by M. Douglas Keene
President, M. Douglas Keene & Associates
Электронная почта Dr. Palms
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Many Russian companies trying to gain business from the West, whether it is as a provider of services like manufacturing, or as a seller to the Westerner, often never get past the initial visit and interview because relationship does not develop properly. It is important to begin to think like the Westerner if you want to understand what will make him do business with you and not be scared away by some innocent mistake that resulted from a misunderstanding.
First, lets understand that money will be at the center of all conversations with your Western visitor, whether it is spoken out loud or simply in the mind of this person as he talks and listens and observes you, your associates and your facilities. As you know, in Russia often talk of money comes only after a period of getting to know each other, but the Western customer will be balancing every comment against his goal of establishing a good business deal that will benefit his company financially. He will do this from the very first minute. You will not be able to change his mind or his methods, so simply understand that this is his mind, and work within this situation for your mutual benefit.
Lets talk about the pricing of your goods or services. You should clearly establish your plan for the pricing long before the Westerner arrives at your facility. You should have a strategy based on your real costs, and consider the time it will take you to receive payments. This sounds simple, but lets look at a set of realistic situations that a company might encounter if it is exporting goods.
You should not expect to be paid for your goods in cash, and certainly not until the items are shipped and received at the foreign port. You will not receive payment for your export shipments until possibly 2 or even 3 months after the product leaves your factory since you have transit time in Russia, delays at the port waiting for clearance and a ship to arrive, and then a ship voyage of usually around 30 days. Customs clearance in the U.S. is very fast, a few days at most, then payment is released.
My experience at the Russian ports is that there is always some excuse for delaying a shipment (not happy with condition of a container, paperwork not perfect, can't find the product in their always present "book", money didn't cross the right hands, train went to the wrong place, port official doesn't like someone in the city of origin, customs guy wants a new car, etc. etc. etc. etc. My point again is to make sure that you plan for the "probable situation" not the "ideal" when you calculate your budgets and make your financial plans.
When you quote a product to a customer, the price should be based on your true cost of manufacturing plus your profit margin. That is all. Not the empty buildings, not the non-working workshops, not the unused office spaces, not the heating of buildings not involved directly in the manufacture of this specific product, not security guards who do not guard this product's workshop, etc. Now, the cost of manufacturing means all of your actual costs, including the "time value of money". This means that if you have to borrow some money to support manufacturing until the customer pays for product (at which time you repay the loan), then any interest charges become part of your cost of manufacturing also. Its an expense just like the cost of steel.
The customer only buys product at a fair, competitive, negotiated fixed price. It is none of his business what is embedded in this cost, whether it is interest on loans or cost of steel. It is your company's job to build the product at a COMPETITIVE PRICE. Give the customer a competitive price (competitive with the other people in your country and the world offering similar services, China, Southeast Asia, Mexico, etc.) and he will be happy and will continue to bring you business and profits.
Let me make one thing very clear, because this is where almost every deal I have seen fail in Russia has failed. It is never, never, never the concern of the customer that you as a company have some hardships. They don't care about Russia's politics or the various consequences of these politics [except taxes], including some bad financial situation you currently are experiencing at your company. Its none of their business. They don't care whether you have to borrow money at high interest, or whether you have a rich mafia guy taking care of everything. What they care about is good product at a competitive price, delivered promptly according to an agreed schedule. That's all, nothing more. The very minute that you begin bringing the customer into your company's personal affairs, trying to make him have some sympathy or some special concern for your situation, and especially if you leave the impression that he is to pay more because of your situation, your deal is already doomed. Have a vodka, wish each other good luck and go home, because the deal is dead.
When you talk of "opportunity cost" (I would call this a "euphemism" - a positive word replacing an unpleasant word with the same meaning) the implication to the customer is that you want him to be "charitable" and pay more because of your unfortunate situation. I know that this is probably not the thing you want, but this is how it will be understood. Your customer is not a benefactor, not a charity. He is in business to make a profit, and he does this by buying at as low a price as he can get, and selling at as high a price as the market will allow. He does not, and shouldn't have to be concerned with anything else. Usually this margin is quite low, and this is especially true in International business due to the extra costs of import/export, additional risk, Sales costs in the U.S., etc.
