Selling capital equipment to China – some rules of engagement

October 3, 2017

If you've ever sold large capital equipment to a customer in China, the chances are you will have found it a challenging experience.  And if you talk with anyone else who has done it, it's likely that they will reel of a similar list of challenges to the ones you had to deal with.  The stories often seem to follow a similar pattern.

 

That's because your customers' normal plan of engagement is affected by their shared "worldview".  Worldview means  a way of seeing the world which is shared by a community.  A worldview is not a set of personal beliefs that has been consciously adopted (such as a political persuasion) or a preference (for a certain type of music, say).  In fact, most people don't even think about their own until it is called into question – when they cross cultures and encounter another conflicting worldview.

 

When travelling on business a person may notice cultural differences – how people greet each other, how they eat, and so on.  A short visit is unlikely to be enough for them to appreciate the differences in worldview between themselves and their overseas partners, which are much deeper.

 

A basic part of China's worldview is a belief that she is an oppressed nation, always taken unfair advantage of by others (notably USA, UK, Germany and of course, Japan ).  This narrative is retold and reinforced constantly; it shows up in school textbooks, TV series, pop songs – all over the place.  Like tectonic plates, worldview change only very slowly.

 

Experienced China-based lawyer Stephen Dickinson says:

"Though the world has greatly changed since the 90's, the attitude of Chinese companies towards the purchase of foreign equipment has not. There are five basic beliefs that drove Chinese advanced equipment purchases back when I was working on them in the 1990's and those same five basic beliefs drive these purchases today."[1]

 

The beliefs he describes are:

  1. your price is unfairly high

  2. training is not necessary

  3. proper equipment setup is not necessary

  4. after-sale support and maintenance is not required

  5. your attempt to protect IP is foreign oppression

 

He goes on to say: "Once these beliefs are understood, Chinese behaviour on these equipment transactions becomes easy to understand. Once you understand the basis for the behaviour of your Chinese counterpart on these deals, you can design a program that can be successful in the Chinese market."  In short, the customer believes that you are taking unfair advantage – setting the price high, insisting on expensive training, setup and maintenance, and trying to prevent him/her from gaining the technology required to be independent.

 

Not only so, but because these stem from a worldview, you can assume that other Chinese parties involved in the transaction (customers bank, customs department, possibly even your own employees) will agree with these beliefs deep down.   Should a dispute arise, and any those parties have to make a judgement call, worldview will win.

 

Final stage payments being withheld because of reported equipment problems (which actually result from improper installation or poor maintenance), attempts to extract confidential design information, demands for huge repeated discounts – these probabilities need to be addressed in advance, by careful structuring of the sales contract and other practical measures. 

 

The cardinal rules are:

  • build everything you think the customer ought to buy into a single price (no break-out costs for installation, spares etc.)

  • stick to that price

  • demand full payment in advance

 

Remember that in most situations you won't actually be competing against domestic companies.  If a customer is serious about buying imported equipment, then your competitors will be other companies like yours.  Sometimes a competitor  will accept to the customer's terms and win the order as a result, but the  chances are they will pay the price, and any special discount they agreed to will be considered by that customer to be their new normal price for future orders.

 

[Article originally written by Matthew Grandage for Chamber International and published online here  on 7 August 2017]

[1] Stephen Dickinson How to sell your high value equipment to China, 3-part article posted on China Law Blog (www.chinalawblog.com) in 2017.

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