Engineers use the term “black box” to refer to a process that isn’t clearly understood, but transforms inputs into observable results. In other words, you know what goes in, and you know what comes out, but you don’t necessarily know or care HOW it happens.

Unfortunately for us, negotiating a deal in China is often a ‘black-box’ process. We submit proposals, bids, and recommendations, and then they just kind of disappear into the Bureaucracy. Sometimes there’s good news, sometimes bad – but more often there’s NO RESPONSE at all.

This Black Box process represents two dangers to international managers in China.

1) You have no control over your own sales process, and thus cannot effectively monitor the performance of your own people.
2) Your own company may be falling into the Black Box procurement trap.

Chinese companies traditionally place barriers between real decision-makers and sales people. Ok, ALL companies do this – but Chinese organizations take it to an extreme. US managers consider a face-to-face meeting with all suppliers as a basic component of due diligence. Eyeballing the guy who gets the order is common practice at any successful US company. In China you may get a significant order without even knowing who the real decision-maker is. This leads to problems for sales organizations.

First of all, it reduces the sales process to bureaucratic paper shuffling. Your people are being conditioned to submit proposals to low-level procurement or HR people and wait quietly for a response. This is generating LOTS of activity on your sales floor, as your team scurries around making connections and preparing proposals, but doesn’t make your organization any smarter. Even when you are getting orders, you can’t be sure WHY your bid was chosen. In some cases, the ensuing sales relationship offers your team plenty of opportunities to build meaningful bridges with real decision makers. Often, however, the deal is not a perfect fit for either side and the result is a one-off sale that doesn’t lead to strategic relationships.

A second negative result of Black Box Procurement is what I call the “Bad Compromise”. A senior manager is attracted to your company’s product or service because of your quality or unique set of solutions, and they direct their lower-level staffers to initiate contact and gather information. But the staffer, working with incomplete information or a different set of priorities, focuses on price, quantity or scheduling factors. They don’t have the technical or strategic abilities to follow-up on their senior manager’s vision, so they reduce the bidding process to numbers that they CAN understand. They try to cut price, advance the schedule and “streamline” the process according to their own priorities. You and your team respond by dropping quality, eliminating features, and protecting your own bottom line. The end result is a Lose-Lose negotiation that leaves both parties worse off than they anticipated.

There are 3 approaches you can take to minimize these difficulties.

1) Try to climb the Decision Making ladder where possible – which may mean getting more senior people on your end involved. Many ex-pat managers complain that their sales people aren’t independent enough – but that may not take structural factors into account. There are times when a senior manager can open doors and get meetings that no one else can.

2) Negotiate differently. If your people can’t move past the gatekeeper then you must train to negotiate for information first, then set terms once they have a clearer understanding of their counter-party’s priorities. I constantly hear from salesmen who try to sign contracts with gatekeepers and messengers, when they should be negotiating about information and access.

3) Know when you have to walk away. Your young salesmen tend to get emotionally invested in the deal because it seems within reach after a long, difficult effort. You should know better. Set firm limits at the beginning. If you aren’t willing to say NO to a bad deal in China, then that is the only kind you will ever make.

This is also a great time to review your OWN procurement, buying and outsourcing processes. Is your organization a Black Box that engages in Lose-Lose negotiations without your knowledge? Make a complete audit of your buying process one of your priorities for the New Year.

New York University, my alma mater, recently held a Shanghai alumni association meeting at an art gallery on South Suzhou Lu – and I arrived late because I got lost. How did I get lost? Because I asked someone for directions — and since she didn’t know where the address was, she just pointed in a random direction. The wrong direction.

Now, before we go any further, let me just say, “Yes, I know, you’re right.” NEVER take advice from random people on the street in China, because if they don’t know what they’re talking about they’ll just guess…and 50% of the time the guess will be wrong.

Here’s the interesting thing, though: I knew this was so when I asked for directions. I tell other people about this all the time. I’ve even written about it. I’ve been living in China for 5 years and doing business here for almost 15 years, and it’s one of the first things I learned.

So how the hell did I end up walking half a mile in the wrong direction on a rainy Friday night instead of sitting in a beautiful room, drinking wine with a group of very interesting people? Because I needed the help and I was willing to believe just about anything at that particular time and place.

I once heard theater defined as “the willing suspension of disbelief”. It’s great for plays and movies, but we have to be careful that we don’t do the same thing when it comes to business. Think about the assumptions, guesses, half-truths and out & out lies we hear about business in China all the time.