My intention is not to preach. I just can't emphasize enough that these things are serious issues and they are critical to your ability to get and keep customers. It is not unique to your factory, as I have run into this perception problem at most factories I have visited in Russia. This used to be a problem also in China, but now they have mostly learned this lesson and no longer bother the customer with their hardship. It has significantly improved the business in the many plants I have worked with in China. A Russian plant where I developed some export manufacturing only partially learned this lesson, but what they did learn did help them a great deal and their negotiations now are more productive and good for their business.
To get good business for your plant, you must assure that you have limited
your manufacturing costs as much as possible:
All of these are things that you can do internally without bothering the customer, and the result should give you an advantage over your competition because you will have a happy and satisfied customer who will not want to go elsewhere for his business.
When dealing with the customer always keep in mind what we often jokingly call the "KISS principle" [Keep It Simple, Sir]. Price, Performance, Quality, Delivery. That's all. Its that simple. You are providing a service to the customer, and service is your product. Please never forget this, and the process will go much smoother and you will absolutely gain more business. You have heard it before, but also never forget that in the West, it is strongly believed that "the customer is ALWAYS right", and your customer will be expecting to be treated that way also. This statement is really not about "being correct", but it is about receiving service and feeling like they are the focus of your attention.
You will have to negotiate a price for the finished item "FOB" your plant. FOB is the common term in the West, meaning "Freight On Board". The Russians might prefer "Ex-Works". It has the same meaning. In Russian export business we see quotes of price, FOB factory, or FOB export port. If it is the latter, then your price would include in-country transit. Usually you quote the product FOB factory, and then shipping charges are a separate item, usually priced at actual cost and supported by actual shipping paperwork and receipts which are copied to the customer for his records.
The customer can arrange his own transport to port, or you might offer to provide this service for an additional charge (at actual cost) as an incentive for them to do business with you (and to control the quality of the transport to the port which assures that you are paid in a timely manner.
Advice: Do not make the mistake of trying to profit on in-country shipping. This shipping is a service to the customer, and if you keep it clean and choose your shippers carefully, he will see this as a good value and it will help you to keep his business. Sometimes this lower cost of shipping (because you didn't inflate the cost to make some profit) will lower the customer's "Total Cost of doing business" with your plant compared to other competitor plants, and this will get you the business even if your specific product cost is a few percent higher. You can also consider it as a kind of advertising expense. By the way, a shipper who benefits by your continuing business may be willing to offer you discounts eventually to keep your business, which you can choose to keep or you can pass the savings to your customer as a reduced price to thank him for his business, which will also be good "advertising". In fact this should be part of any negotiation you have with a shipper. The goal is to have your customers continue to use your services, as it is far more expensive to find new ones than to keep old ones, so this is what we would call a "cost of doing business".
It is important, to realize that on your first order from your new customer it will be wise to provide to the customer as much service as possible as long as the purchase order commitment is large enough to make the effort worthwhile. You will be gaining a lot of knowledge from this first experience and so some extra effort and expense to acquire this benefit should be considered as normal and a worthwhile investment by your company.
You will need to clean up your facility if it is not already very neat. I have visited endless dirty, disorganized, rusty old factories, and I have done this with my client by my side and watched him simply turn around in disgust and move on to another place to do his business without any further discussion. And this is a guy with a lot of experience in Russia and Asia, so he isn't shocked, he just sees the mess as a reflection of the minds of the factory managers, and he doesn't think good work can be done in this kind of environment or with management thinking this way. It doesn't make any difference whether you agree or not, it is the way most will think, so you either consider it seriously or take your chances with the consequences.
