Negotiating in China: Price Bands for Service Providers
China business has a well deserved reputation for 2 things – low costs and low quality levels. That’s not necessarily a bad thing – there are times you are more sensitive to cost than to quality. Most businesses, however, have certain standards and minimum levels of quality standards that they must satisfy in order to do business. In China, enforcing quality standards is challenging, but possible.
While Chinese manufacturers have gotten much better at raising their quality control skills, China’s burgeoning professional-services market is still quite uneven when it comes to QC. There are essentially three classes of service providers in sophisticated markets like Shanghai, Beijing and Shenzhen.
The first type of service provider is the local professional whose standards of quality are difficult to predict. In most cases, these types of consultants and service providers are inappropriate for overseas businesses if the required services are complex or undefined. Under no circumstances should you be this kind of business’ first western customer. Get references from previous clients. If they cannot or will not provide them, then save yourself time and move on. Under no circumstances should you pre-pay any but a small percentage of the fee. Many, many frustrated westerners report on major projects and long-term relationships destroyed by partners who only wanted to pocket minimal deposits and pre-payments. Your potential losses in terms of time, energy, and opportunity are vast in comparison to the sums that unsophisticated, unscrupulous service providers are willing to steal.
On the other end of the scale are the western companies operating in major Chinese business centers. These are often the same name brands – and the same high levels of service – that you will find in NY, San Francisco and London. The problem? Their fees are also the same – or in many cases, even higher. If you want to have a building designed or are undergoing major surgery, that’s fine. But if you are in China to reduce expensive, then this route is going to negate a lot of China’s cost advantages.
Until fairly recently, those two ends of the spectrum were your only options. In the last few years, however, we have seen the emergence of a third option. With the opening of China and the influx of overseas & returning Chinese and western entrepreneurs, it is now possible to find high-quality services at a reasonable cost. The challenge here is finding the right suppliers, and negotiating carefully. You still have to pay close attention to quality and manage your consultants and contractors much more intensely than you would in other places. Most of these service companies are using western standards of management and locally trained employees, so QC is still a big responsibility. Good companies will do their best to provide you with high quality work, but you are advised to develop rigorous procedures for making certain you are satisfied AT EVERY STEP. Don’t wait until the end of a project to inspect progress. Deadlines and schedules don’t carry the same weight in China as they do in other places. That being said, many western businesspeople have been well satisfied by the work of their Chinese consultants and associates.
In short, China now offers the western business owners a wider range of professional services than ever before. But it is incumbent upon you to be rigorous about your due diligence procedures. If your potential supplier cannot furnish you with a detailed timetable, a graduated payment schedule, and a set of current references, then you are advised to look elsewhere. For added security, investigate who will actually be doing the work you are contracting for. If it is being performed by a third party or by untrained locals, you should be wary.
