Why incentives from US companies are rarely effective in China

It seems that every company I have ever worked for has tried to implement an incentives program for vendors in an effort to get them to produce quality product and ship on time. I once worked for an American textile company, the owner of which had the idea to reward top performing vendors with trips to the US home office. What management of the textile company did not understand was that most of the vendors had absolutely no interest in getting on a plane and going to a country where the Chinese food in a five-star restaurant was probably inferior to the gruel they were accustomed to eating in their own factories. Not surprisingly, the incentive program was a failure. Another company I was employed by gave brass plaques to its top performing vendors, only to find that quality showed no improvement and, in some cases, got worse.  I mean what of what value is a brass plaque of recognition from an American company to a vendor far off in China ?  The answer is very little.

Providing vendors or workers with incentives is a classic example of a management program that works in the US but does not work in China. Why don’t these incentive programs work in China? I think there are a few  reasons:

1.) In China there is sometimes a tremendous degree of mistrust in personal and business relationships (perhaps the legacy of the Cultural Revolution when neighbors turned on neighbors). Most vendors regard incentives from US companies with a great deal of skepticism. They simply do not believe you will pay up, so to speak.

2.) More importantly, many vendors endured the bone-grinding poverty of pre-reform China and lost myriad career opportunities during the Cultural Revolution. For this reason, vendors have a “cash-in-now” mentality, and focus mainly on short-term gains. It never ceases to amaze me how few vendors in China look at relationships with American customers as long-term and mutually beneficial.  Of course incentives are part of a long-term program.

3.) To meet production goals requires vendors to invest more in production.  Yet vendors do not want to invest more in an order than is absolutely necessary.  No vendor in China is going to spend more out of their own pocket to get an order out on time simply because they covet that brass plaque you promised them.

More importantly offering incentives to your China vendor may in fact be counterproductive. If you give your vendor production or QA targets, he may feel he has reached these while you feel he has not. This just leads to conflict, an erosion of trust and you are soon looking for a new supplier. I have seen this happen.

For these reasons, it is probably best to avoid offering vendors any kind of special incentives. The best you can do is tell them they will get more business from you if the current order goes well, work closely with them on quality and hope they follow through accordingly. On your side, do everything you can to make those order QTYs bigger with each order.

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