The government doesn’t care about that regulation.
He has great connections at the company.
We don’t need a contract to start doing business.
I’m 100% sure he’ll pay us.
Everybody in China expects you to … (pay bribes, ignore taxes, fake invoices, etc)

You’re probably laughing about at least one of those classics – but in China when opportunity knocks, good judgment often flies out the window. And if you’re a newcomer to China, consider yourself warned. People sometimes fill in the gaps of their knowledge with convenient approximations and guesses. They can sound very reassuring and logical when you want to believe them or when there is no other source of information close at hand. But more often than not, you’ll eventually pay for those lapses in judgment.

The business community in Shanghai has been talking about a different set of ex-pats who recently ran afoul of anti-corruption laws and will be lucky if they get off with deportation. Someone probably told him that this is the way business works in China and that everyone does it and there is almost no chance of them having any kind of problem. It probably made a lot of sense to them at the time. I did slightly better last week – eventually I made it to the party and had a wonderful time.

Note: Any NYU alums in the Shanghai area should drop me a line, and I’ll see to it that you get on the mailing list. -Andrew

Not every China deal you and your team start to negotiate is going to get signed – nor should it. But many sales & management problems in China can be traced back to problems with negotiations. If your team seems busy all the time but isn’t signing deals, you may want to take some time to coach them about negotiation skills.

Chinese negotiations can get bogged down in a lot of different ways, but here are a handful of avoidable deal-killers that I’ve run into a lot when leading sales & negotiating seminars.

The five deal-killers:

1) Lack of Trust
Do you distrust them? Do they distrust you, your company, or your team? Are negotiations based on overblown or unrealistic claims? Does one of the parties involved think the other is trying to rob them or take advantage? Does one of the parties fear that the deal will result in poor value or unequal profit potential? There is a chance that this situation will improve over time – but it is not very likely. Good managers simply do not sign contracts with people they distrust.

2) Different goals or unclear goals
Your sales meetings are always relaxed and seem productive, but nothing ever really seems to happen. You could be supplying free market research or helping someone look busy. One thing is for sure — you aren’t getting rich as a result. It’s ok to ask the other side what they want, but it’s not ok for them not to know. If you don’t know the other side’s goal, then you aren’t going to be able to reach a profitable arrangement. If you have different perceptions of value or if your original business objective no longer makes sense, then you have to re-evaluate the benefit of continuing the negotiation.
Oh, by the way. If you don’t feel comfortable asking the other side what they wan out of this deal, then you should not be involved in the negotiation.

3) Different levels of commitment
Are they just using the “negotiations” as pretence to get information or free market research? Maybe they are not serious prospects. Often times you find yourself negotiating with someone who is at an inappropriate level of authority. Another problem is a prospect that can’t give you a clear specification about what they are looking for, or what they are willing to pay. If the prospect is not serious or committed to the deal you are discussing, then you simply don’t have a chance of moving forward. Don’t waste time waiting for him to see the light. Find a better prospect.

4) Lack of resources
There just isn’t enough time, money, or manpower to do all the deals we want to do. It doesn’t matter how big or wealthy your negotiating partner’s company is – if they can’t get the approval for this deal, then they don’t have the resources. Leave the door open for future developments, but definitely move on …at least for now.

5) A Deal-killing Point / Unsolvable impasse
Sometimes “No” really does mean no. If the two sides can’t agree on a major point, then you will have to drop the negotiations. Price, schedule, and control issues are good examples of deal-killing points. This may sound simple enough, but it is very common for inexperienced negotiators to defer or delay these points until the bitter end of a negotiation. If you want the General Manager to be a local Chinese and your partner wants an ex-pat from Germany, then there is really not much point in worrying about the location of the new factory – you obviously have a major problem. Fix it, or move on to another deal.

Sales teams negotiate on price or on value. If you are an international manager operating in China, you probably want your Chinese sales teams to add value to the product offering. Value added sales in China usually means one of two things for your clients:

Raising sales
Lowering costs

It is rarely both – though many sales managers seem to think it is.

Now here’s the tricky bit – you have to understand how the client sees value, not try to make him understand your ideas about value.

Let’s look at two examples in China. Al is an advertising salesman for a major entertainment magazine in Shanghai. Bob represents a logistics consultant.

Al thinks his service is about raising sales for the advertisers in his magazine. Is he right? Sometimes. If he is selling to the owner or marketing manager of his prospective advertiser, then he is correct that his Value Added is the ability to bring more customers through his clients’ door. But what if Al is speaking with a media buyer – whose job performance is measured by how many people see her company’s ad or how many magazines their ad is carried in FOR A SPECIFIED BUDGET. Her job is not being assessed by how many customers walk in, but by how far she can make her budget go! She cares more about lowering costs. If Al talks to Ms. Mediabuyer about foot-traffic and revenue increase, she may very well assume that this is the wrong product for her.