Keep in mind that I am not talking about anything big or expensive to be done. It doesn't cost anything to move the trash out, straighten up the stacks of materials (inside and outside), or hide or cover the miscellaneous "junk". This is a good project for everyone to participate in, management, workers, and "volunteers", as it is important to make a good impression. It likewise doesn't cost much to clean the grease and dirt from the machinery with some solvent, and make sure that metal filings and other scrap is not around the floor. It is a very small cost to buy a few cans of paint, remove the loose rust, and paint the paintable parts of the production machinery in that famous Russian Factory Green (or whatever you like). I have done this myself, and I still have the green paint stained shirt to prove it. You do not have to paint walls or anything like that, but it is always helpful to clean the windows and make sure that there are lights that work. In general I have found the office spaces to be pretty orderly in Russian plants, so usually nothing much needs done there.
I understand the reluctance to do this "cleaning", and the other things I mentioned, but I have personal experience doing exactly this in two workshops in Russia, and believe me it was very helpful. I also know that it took a long time to get this done and to convince everyone that it was necessary. Not everyone was happy about doing this kind of work, and almost no one understood why it was important to do this unpleasant work. The Russian view is always toward function, not appearances, but your customers will be Westerners and it is in the West where these two factors, function and appearance, have equal value and sometimes appearance even has more value. Also in the West, the look of the factory can be a kind of advertising to influence the sales, helping to differentiate your product from your competitor who may have a messy, dirty factory. In one factory, by cleaning up the workshops we changed the mind of my client about going somewhere else with his business, and he is still doing some business in that plant today, 2.5 years later.
It is also advisable to have at least one Western style toilet with a seat in your facility. Make sure that toilet paper is available. If women are visiting with men, you will need to do this in both a women's and men's restroom. You may think this is silly, but it is not silly to your visitor, believe me. This one small effort on your part to show that you care about the customer and want him to be comfortable, will relax them, and lead to a much more productive business relationship. Make sure that his hotel or flat also has the same situation.
Speaking of women, you should also be aware of the different way that Western women in business should be treated. In the West, women expect to be treated equally with men, they expect to participate directly in negotiations and decision making, and they do not wish to be treated differently than men in any way. You should never exclude a female member of a visiting team from any meeting or discussion. Remember, that her team will be treating her as an equal, and if you don't you will be jeopardizing your overall business relationship. Also, be very careful to not insult the woman with dirty jokes or sexual comments of any kind.
When a visitor comes to the plant, have a small blackboard or something similar that sits in the lobby area and welcomes him to the plant. The Chinese often put this kind of sign in front of the office building for the customer and all the employees to see as the car comes to the front door, and it always makes the customer feel like a VIP [very important person} at no significant cost to the plant. In China this also helps the workers to know the name of the visitor so that they can greet the visitor by name when he is touring the facility. American companies often have a similar board in their lobby listing and welcoming the VIP's (customers) visiting that day, so this will be familiar to your customer. The customer should not expect anything less when visiting Russia. These are little things but they can make a positive difference. In the retail trades this is called "merchandising", and it is how they grow their businesses.
At one furniture factory where I was assisting, the director took us out to a dark factory and told us he couldn't afford to buy electricity unless my client gave him some money to buy a few hours of electricity for our tour. Obviously this didn't impress my client, as it made him fear that his work would not get done at this place. This guy would have been far better off if he had not invited us to look at the factory till he could afford the lights to be on. My client should have never heard that the plant's finances were that bad either. It scared away an otherwise good customer who could have, with his business, helped to provide an income to pay for the lights everyday. I think in this case if I were the director, I might have even sold my "sabaka" [dog] to pay for one day's lights if it would help to get the customer's business. Remember, if you look too poor, it will affect the negotiation, usually in the favor of the customer. You don't want to look desperate. You want to look like you are doing OK and that the customer sitting across the table is "just one more important customer", not the one customer that may save your company.
So, these are my suggestions for the Russian business to think about when deciding to do business with the Western business person. If you open your mind and think about these items, and do as many of them as you can, you will have a much better experience with these foreigners and the end result will be more and better quality business.
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