Building Trust with Chinese Suppliers

Building Trust with Chinese Suppliers
Shanghai, China 9 January 2012 by Thorsten Migge
Is Trust really needed?

In recent times purchasing has evolved from a mere buying function to become a much more strategic and important function, as every industry faces changes that make suppliers a critical part of a firm’s value chain. In China, which is becoming ever more popular for sourcing by global companies, Western firms face special challenges and the relationship between companies is a critical factor which has to be considered and improved. It was Vladimir Lenin who said “trust is good but control is even better”; but nowadays we all have to think about that line in relation to the current economic crisis. Is trust in such systems as the general economy and the banking sector possible? First and foremost, we have to know how we can develop trust in systems, as well as in different interpersonal relationships in order to profit from emerging advantages.

Initially trust reminds us of friends, family and siblings, but what and how does a company gain from having a trusted supplier? Knowing that more than 80% of supplier-buyer relationships fail due to a lack of trust, it seems necessary to spend more time reflecting about this point. Especially in China these kind of relationships work different compared to Europe. In Europe we usually start to develop friendships out of business relationships. In China it is the other way around, friendships give opportunities to make business. Of course everyone is keen on knowing how we can profit from that and how Western companies might change their approach to solve problems in a different relationship setting.


What Is Trust and How May We Benefit

The main function of trust is the reduction of complexity, something which becomes most important when the supply chain is gaining complexity. In systems like a supply chain, the essential need for trust arises to simplify processes and to save cost. However, generally speaking, endowing someone with trust in advance, without knowing what the outcome will be, evokes positive actions in others, but also risk to get disappointed. Also trust liberates and mobilizes human agency, and releases creative, uninhibited, innovative, and entrepreneurial actions towards a buyer or business partner. These actions all provide a good and fruitful relationship while increasing the efficiency.

Concerning supplier-buyer relationships, the collaboration (and as a result of this, also the performance) of suppliers in any supply chain is largely based on a relationship that requires a high level of trust among the partners. The importance of trust in such relationships is enormous, since almost one third of strategic alliances and even more than 80% of supplier-buyer relationships fail because of a lack of trust between the partners. In so called “low-trust-relationships” where every transaction has to be double checked and verified, transaction costs rise to an unacceptable level, which negatively affects the basic supply chain goals of efficiency and productivity and the organization as a whole. Hence a high level of trust therefore will increase the performance of the supply chain and as a result of that, also will save cost.

Since the general question should be how to develop a “high-trust-relationship” in China, it is necessary to mention that relationships in a business setting in China work different. In Western surroundings the most important factors are “hard” factors like for example reputation or size of the enterprise as well as perceived satisfaction, just to mention some. In China, on the other side “soft” factors like; interpersonal interaction and attitude are more important. Here comes the challenge for Western buyers in China. Nonetheless, trust is one of the key foundations of relationship building in China. We have to face the very real barriers caused by differing cultures and mindsets when Westerners do business in China, since obviously culture has a big influence on how people interact with each other in a business setting.

In this regard, a company is able to save transaction cost with a high level of trust. As on the other hand side, low-trust relationships are more expensive to manage since they require more time and effort to maintain than those based on high-trust.

We at BMSCG have developed a simple but efficient model (Figure 1) of what managers have to be aware while trying to develop “high-trust” relationships.


Share a Proper Amount of Information

As a first instrument to promote the level of trust in a buyer-supplier relationship, we will talk about Information Sharing. IS is for sure one of the most important factors for successful Supply-Chain-Management. The problems caused by uncertainty in a supply chain are ineffectiveness of the total process chain. Such mismatches between supplier and customer can result in a bullwhip effect, which itself further destroys the whole supply chain process, as well as the relationship. In the practise there are many solutions to reduce the uncertainty through IS, such stems collaborative planning, forecasting and replenishment (CPFR) to control and manage the flow of information. Basically all added Information supports the supply chain partner to make optimum or at least more optimized decisions compared to the situation without information.

If both partners feel satisfied with the information they get, even they could receive more, the uncertainty will be reduced and trust will be promoted. This, as a result, promotes the communication between the two partners, that is why IS has to be seen as an essentially promoting factor for any relationship.

BMSCG suggests that You provide as much information as possible without increasing the risk. Intellectual property rights are still an issue which has to be kept in mind and handled with care.


Have the Right Attitude

As attitudes are some kind of mental set which direct people to response to a stimulus in a certain way, we should be aware of them. They describe the way people feel about things and the way people are inclined to react to a business partner. Most of the times, people are not aware that they hold a particular point of view or have a certain prejudgment toward a subject or people. If you want to be successful in a different cultural setting, you have to be aware of your attitudes, you have to control them. Prejudging and stereotyping is not welcome in any culture.

 

Pay in advance and share information without taking too much risk, moving first always pays up

 

 

Your attitude towards other counts, try to understand before you try to change

 

At BMSCG we know that attitude towards other culture also plays a role on how trust can be developed or built. Just coming from a certain country does not give the absolution to try to change everything to a setting that we are used to, we rather should try to adapt our way of thinking. After all, it is a lot easier to change one person then a whole culture (company). We have to adapt our way of thinking and we have to understand the other party. The better we do that, the more successful our business will be.


Pay Attention to Leisure Activities With Your Partner

The purpose of communication goes far beyond daily business operations, private interaction has a high effect on the relationships in China. Such “personal” activities also dejectedly develop Guanxi with a business partner. As Chinese enterprises see receiving valuable information more as a privilege than a necessity, communication becomes a key factor to develop a close partnership. More intensive relationship promotes the speed of developing trust. From our experience the important things happen in a personal setting around the dinner table or even at night in bars or night clubs. For Western businessmen it seems not appropriate to drink with the Chinese colleagues at the first time, but it might be a good way to reach further steps.

After all, we at BMSCG exactly know how to help you to establish all these issues in a professional way.

For further inquiries, please directly contact Thorsten Migge at The BMS Consulting Group.

About the BMS Contulting Group

The BMS Consulting Group is a Sino-European group of consulting companies, with business locations in Europe and Asia. Our unique network of over 1 500 suppliers in China alone, enables us provide innovative Supply Chain, Sourcing, Trading and Supplier Related services to our Partners, with special focus on small to medium size enterprises.

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None of our articles, publications or website contents can be reprinted, sold, excerpt, published or redistributed without prior written consent of The BMS Consulting Group.

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