If you are looking for advice to negotiate with Chinese factories, you can read these tips about negotiation with Chinese suppliers. A simple Google search for “negotiation with Chinese factories” will yield nearly 16 million results.
Whether you are new to negotiate with Chinese factories or have little experience, working with Chinese factories to produce the products you need at a reasonable price seems to be difficult. Managing an import company is difficult enough without the communication challenges and cultural barriers of dealing with Chinese partners.
So, where do you start?
It is helpful to get advice from people who have experience in Chinese factories in the past. Before negotiating with your Chinese suppliers, you have gone through the following initial steps:
- Contact multiple suppliers and ask for samples.
- Rigorous sample testing.
- Narrow the range to two suppliers according to the initial sample and price.
These five techniques have proved to be particularly relevant to successful negotiations:
1. Be realistic about the coming order quantity.
Some importers make the mistake of over-promising or exaggerating the number of orders when initially working with a Chinese factory. In general, they think that if the factory thinks they are bigger customers, they will have more bargaining power to demand a lower price. The five secrets of negotiating with Chinese factories are economies of scale, and if your order is thousands rather than hundreds, it makes sense that factories are more interested in doing business.
But what we need to be clear about is:
You don’t want to ridiculously overestimate your order, just to make the factory manager keen to get your business. The factory received a lot of inquiries from overseas. Almost every one of them is serenading the factory, promising “long-term relationships and a large number of orders”. Even if the factory accepts your order, cheating is certainly not based on a “long-term relationship”.
What Chinese factory managers prefer to hear?
High orders are valued by the factory, but you can’t take promises to the bank. Frankly, such words are meaningless, because in most cases, they will not become a reality at all.
Usually, importers should start with a small order, sometimes referred to as a trial order, rather than negotiating based on hopes and dreams. When you come to the negotiating table, be prepared to provide a realistic figure for your expected order quantity and quantity to move things forward. It will help Chinese factories to trust your order so that we can enter next stage.
2. Let Chinese Factories accept your growth target.
At this point, some importers may think: Great. Now that I have lost my production advantage in negotiations with this factory, I look like a small fish. But don’t think so yet.
To be sure, if you walk into a bank and apply for a small business loan, personnels at the bank may want to find two things:
- Some serious collateral to assure the bank that if you default, you have an asset-backed loan.
- A fairly comprehensive business plan detailing what you will do to ensure that your business has enough profits to repay the loan shortly.
What does bank example have to do with Chinese factory negotiations?
Whether you realize it or not, a factory manager is giving you a chance, just like you are giving him a chance. If he receives a steady stream of order inquiries, he needs to give priority to orders that are more valuable to his business. If you can prove that you have a solid business development plan and become a more valuable customer, the factory manager is more likely to want to do business with you.
Take your growth plan seriously and you will be taken more seriously.
Factory managers and salespeople may know the products they are producing like the back of their hand, but they often don’t know your customers. Therefore, you should let them know your market and let them know what you are doing to expand your customer base so that they can “buy” your production needs. Show them what you are doing to increase your business, which will translate into more orders from their factory.
If the factory manager believes that you are serious about developing your business and understand what you are doing, they will take your order more seriously. This extra consideration helps to maintain product quality, get a lower unit price, comply with production deadlines, and establish you as one of the highly valued customers of the factory.
3. Don’t be fooled by the sweet talk of the factory.
Factories are usually very hospitable, especially when you want to keep your business. Factory management usually invites customers out for lunch or dinner. Depending on the volume of business in your five secrets of negotiating with a Chinese factory, you may spend a drunken evening with the factory boss. Some importers experienced the hospitality of the factory owner and then confidently thought they had made a new best friend.
But you must stay objective.
Once the alcohol starts to flow, “true friendship” and the importance of your business will often enter the conversation. Such small talk is a common strategy that allows you to soften yourself and allow you to place an order.
Dining with the factory owner is a good way to improve your relationship with your suppliers. But if there are still outstanding questions about products or any other unresolved issues, don’t get carried away and be forced to agree to terms that you are not satisfied with.
4. Don’t bargain too hard with the factory.
The next hint may make some importers feel a little counter-intuitive. After all, why spend more money on something you can get with less money? But that’s the problem when you negotiate with Chinese factories, it’s often difficult, if not impossible, to get more with less money. This is correct for the quality and quantity of the goods you buy. When manufacturing in Chinese factories, there is an old saying that is quite true: how experienced importers reduce product defects in three stages.
