When Suppliers Won’t Hold the Price (or Honor Contracts): Prepping For Chinese Vendor Wars (Part 2)

Click here for the first post in this series.

One of my favorite lines (or translations, to be specific) in the Art of War (Sun Tzu) is the following: "In hemmed-in situations, you must resort to stratagem. In desperate position, you must fight." I would think that when dealing with suppliers in markets such as China where raw material and commodity price fluctuations can disproportionately affect pricing and even the basis of buyer/supplier relationships, we often resort to fighting when in fact we should first rely on "stratagem." In other words, as the quote suggests, we're "hemmed-in" rather than desperate. What are the implications (and strategies) given this slightly different approach in working with suppliers -- rather than truly going to war and fighting -- that won't hold contracted prices or will not offer to lock-in pricing beyond the next containers? Here are a few thoughts.

First, consider the bigger picture of the relationships with a particular supplier. If the behavior is representative of a broader trend of behavior inconsistent with what we expect in the West from a buyer/supplier relationship, consider a signal of the need to find a better longer-term partner. If the type of behavior has not occurred before, consider it an entrée to probe on the real issues surrounding the rationale behind the sudden change in relationship.

Second, in any such situation, it is important to understand the motivations behind the supplier's move (unless we should really be thanking the supplier for making the decision for us to exit the broader relationship, as discussed above). Indeed, such a demand of contract term changes can invite questioning we might not find easy to ask of Chinese suppliers under other circumstances such as their banking relationship, credit terms suppliers are extending to them, general ability to buy forward, etc. Such a discovery process can be enlightening, and in fact ultimately lead to a better outcome for both parties (e.g., the decision to help a supplier buy forward by providing either financing, early payment for existing invoices, aggregating the buy across multiple tiers and suppliers, or through other means).

Most importantly, show true force only when necessary. And in those cases, make it decisive and overwhelming. After all, many Chinese follow the school of Sun Tzu in business relationships. Shouldn't we?

- Jason Busch

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  1. David G Jones:

    There actually was a "School of Sun Tzu." Read all about it:

    Exactly what was the purpose of the terra cotta army of China’s first emperor? Some imagine that the clay army was constructed to protect the emperor in the afterlife. But clay armies protect nobody. More to the point, the first emperor was an atheist and did not believe in an "afterlife."

    The School of Sun Tzu is the result of painstaking research that links, for the first time, the foundation of China as a nation with the method by which that was made to happen. And that foundation happened because one of history’s most forward states defined the methodology by which war could end, and peace prevail. The terra cotta army of Qin Shi Huang celebrates those two discoveries.

    The methodology includes a treatise on principles and philosophy known as the Tao Te Ching, and a manual for organizational and inter-organizational management known as Ping-fa (erroneously referred to for centuries as Sun Tzu: The Art of War). Ping-fa’s messages include instructions in communications, leadership, command and control, intelligence and planning. These two are among the most translated and printed works in recorded history.

    These discoveries are the consequence of an inter-disciplinary study by a social anthropologist. His background includes military service, having served as an aide to an international affairs minister, and having consulted large organizations on both Knowledge Management and organizational governance. This combination of experiences and skills allowed author David G. Jones to unearth links that have not been defined until now.

    Mr. Jones began his study by asking several fundamental questions. Why were the Tao Te Ching and Ping-fa written, by whom, and to what use they were applied? The extensive commentary on these works – amazingly – do not address these critical issues. The commentary suggests that both works were the creation of obscure writers from “antiquity.”

    Ping-fa’s messages emerge when it is stripped of its militarist language. The army at war metaphor was a device used extensively in pre-China to assist learning and memorization. The commentaries assume that this medium was actually the message.

    The secret to unlocking the non-militarist Ping-fa is found in the Tao Te Ching. The Tao Te Ching is the value framework yin to the far more practical Ping-fa yang. These two works were the products of enlightened individuals working in concert.

    Resolving why they were written takes longer. But the evidence is clear. The small Middle Kingdom state of Qin was able – in a few short years – to end a protracted war and establish the Chinese empire. That they made that happen without conflict marks that as one of the most significant feats of empire-building the world has ever seen. How they did that is clearly set out in the Ping-fa.

    This research, vividly described and documented, has now
    been published. Now too, we see for the first time just how incredible was the first emperor Qin Shi Huang and how significant were his achievements. And in detailing the life and achievements of the first emperor, we discover the facts of the great Wall and the emperor’s tomb with its terra cotta assembly – alleged – incorrectly – to be an army intended to accompany the emperor into the afterlife. The assembly was a memorial to the end of war, the foundation of empire. and the magic by which Qin made all that happen.

    This is an interesting read on a very large canvas. It explains, and
    clarifies, much that has been assumed and conveyed again and again about
    the founding of China. The School of Sun Tzu reveals messages of contemporary importance regarding how one manages without conflict, and how one builds sustainable organizations.

    The School of Sun Tzu: Winning Empires without War is available at:

    David G. Jones, author
    Ottawa, Canada

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