China has been at the forefront of manufacturing and outsourcing for a few decades now. The cheap cost of production and good quality are two essential characteristics that have made China into the production hub of the world.
If your business is not choosing a China sourcing company, there are many factors to consider when negotiating prices with Chinese suppliers. Whether it’s technical specifications or overcoming language barriers, you as a business need to consider their ideology and culture when doing business. Here are some tips on negotiating prices with China suppliers for you editted by Maple Sourcing.
1. Set a realistic target price
Setting your target price can help you engage in meaningful price negotiations. If you don’t know the right target price, you can request quotations from a few suppliers to find a price baseline. Also have a look at product sourcing websites and find online suppliers in China. This is to make sure you have enough information to make correct estimates.
When sourcing goods from China, know that Chinese suppliers are accustomed to price negotiations, they don’t expect you to accept the first price they offer. There are limits to how low you can push the price, but you can send the supplier your target price and ask them to match it. That said, always get quotes from suppliers before communicating your target price.
The bottom line is to ask for price reduction only after receiving the initial quotation from the supplier. Aim to negotiate a fair price rather than driving it down too low, as explained below.
The right supplier can be extremely vital to the success of your business. For a sustainable relationship, it is important that your supplier also makes enough money to keep their business afloat. Your baseline price should be reasonable enough so that the supplier also hits his profit goals.
In reality, Chinese suppliers make a thin margin. They may walk away if you’re forcing them to accept a price that can hurt their business. Or, a possibility is that the supplier may use cheap materials and components, manufacturing inferior quality product that you don’t sell well.
Even if quality isn't abysmally low, the supplier may cut corners and have a knock-on effect on your margins anyway. For instance, it may not be financially feasible for the supplier to focus on incoming quality control, and you may end up receiving quite a few defective products in each batch.
Another downside is that the supplier may not give you their attention and prefer to focus on buyers who have negotiated a realistic price. They may not be able to meet the target lead time of your urgent orders.
We can’t stress enough how important it is to be clear about your product specifications. Your supplier agreement should specify product dimensions, color, material, finishing, packaging, labeling and all other features that impact its quality. Be clear on the bill of materials that are needed for the product. If the factory specializes in your product category, they will know how cheaper substitutes can affect overall product quality. But if you’ve negotiated a rock-bottom price, they won’t care.
When you are looking to get your work done abroad it is in your best interest to be strict about the quality of work you want. On China supplier websites, you can see the images of the products that their factories make. But beware – it is not necessary that the images they advertise are representative of the product they sell. Make sure you order a sample or place a small order of 10-100 items first to gauge quality.
Give your feedback and ensure that the supplier has understood it. Ideally, you should be sharing instructions and feedback with the factory manager or a decision-maker who makes your specifications clear to the workers.
When you are carrying out China supplier negotiation, you don’t want to give them the impression that you are naïve about raw material prices. Keeping yourself up to date about the latest commodity and raw material prices can make you seem well-informed and thwart any attempts of the supplier to quote a higher price. There are several resources available on the internet that you can use to do thorough research before getting down to the negotiation process.
A little research about labor costs and taxes can also help, as many suppliers cite these reasons for a higher rate when it is not justified. Chinese manufacturers need to manage fluctuations in raw material prices, high taxes and other variables that put a downward pressure on production costs.
By knowing how your supplier’s economic environment can affect their business, you can make the right judgment and avoid misunderstandings.
Also, discuss the quantity and how much you will be ending in the future. You might have to adjust according to the quantity they can produce in their factory. If the numbers they suggest will not be able to keep with sales it is best you look elsewhere.
Paint them a big picture as to how your product is going to do well. Use your yearly projections to your advantage and make the offer enticing for them. A yearly forecast is a great way of gaining the trust of the supplier.
For your new product take advantage of forecast and estimated orders that you will be needing to hit those targets. This gives you an upper hand in the negotiations as they see the confidence you have in your product and marketing capabilities. Suppliers are enticed by this confidence and the yearly sales figures make them work harder to achieve your goals. Because if you sell well, they get to make more of the same products for you.
If you sell a mass market product that fulfils a basic function, and aim for an acceptable quality, you don’t have to worry about product differentiators. Your product may only need standard materials and components. Costs are higher for products that require various materials and components.
Wherever possible, avoid unnecessary customizations as even a slight change in design for the customized products from China may increase tooling costs. Also, unnecessary customization will increase the time it takes to make the product which will in turn delay the shipment.
To avoid such a scenario, you must keep the customization precise and clear. If it feels like a feature that you can live without it is best to avoid it at first. You can get to customization after you have achieved your sales targets and started raking in the profits. This will help you update the product in the future and keep up with trends too. For items that need to be customized to clients’ needs, make sure you work with a supplier that specializes in that category and has lots of experience catering to western markets.
You have nothing to lose when you talk to multiple suppliers, and you also weed out the suppliers with poor communication skills. Communication is key and you should get a supplier that meets your key requirements for the quantity, price, and quality.
Talk to the supplier that wants to work with you at last. Make sure you let them know that you have talked to other suppliers and already have quotes. Do not reveal your target price rather ask them if they can do better than the ones you have already talked to.
Ask them how their quality is similar or better than the others and ask them which materials they are using. Ask them if they have their own mold, this will give you an idea of whether they have their own designs or not.
They are already expecting a hard negotiation so there is no point in settling for the first offer itself. Bargain hard and try to have a leverage to work things in your favor.
Lowering the product price may not be the only way to cut costs. Think of other ways that can help you save money and improve margins. For instance, is there scope to lower shipping costs that can help you lower your costs? Does the supplier incentivize buyers with discounts if the buyers pay the invoices early? Be open to possibilities.
Successful price negotiation is about striking the right balance, where you pay a reasonable price for the right quality, and your supplier is also able to support their margins.
Chinese suppliers need your business, but you need them too. The whole point of a sourcing strategy is to keep business costs low and profit margins high. With the right tactics and an eye on maintaining a cordial relationship with your suppliers, you may become eligible for competitive prices and good terms.
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