An importer once told me that they were talking to a friend in their own country who complained that “China only makes cheap products”. In response, the importer, who has been buying from China for more than a decade, pointed out that China has indeed done a lot of cheap things because this is exactly what the world needs.
In other words, suppliers are usually driven by consumer demand. Importers asked China to provide cheap goods, so Chinese factories met their requirements.
A price decline usually corresponds to a decline in product quality.
No matter where you produce, bargaining is undoubtedly part of the import process. But understand that getting a lower price almost always comes at a price.
If you bargain for an extreme discount, the factory is usually willing to make concessions. But they still need to make a profit. Therefore, in the end, it will be the quality of your products that will be affected, and sometimes the delivery date. The factory will use cheaper parts and materials in production and put your orders at the back of the queue, behind higher-margin orders, which are given higher priority.
5. Bring your translator and deal with decision-makers.
If you have ever been to China to visit a factory, you may breathe a sigh of relief because finding an English-speaking employee can make communication much easier. Most factories in China that deal with foreigners employ young salespeople to deal with their overseas customers. In most cases, these salespeople have a good command of both spoken and written English, because many of them are college graduates who have learned the five secrets of negotiating with Chinese factories.
But any importer with experience in negotiating with a Chinese factory knows that misunderstandings or loss of ideas are easy to occur in the translation process.
Another problem for many importers is that salespeople, especially young ones, have limited decision-making power in negotiating prices and will have to obey more senior managers or factory owners. This can lead to two potential problems:
Confusion occurs when the terms of the negotiation are passed between you, the salesperson, and the decision-maker.
To make matters worse, if you are dealing with a “submissive” person, the salesperson may be just telling you the embellished truth that it would be better to say what they think you want to hear.
Why use independent translation?
When it comes to negotiations with Chinese factories, with your independent translator as support, you can reach a clearer and more favorable agreement over a long period. There are many advantages for the translator to talk directly to the relevant decision-makers in the factory, including:
You can get immediate feedback and more timely answers to questions.
You will get more reliable information because you do not need to go through the salesperson; as well.
Because your translator does not work for the factory, they are more likely to have your best interests at heart and will not whitewash the terms of the agreement.
Since there are so many opportunities for communication to lead to misunderstanding, having your translator may be a real trump card.
What is the goal of the negotiation?
The goal of the negotiation is to create a win-win situation with suppliers.
You want to find the best partner in terms of price and quality. You don’t choose suppliers just because they offer the cheapest price. This can be a fatal mistake because you are likely to get the price you pay.
If you are making gadgets, supplier An offers you $1.00 and supplier B offers $0.75, which is tempting. They may start negotiations with supplier B, but they may use recycled materials to make gadgets, take shortcuts, and have no quality control (QC) process.
When you try to improve the quality of the widget and work through QC, your final cost may be more than $1.00.
Let’s take a look at these simple but effective strategies, which we have adopted to reduce costs and build long-term relationships.
None of this gives the impression that we are trying to win and the supplier has lost.
How to maintain a win-win relationship with Chinese suppliers?
When dealing with Chinese suppliers, you can choose a lot of products. You need to choose the best price from the beginning to build a lasting win-win relationship.
- You can find Chinese suppliers who share your values and help you develop your business at a more favorable price. It will help if you never stop evaluating your suppliers and developing new or better suppliers.
- Always put your hands on the supplier’s pulse to get a better price.
- To have a reliable purchasing plan, you must first harvest easily available results as soon as possible and also find and develop your second-tier suppliers as soon as possible.
- When negotiating with Chinese factories, always know what you and your suppliers want.
- It is necessary to establish a reliable supplier management system and manage suppliers for the benefit of all interested parties.
In China, negotiation with suppliers is an important part of manufacturing. Early negotiations and meetings set the tone for how the rest of the relationship between buyers and sellers would develop. If you want the relationship to be built on a solid foundation, it’s important to be prepared in advance. Effective negotiations with Chinese factories can not only help you achieve lower prices, but also achieve higher product quality and avoid unnecessary delivery delays.
Thank you for your reading, please leave a comment below if you have any question. Or you can read previous blogs to get latest information about running toy business.