Collaboration trumps negotiations
Sheer negotiations skills aren’t enough for success when dealing with suppliers in different countries. It’s more important to understand the cultural differences that can affect business relationships—and then manage them.
By Paul E. Teague -- Purchasing, 8/17/2006 2:00:00 AM
When dealing with businesses in other countries, you never know what cultural differences could trip you up. Lake Forest Illinois-based agricultural and construction-equipment manufacturer CNH (Case New Holland) found that out recently as it worked with a machined parts supplier in China.
CNH had provided engineering specs to the supplier, who then tried to produce part samples. CNH was going to test the samples for about three months before issuing an order for production quantities. The company had already had discussions with the supplier on how it would ensure there would be a manufacturing line available for the CNH volumes. But while the supplier was developing the parts, CNH learned that the supplier no longer had the production line available for the future production dates they had agreed on. The reason: communications problems. “The supplier hired a translation company to convert the English drawings and instructions to Chinese, the language of the local workers who would be producing the parts,” recalls Jeff Jawahar Garg, CNH’s senior director of global sourcing. But, the Chinese version didn’t clearly translate the requirements. To avoid conflict, the supplier tried to figure out the drawing differences on its own rather than push for clarity, which, of course, slowed down sample development. Garg’s solution: He requested that the North American engineering staff travel to China and meet with the supplier to clarify requirements. Eventually, the supplier was able to develop the right samples and guaranteed production capacity through additional investment.
The road to ‘yes’
As more and more companies expand their supply bases outside their own borders, they’re learning that an understanding of cultural differences—such as the desire in some countries to avoid conflict--can be as important as proficiency in their own technology if they’re going to be successful.
is often cited by purchasing executives as a place where business practices and expectations are vastly different than in the West. And those differences extend beyond the peculiarities of dealings with language translation and engineering specifications. They show up in such things as attendance and conduct at meetings, and even in interpretations of the meaning of the word “yes.” Daniel Godwin, an international trade consultant, tells of the experience of one of his clients who had to schedule more meetings than expected with a partner in China because the key decision maker wasn’t present. The initial contact person whom his client assumed was the key decision maker was actually an underling who was using the meetings to practice his negotiating skills, knowing that he couldn’t make the final decision. “In greater China, the leader is a little bit like a king and must be present for things to happen,” Godwin says.
 CNH’s global sourcing team includes, fromleft, Attila Czvikli (the North American leader), Prahlad Lakshminarasimhan (the India leader) and Jeff Garg (senior director of global sourcing). |
CNH’s Garg says government representatives are always present in meetings with state-owned companies to make sure meeting attendees address labor-union issues. Garg enlists the aid of an outside human relations attorney in China before acting on any major employee issue so he’ll understand applicable Chinese law and the various options he has for managing organizational change with Chinese employees.
Both Garg and Godwin stress that “yes” doesn’t always mean “yes” in negotiations with Chinese partners. “Yes” often means “I hear you and understand,” but doesn’t necessarily mean agreement, Godwin says.
Of course, it’s not just China that has business practices and cultural norms that can throw a fast-moving North American purchasing manager off track. In some countries, family responsibilities and community activities can take precedence over business.
Oscar Lopez, commercial director for Hexaprint in Mexico, says that once while working for another company he was doing business in Brazil during the local Carnival festival, and the festivities slowed down meeting progress. He was part of a team where the majority of team members were U.S. businessmen, and they were pushing to continue negotiations during the festival. “The local guys took that as a disrespectful action,” he says. It took several weeks to restore confidence and move on, he recalls.
Management buy-in critical
Effective global sourcing not only requires insight and sensitivity: It requires top-management buy-in. Garg's boss, Loris Spaltini, senior vice president of purchasing has led global sourcing for Italian carmaker, Fiat. "He emphasizes that global sourcing is critical for cost reduction and supports organizational alignment for our low-cost country initiatives," says Garg.
Cultural differences aren’t restricted to low-cost countries, as CNH’s Garg learned. They can pop up in the West, too. His global sourcing team in Europe found that out when they discovered a new source for mechanical fittings.
There was nothing special about the fittings. Indeed, they were catalog items. Getting the part numbers into the company’s system should have been a slam dunk. But since the new supplier was from a low-cost country, the European engineers wanted full testing of the fittings. The testing would have been expensive and would have made the parts uncompetitive.
Solution: The global sourcing team prevailed on a project manager who had a long-standing relationship with some of the engineers to convince them that the full testing wasn’t necessary. CNH did conduct other appropriate testing, and eventually added the parts to its catalog.
“It was a case,” says Garg, “where relationships were very important, more important than they would be in North America.”
Manage, don’t negotiate
In many ways, Garg may have the ideal personal and professional background for navigating the rocky shoals of intercultural communications in an increasingly global business climate. He has lived, worked and studied on three different continents. Born and raised in India, he has a bachelor’s degree in electronics engineering from that country as well as a master’s degree in electrical engineering from Cleveland State University in Ohio and an MBA from the University of Minnesota. Additionally, he has lived and worked in Hong Kong, China and Europe. That cosmopolitan background gives him an instinctive sensibility about cultural differences. And his work experiences have convinced him of the best way to find calm seas in global sourcing.
“It’s not about negotiations,” he says, “it’s about project management.”
Garg says sourcing staff need to have daily phone calls with global suppliers as well as frequent face-to-face meetings. And they have to work hard to get their partners—particularly those in China and India—to speak up in meetings. “They don’t normally give their opinions because it’s outside their culture,” he says. “They view questions not as dialog but as negative comments or accusations. So, you have to build trust and emphasize common objectives.”
The best strategy, Garg says, is to put the right staff in place. More than half of his global sourcing team in North America and Europe has experience also in China, India and other “best-cost” countries. “The other half should have a good business background in your own company and (understand) manufacturing or engineering issues they have to face,” he recommends.
Beyond personnel, though, successful global sourcing requires a formalized process that allows for technical planning, cross-functional participation and milestones for measuring progress. A year ago, Garg established a Cross-Functional Review Board for analyzing global sourcing projects and getting buy-in from engineering and manufacturing. That buy-in streamlined project management and cut project lead time by six months on average.
Garg also established a gate process to ensure cross-functional communication so all parties would know what their responsibilities are. The five-step process covers initial project evaluation to determine supplier and pricing strategy and potential low-cost-country suppliers; project validation, including RFQ analysis and design review with low-cost-country suppliers; sample validation; product launch; and savings and supplier
reviews.
The gate process was critical during a recent analysis of the value of sourcing tires from China. Among issues the global sourcing team had to solve were the impact on pricing from the current supplier in North America, who was also supplying tires for other projects; determining who would be responsible for field testing; and determining which of the many potential tire suppliers in China and India would be best able to deliver and support the products in North America.
One solution that came from the gate process was to work with the North American distributor of the Chinese supplier to ensure on-time delivery and inventory management. That saved about 15% in pricing, tooling, logistics and testing.
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Leaders in Procurement Series How procurement leaders at IBM are handling the demands of supply chain globalization. Purchasing Editor-in-Chief Paul Teague speaks with IBM Chief Procurement Officer John Paterson. /services/link/bcpid1398218612http://www.brightcove.com/channel.jsp?channel=1185084975 |
Over the last year, the CNH global sourcing team has implemented over 50 different low-cost-country sourcing projects. Two sourcing tactics have helped them no matter where the suppliers are located: ensuring a constant stream of information on supplier quality, product development, pricing and export management; and putting in place a highly skilled team. “Without the right employees, we cannot gain plant and engineering confidence to support such sourcing initiatives,” Garg says.
And that reality applies no matter what continent you’re working on.
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