Where To Sell Industrial Equipment – The behavior of Chinese companies is very similar when buying high-priced equipment from abroad, so it is possible for me to present a similar approach to selling this equipment in China. Before going into a detailed analysis, it would be best to step back and consider how Chinese companies view this process. Once the fundamental perspective of China is understood, it is much easier to determine how to develop an effective sales strategy for China.
Chinese companies purchased significant amounts of advanced equipment from foreign companies in the 1990s But these purchases have slowed considerably as Chinese companies focus on manufacturing for the export market However, these export-oriented Chinese companies have begun to show a renewed interest in purchasing advanced equipment from foreign manufacturers. The fact that China is now Germany’s largest trading partner is a good example of this
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The reason why Chinese companies buy more advanced equipment from abroad is obvious to anyone who visits Chinese factories The simple truth is that much of the production equipment in these factories is old technology nearing the end of its useful life Chinese businesses that have made China the factory of the world have pushed their manpower and outdated equipment to the limit, and technical upgrades are needed to continue to compete in the global manufacturing market. Chinese companies are often unable to innovate in this field on their own; So they are reluctantly buying from foreign firms
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Although the world has changed a lot since the 1990s, the attitude of Chinese companies towards purchasing foreign equipment has not changed There were five basic beliefs that drove Chinese purchases of advanced equipment in the 1990s when I was working on them, and those same five basic beliefs drive these purchases today. Once this belief is understood, it becomes easy to understand China’s behavior on this equipment deal Once you understand the basis for your Chinese counterpart’s behavior in this transaction, you can design a program that will succeed in the Chinese market.
When entering into a sales contract with a Chinese factory interested in purchasing your high-value equipment, you should understand that the Chinese factory owner must possess the following five fundamental beliefs that will guide his behavior in the sales process:
1. Your prices are unfairly high What is important to know is that the Chinese side believes that your prices are both high and fundamentally unfair. The Chinese side sees it as a legacy of foreign imperialism, designed to keep the Chinese always, always on the toes of foreign oppressors. This attitude is supported by the general ideology of the PRC government According to this basic belief, the Chinese factory owner feels morally justified in not paying you the full price of the equipment.
B. Insist on a major discount between 30% and 40% This then becomes the new base price for the equipment
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C. After offering discounted prices for the first two units, insist on additional discounts for future purchases
2. No training required Any need to train the Chinese side on how to use your equipment is another way for you to extract more money from the Chinese side. It is also a way of putting China down by showing that China has something to learn from foreigners The Chinese believe that the operation of the equipment is controlled by a simple magic pill Foreign companies that insist on a training program are blocking access to the magic pill
3. No need for proper equipment set-up Your requirement that China retain you to set up the correct equipment is a waste of time and designed to shift the blame for operational failures to the Chinese side. The Chinese side believes that the equipment should only work. Because of this, extensive site set-up and pre-operation testing are not required Just turn the key and go
4. No need for after sales support and maintenance The foreign equipment supplier’s need for such after-sales support is designed to do two things: unfairly extract more money from the Chinese side and keep the Chinese side staff ignorant of the true nature of how the equipment works. That is, you are unfairly withholding the magic pill from them In addition, the equipment should “just work” with no need for after sales maintenance or support. You either have a service contract or related after-sales support, admitting that your equipment is fundamentally defective or trying to milk more money from China.
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5. Your efforts to protect your IP are foreign infringement Intellectual property protection that prevents the Chinese side from copying your equipment is another form of foreign oppression. The Chinese side does not believe that your machine design is the result of years of hard work and R&D and wants to be able to copy it so that it can be manufactured in China at a “reasonable” cost.
This means that the standard strategy on the Chinese side is to buy as many units as possible and then extract the “magic formula” using its initial purchase(s). The strategy is to forgo future purchases and have clones of your equipment manufactured in China
Obviously, not all Chinese companies subscribe to these five beliefs, and some Chinese companies subscribe to none of them. But most do and I know this from what they tell me (Chinese), what I hear (Chinese) and what I read (Chinese). I mention all this because foreign companies have a hard time believing this, and when they do, it’s hard to actually internalize and adjust their sales behavior. The typical Chinese factory owner will purchase and implement advanced foreign equipment based on these five beliefs. Many foreign suppliers, when confronted with the resulting behavior, will conclude that the Chinese are acting in bad faith. However, to deal with Chinese buyers, the first step is to understand that they believe their approach is fair. They are only working against the unfair advantage of foreign vendors by leveling the playing field
1. Don’t discount The first mistake most Western companies make when selling their high-end equipment to China is to discount the price A common explanation my clients give me for doing this is that “we will discount the first equipment sale and then pass that discount on future sales.” Wrong
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If you offer a discount you are confirming the basic assumption on the Chinese side that your prices are too high and you will never get a chance for a discount. The Chinese team will do one of two things Some buyers (especially state-owned enterprises or SOEs) will use the initial discount items as “samples” to distribute to other enterprises to be cloned in China. For other buyers, the discounted price will be accepted as a new one
So it is very difficult for you to hold the line on the price You may be able to offer a much smaller discount for purchasing multiple units You can also offer a small “customer loyalty” discount for return purchases But never offer huge discounts for initial purchases Hold the line and explain that your prices are both fair and equal to what you offer to everyone in the world on the same terms. What are the reasons for China to change this policy?
2. Pay before you deliver This is the golden rule for companies that have succeeded in selling to China There really is no alternative In many countries, payment problems can be resolved through the use of carefully prepared letters of credit Chinese buyers, will only use Chinese banks for their letters of credit and those banks will always prefer their Chinese buyer clients, so the credit method will not work for China.
For Chinese companies planning to clone your equipment in China, paying you by installments fits perfectly into their plans. The standard procedure works as follows Set up a system with five installment payments The equipment will be delivered and installed in installments Then, the Chinese company will delay payment from the beginning and then use the payment delay (which is usually attributed to China’s capital controls or some tax issues) to push the foreign side to deliver more than required for each installment. The Chinese company will then reluctantly make a payment or two, while shelling out equipment, training and know-how. When the Chinese side thinks it has achieved “enough” of what it has already provided, the payment stops. The general standard is to make two out of five payments in exchange for 50% of product and expertise Our Chinese lawyers warn our clients about this all the time and it still happens
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Other Chinese companies will use installment payments to force you to make a discount The Chinese team will negotiate for a series
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