contracts With China Suppliers

Feb 16, 2017

complete manufacturing and distributionIn our experience in the West, there is a lot of attention that is paid to the details that are involved in a contract. Both parties spend a significant amount of time putting all that legal language and put mechanisms in place for how the relationship will move forward.  But our experience in China is a bit different than that.

The #1 Difference - Don't Overthink the Ink

In China, the contract is more of a starting point, deciding "this is how we are right now, this is how we will decide to work with each other right now, but there are going to be things that will change, and we will figure those things out as we go."  It's not unusual for contracts to get visited, then revisited, and visited again as the relationship evolves. 

So it’s more important to focus energies on ensuring that you stay in step and in tune with what your partner has as their objectives and what you have is your objective. Making sure that you communicate those goals and objectives, and making sure that both parties are in sync with what’s going on, and where you are starting to see changes that they are addressed very quickly, is key to realizing the potential outlined in your contract.

Now is that addressed in a legal sense? No. I think it’s much more important to address those things on a relationship, on a very personal level.
To keep the wheels moving, the wheels spinning, it’s very critical that there is face time and mutual understanding as changes happen. Changes and challenges occur: it could be labor costs rising, or a competitor rising out of nowhere. There are so many different things that can get in the way after a contract is signed, and growing the relationship and having everyone working towards the same goals will help both sides meet any challenges as they arise. Building that relationship with your suppliers, and making sure that you spend the time to maintain it, it is the way to a healthy and growing long term relationship with a China supplier.

Contract Negotiations are Different in China from Christina Li on Vimeo.

Often times, there is a lot of focus on creating a bullet proof contract for working with a partner, a supplier they have here, a joint adventure contract, or whatever it might be.  Of course, contracts are important, and there are very important parts of the discovery of how a relationship might work, but I also think it’s really important not to over-emphasize a contract. Because contracts get stuffed into a drawer. Often times, it doesn’t get looked at until there is a problem.

 In our experience, the best recipe for success is having a contract married up with a very strong relationship, and how is that relationship built and maintained. These critical parts do more to determine how successful a relationship will be than the terms themselves. So our advice on contracts is - yes, make them, but don’t get bogged down in the details. Focus the efforts on how a relationship is built.

 Creating a contract is not an event. It’s a process. And healthy maintenance of those relationships that are importance for your success.

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Topics: Operations