Don’t Be Too Afraid of the Other Guy

Don’t Be Too Afraid of the Other Guy

By: David Van Rossum

I have done business with firms from different industries and in different regions and countries. I have been cautioned by internal experts, outside advisors and potential customers, suppliers, and business combination candidates about the nuances of doing business with each of these diverse groups.  I have been told how difficult it is to be successful in the “oil patch.” I have been told that is hard to do a deal in Asia. I have been told to let Europeans control the pace of a deal. I have been told not to press a deal or enforce a contractual remedy because of cultural considerations. Sales executives would inform me over and over again that “It’s tough to do business with these guys.” Supply management would sometimes echo those thoughts when we were the customer. I have been told how difficult it is to be in the hospitality space. I have been told that it would take me years to understand how to do business in the consumer electronics arena. I have been warned that high tech companies, big and small, are a different breed. In all of these examples it was made clear to me that dealing with these groups is so unique or difficult that I needed to either curb my expectations of deal outcomes, or be patient with the pace of talks, or remove myself from the internal discussions entirely because I couldn’t possibly “get it.” Many times I have wondered aloud whether the other guys were telling themselves that my company was “tough” to do business with or that they must work hard not to offend us.  Sorting through what is real and what are excuses can be a frustrating exercise.

I believe you should always be respectful when doing business. It is important to be cognizant of cultural differences so as not to offend. I think it is good practice to treat the other party as guests, deferring to their customs no matter if I am home or in foreign territory. I believe it is my job to create a comfortable deal environment no matter who is hosting. I also agree that it is tough to do business in some locales because of trade laws that need to be navigated in foreign countries and/or because of our laws that rightly prohibit some local customs (real or invented) such as kickbacks to individual representatives of companies. I also understand that each business space has differences from others. Companies in the “oil patch” do operate differently than those in other industries, just as executives in the high tech arena are different than those in municipal government. I get all that. Everyone is different. That is not an excuse to be less successful than planned.

When you are looking to do a deal and find a willing partner, it is important to understand how they expect to move forward. You need to establish where the decision authority is and whether you are dealing at the appropriately empowered level. You need to establish a mutual time table to get a deal done. You have to have solid intelligence regarding possible competition. You and your company need to be aware of any regulatory issues, stability of governments, stability of economies and applicable tariffs. I believe you should be respectful of individuals and possible cultural differences. You cannot forget, however, that your aim is to do a business deal that is a win for your company. You cannot allow excuses of company culture or national dynamics to settle for less or ultimately do a bad deal. You definitely cannot allow those cultural dynamics to harm your position once a contract has been signed. If you believe in your products and your ability to deliver them, then you shouldn’t be afraid to negotiate with anyone.

I once worked for a company that was owed a very large overdue payment totaling several hundred million dollars. The party that was late was an Asian company, well known, and certainly a prized customer. The money that was owed was to be disbursed by a banking entity under a project financing agreement with the Asian firm. The bank was also Asian based. The customer had to issue a certification that work was complete before the bank was authorized to remit payment, which of course would start the clock on interest accumulation to the customer. My company had completed a milestone and submitted an invoice in accordance with our agreement. There was some discussion as to the completion of the milestone, a normal occurrence in this type of project. After a period of time, our engineers and project managers were adamant that we had met the milestone. We had incurred significant costs toward the completion of the milestone but were dependent on the release of funds to reimburse our efforts. More time went by and it was evident that our customer was not willing to pay until they received concessions from my company, and was able to “turn on” the product that they were receiving from us, and resell that product to their market. When I was completely assured that we had met our performance burden, I began to formulate a plan, based on the contract terms, to effect payment. That’s when it became difficult. Not because of our customer, but because of our interpretation of what was “a right way to do business with them.”

We all are aware that concessions are made for many reasons, especially to very large or influential customers. We might give in to preserve a relationship that could result in future business. We weigh pros and cons and negotiate amendments or new agreements that ultimately work for both sides. This was different. This was a huge payment and it was to be released through a third party. I suggested in our internal meetings that we put the customer in default and take steps to not allow them to utilize or product until it was paid. Our sales and project management team argued against this approach. If we issued a default notice, then the bank would find out. Our customer would ”lose face”. That is their culture. We couldn’t embarrass them. If we turned off service then they would lose face with their customers, and that too was unacceptable. What we needed to do, according to our group that was in charge of the account, was to have high level discussions with their executives so that we can come to an agreement. This was the same internal group, mind you, that clearly felt we had met our contractual obligations! Recognizing the size and influence of the customer we agreed to have those discussions. We accommodated the customers work schedule and had the calls in the early morning hours stateside. We were cordial and spent many hours on these calls, investigated all of their claims and tried to collect on our receivable. This went on for many weeks. My frustration was growing and I continued to advocate taking contractual steps to effect payment. Our sales and project teams arranged more talks so the customer could explain how putting our customer in default would hurt their relationship with the bank and how it would be untenable for us to shut down service. No kidding. Nobody seemed to be concerned about our relationship with our shareholders! I listened, argued, and got more frustrated. More time went by and we were still not paid. Our cash flow projections were severely affected and we had no visibility if and when the customer would authorize payment. We were approaching the end of another quarter and we were no closer to collecting payment then we were months earlier.

I was finally able to get an internal buy-in to serve the default notice and give a deadline for service shut off. A call was arranged and I explained our decision. The customer asked for another call in a week so they could assess their options. We gave them two days. Our sales and project groups were horrified. The follow-up call was held. There was nothing new. Still our team begged not to take the action. We did anyway. The notice went out. We did not turn on service. Then we got paid. Several hundred million dollars. I have no idea when we would have been paid if we had not enforced contractual remedies. We had been more than patient. The nonpayment went far beyond a reasonable concession for a good customer. The Asian company survived this episode. It is still a large company. I’m sure it was embarrassing for them to have their bank release payment under a default scenario when they couldn’t defend their position. I would guess that they still have a significant working relationship with the bank.

The point of that story isn’t that we made the right decision. We really didn’t. We protracted talks way beyond what was reasonable for customer deference. The point isn’t to say that customer deference due to culture or relationship is wrong or that deals in Asia are problematic. The point is that a company must balance customer relationships against the need to recover the consideration promised for performance. We cannot be intimidated by companies, business segments, or regions that are “tough to deal with.” If an agreement is reached, then the agreement needs to be enforced. Both ways. Once the agreement has been signed, then each party is obligated to perform. It is important to hold your customer or supplier to the terms of an agreement. If your counter party falls short and looks to negotiate, then make sure you obtain equal or greater benefits than those you give up. A company must regulate this activity at the executive level. It sounds so easy, but I have been unpleasantly surprised at the disadvantages we can artificially create. We can see it on a national trade level. We are sometimes slow or unwilling to balance terms with some trade partners. We should always work to understand the point of view of our trade partners, and show respect for their culture. We should also expect the same from the other side.