What about Bob? Logistics & distribution are costs – and everyone wants costs lowered, right? Again, the real answer lies in figuring out the POV (Point of View) of the decision-maker. Logistics managers and operations people know how much shipping and warehousing should cost in a given market, and they will be very sensitive to controlling those costs. But what if Bob is presenting his marketing pitch to an MD and head of marketing who are going absolutely nuts because they can’t supply the second & third tier clients in Central China? They’re losing a fortune every day, and are willing to spend big rumbas for a solution that will allow them to SELL MORE.

There are two basic methods for attempting to learn more about a client’s POV. The first is guessing. You may get lucky – but more often than not you will guess wrong. That’s why the second method is better: JUST ASK HIM. Ask your client what his situation is and how your product or service could be useful. It may take a while, and he may not give you a useful answer right away. But China-based salesmen are all about building relationships – and this is a very useful thing to discuss over lunch or golf or KTV.

There are many buzzwords flying around the business world, and most of them can be dismissed as over-simplifications, ineffective or just plain silly. One such phrase that sometimes gets thrown around too carelessly is “Consultative Sales” — and it’s a pity because the concept is so important for China-based sales teams.

The China market needs a consultative sales approach because traditional Chinese salespeople are not natural problem solvers, but many potential buyers are in serious need of expert advice. If you manage a sales or marketing team in China, then you should consider training your people to sell less and consult more. It may make a big difference to your bottom line.

Consultative Sales is about taking business problem-solving to a new level. The value-adding salesperson already knows that he has to present his product offering as a solution to a business problem – and not just negotiate based on price.

Let’s take a quick look at the Consultative Selling process, and describe how it applies to the typical Chinese sales team.

1) Analyze the Decision Making Unit to determine how THEY understand their business challenges.
2) Understand the company’s business model.
3) Identify the company and industry ‘business drivers’.
4) Present a creative, effective solution.
5) Follow up to see what worked – and what didn’t.

Step 1 is really 2 important tasks. First you have to analyze the DMU, or decision making unit. In China, this is a little tricky, since you may never get to meet the real decision-maker. In the west this is known as the ‘gatekeeper’ effect – but in China it’s different because very often the true decision-maker WANTS to be kept out of the loop. He has no interest in talking to you, even if it means getting better service, better solutions and better pricing. Chinese sales pros know that very often the best you can hope for is to get information about the priorities and concerns of the real decision maker from your contact. The second point about this all-important step is to make sure you understand how THEY see the problem or need for your service. You may have a great way for them to save rmb 1000, but they may understand that to be putting an rmb 1,000,000 in jeopardy. In China it is very difficult to discover a client’s true intention, but if your team is spending time building relationships you should be coaching them to make more of an effort to learn about significant business issues while they are building social bridges.

Understanding the company’s business model is usually pretty straight-forward. Mass-market retailers (think Wal-Mart & Carrefour) are all about attracting lots and lots of people with low prices and good values. Rolls Royce and fancy designers are happy if only a few people come into their shops – as long as they are the kinds of people who spend millions of rmb a year on luxury goods. There are low-cost models, high-prestige models, seasonal models (think about the travel industry), advertising models (i.e.: magazines, internet), and many more. Make sure you and your client agree on your perceptions of their business model. That bar owner you are trying to sell advertising space to may think his business depends on great food and atmosphere while you believe the key is attracting lots of girls with low-priced drink specials. Ask first, and then try to solve his problem.

Business Drivers are closely tied to business models. Drivers are the sets of factors and circumstances that make the business model work. Many Chinese outerwear producers are having a lousy winter season – and next year could be even worse. Quality problems? Raw material prices? Nope – unusually warm winters in Europe and northeast US are keeping people off the ski-slopes, so the demand for fashionable winter-wear is depressed. Drivers tend to be business environment issues, such as economic trends, fashion, technological and market trends. Your job is to find out what your client sees as his big drivers, and figure out how your product or service can help improve his situation. Some Chinese businesses are being driven by the booming economy and growing domestic middle class, while others are driven by export markets attracted by low prices. Which one is likely to be true for your clients? The more you can figure out about your client’s business drivers, the easier it will be to offer value-added solutions.

Creative solutions are the bottleneck for many Chinese sales teams. Even if your salespeople understand the model and identify the drivers, there is still a tendency to come back to PRICE and discounts when closing the deal. An opaque DMU makes this problem even more difficult. This is a great team-building and coaching exercise for China-based sales managers and GMs. You will probably have to get involved and even take the lead at first, but it’s important to remember that your team doesn’t have to reinvent the wheel for each sale. Once you and your people have put together a few innovative solutions, you can probably apply them to a variety of situations.

Follow up and figure out what works and what doesn’t. This is so simple and basic to the sales function that many managers overlook it and just assume it is taking place. Bad assumption. Make this part of your regular sales meeting. If your people aren’t following up on proposals and new solutions, then your organization isn’t getting smarter.