Chapter 13 – Advice for Claim Settlement Negotiations

Here I will share information with you about claim settlement negotiations based on my long working experience with Chinese suppliers.

What is the Best Start Time for Negotiations?

The decision maker needs sufficient time to prepare for the meeting. Therefore, a very early start of the meeting would not be appropriate. Starting at 10:00AM would be alright in the morning and 2:00-2:30PM in the afternoon.

You don’t want to have a disgruntled meeting partner for your negotiations.

Lunch or Dinner Should be Included

By all means, have either a lunch or dinner included in your meeting plan. You and the supplier have to eat and it will give you a good chance to continue the meeting in a more relaxed way.

I was once working for a Chinese/Japanese company in Hong Kong and whenever some problems had to be discussed, our meeting partners purposely showed up in the late afternoon to settle the problem and seal the deal during a dinner.

Start with Small Talk

Westerners tend to jump right into the middle of a problem. If you want successful negotiations, do not do it even if you are under pressure to solve the claim quickly. It could take 2-3 days of interrupted negotiations before a solution is found. Talk about your company first and let the decision maker talk about his achievements. If you have met with the senior manager several times, you can shorten this process. In general, Chinese people like to know about your background and this meeting is a good way to present you and your company in the best possible way. It may help your supplier to reconsider his position by learning that you are not a bad person after all.

If you have a nice new company catalogue, this would be the time to provide a copy to your supplier.

Presenting the Facts

After the small talk, it is time to get down to hard business. Present all necessary evidence (e.g. documents, statements, invoices and samples) to your supplier. Present everything that you have to the decision maker to convince him of his responsibility and hopefully he will accept fault.

Samples of a defective product are especially effective at proving your case because they can be handed over and everybody can directly see the problem.

A nicely prepared folder or binder containing all of the documents and photos can help you in your presentation (perhaps several copies for the other managers as well). It would be great if you have a Chinese translation prepared for the non-English speaking members of the management team. On the other hand, if you bring an interpreter along with for the meeting, this will be his time to present your evidence.

Consequences the Claim will have for Your Company

Clearly point out to your supplier the consequences the claim has already had on your company (e.g. loss of turnover, loss of customer confidence, loss of reputation as a quality importer). Additionally you should explain future consequences this claim will have if it is not solved soon. Never assume the supplier knows these things. He may understand little about how business is conducted in your home country.

Listen to Your Supplier’s Arguments

Although you may be frustrated and even angry with your supplier, you are well advised to listen to his arguments before making demands. Remember he is in control of a large organization, often much larger than your own company, and deserves some respect. He will likely try rejecting your claim but you still must listen to him before proposing a settlement.

Line out Your Settlement Proposal

Lining out the details of your settlement proposal is very important. If something is unclear or misunderstood, this is the time to straighten it out. Usually suppliers will ask for a written copy of your proposed settlement to review before the meeting. There is nothing wrong with this but a personal presentation gives it more weight.

Listen to Your Supplier’s Reply

Your supplier has to reply to your proposal and now he may have new ideas for solving the problem. Be patient if you want to achieve anything. You came to solve the claim and must be willing to invest sufficient time.

Give Your Supplier Time to Reconsider

It is very unlikely that your claim will be settled on the first attempt. It may be necessary to give your supplier some extra time to consider all the information presented and the proposed settlement. He also may want to investigate details within his company or seek outside advice.

It would be perfect timing if it were time for lunch or dinner. Take a break from the serious discussions and have a meal with your supplier. They may try to ply you with some heavy drinking but that is part of the game. Join in if you want. It may lead to an easier resolution of the problem.

Another Meeting and Hopefully a Revised Proposal

During the next meeting, which could be within the next one or two days, listen carefully to any revised proposals your supplier comes back with.

Most likely they will propose some solution if your arguments and evidence were sufficient. If they still reject your claim or insist on a previous proposal, you may have to take a tougher approach by insisting a new proposal be put on the table.

Show Your Willingness to Compromise

Never let the negotiations get out of control. I will give you an example that earned me the respect of the company owner.

I had a meeting in China with one of our audio factories because they wanted to delay all of our orders for weeks and months and we needed the goods urgently for our customers’ promotions during the peak season.

After several hours of unsuccessful negotiations at the factory, they switched off the lights (around 6:00PM) and told me that they and their workers had to go for dinner now. They expected me to leave, since I was not invited for dinner. Instead of leaving, I just kept sitting and forced the company owner to continue with our negotiations and later that evening we found an acceptable compromise.

I had no choice but to be persistent because our company had a large booth at the Berlin Consumer Electronics Fair and our company owner needed to inform our customers the outcome of my negotiations.

I want to emphasize again, reserve enough time for the negotiations. You will not be back in China soon and you need a resolution before you leave.

Calculate the Losses

It is very unlikely that you will recover all of your costs. If your supplier offers a compromise, you have to do the math again to determine if the result is acceptable for you. If their proposal is insufficient, make another counter proposal or request a time for another meeting to bring back a counter proposal. However, this only makes sense if you have the feeling it will help to improve the outcome.

If you feel that the supplier will not be open to an improved offer, you might as well make a decision now whether you want to continue meeting or accept their current offer.

You have another option that can be taken immediately. It is visiting other suppliers in the area. There is more detail on this subject in chapter 23.

Talking to other suppliers now can have one of two possible outcomes:

  1. You let the supplier that you have a claim against know that you will be meeting with other suppliers before the next meeting. This applies more pressure on your existing supplier to bring back an acceptable settlement
  2. You want to move your production to other suppliers and terminate the arrangement with your existing supplier

Terminating the arrangement with your existing supplier should only be done as a last resort because it is very unlikely that they will voluntarily compensate your company for anything at that point. Sometimes it still may be helpful because it sends a signal to other suppliers that nobody can push you around.

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