If you’re looking for advice on negotiating with Chinese factories, you’re not alone. As of this writing, a simple search in Google for “negotiating with Chinese factories” yields almost 16 MILLION results.
Whether you’re new to the game or have a bit of experience, working with a Chinese factory to manufacture the product you need for a reasonable price can seem like a daunting task. It’s hard enough to manage an import business without the communication challenges and cultural barriers that come with dealing with a Chinese partner.
So where do you start?
It helps to get advice from someone who has experience with Chinese factories in the past. I’ve personally dealt with hundreds of Chinese factories, not only directly on the manufacturing side, but also working with other importers to manage quality control of their products. In all my experience, these five tips have proven to be especially relevant to successful negotiating:
1. Be realistic about your upcoming order volume
Some importers make the mistake of overpromising or overstating their order volume when initially working with a Chinese factory. Typically, they think they’ll have more bargaining power to request a lower price if the factory thinks they’re a bigger customer (related: 3 Tips for Getting the Best Price from Suppliers). And due to economies of scale, it makes sense that a factory would be more interested in doing business if your order is for thousands of units, versus just hundreds.
But let’s be clear:
You DO NOT want to absurdly overestimate your order volume just to get the factory manager enthusiastic about getting your business. Factories get a LOT of inquiries from overseas. And almost every one of them serenades the factory with promises of “long relationships and high volume orders”. Even if the factory accepts your order, deception is certainly not what a “long relationship” is built upon.
What Chinese factory managers prefer to hear
High order volume is valued by the factory, but you can’t take promises to the bank. Frankly speaking, words like this mean nothing because, in most cases, they simply don’t materialize.
It's generally better for importers to start off with a small order, sometimes called a “trial order”, to test the waters, rather than negotiating based on hopes and dreams. When you come to the negotiating table, be prepared to offer a realistic figure for your expected order quantity and volume to keep things moving forward.
2. Bring the factory on board with your growth objectives
At this point some importers might be thinking: Great. Now I’ve lost my volume edge in negotiations with this factory, and I look like a small fish. But hold that thought.
It’s safe to say that if you walk into a bank today to request a small business loan, the person at the bank is probably going to want to see two things:
- Some serious collateral to reassure the bank you have assets to back the loan in the event you default and
- A pretty thorough business plan detailing what you’ll do to make sure your business is profitable enough to pay off the loan in the near future.
What does this have to do with negotiating with Chinese factories?
Whether you realize it or not, a factory manager is taking a chance on you just as you’re taking a chance on him. If he’s receiving a fairly constant stream of order inquiries, he needs to prioritize the ones that are more valuable to his business. And a factory manager is much more likely to want to do business with you if you can prove that you have a solid plan for growing your business, and in turn, becoming a more valuable customer.
Be serious with your plan for growth, and you’ll be taken more seriously
Factory managers and sales staff may be knowledgeable about the product they’re manufacturing, but they often don’t know your customers. So you should educate them a bit on your market and let them know what you’re doing to grow your customer base, so that they “buy in” to your production needs. Show them what you’re doing to increase your business, which will translate into more orders for their factory.
If the factory manager believes you’re serious about growing your business and really understands what you’re doing, they’ll take your orders more seriously. This extra consideration can help with maintaining product quality, obtaining a lower price per unit, adhering to production deadlines and establishing you as one of the factory’s highly valued customers."Explaining your #growth #objectives to a factory will help them see the potential of your business."
3. Don’t fall for factory sweet talk
Factories are generally very hospitable, especially when trying to secure your business. Often factory management will invite customers out for lunch or dinner. And depending on the volume of business you’re negotiating, this may involve a boozy night with the factory owners. Some importers experience this hospitality from a factory owner and then confidently assume they’ve made a new best friend.
But it’s important that you remain objective.
Once the alcohol starts flowing, talk of “true friendship” and the importance of your business will often enter the conversation. Such schmoozing is a common tactic to soften you up and get you to place an order.
By all means, if you’ve already “crossed all the t’s” and “dotted all the i’s”, then celebrate with the owner over a drink and enjoy the moment. In fact, dining with the factory owner can be a great way to improve your relationship with a supplier. But if there are still questions up in the air about production or any other loose ends, don’t get carried away and manipulated into agreeing to terms you’re unhappy with.
4. Don’t bargain too hard with a factory
This next tip may strike some importers as a bit counter-intuitive. After all, why pay more for what you can get for less? But that’s just it—often when you’re negotiating with Chinese factories it can be difficult, if not impossible, to get more for less. This is as true for the quality of the goods you’re buying as it is for the quantity. The old adage “you get what you pay for” rings true when manufacturing in China (related: How Experienced Importers Limit Product Defects in 3 Stages [eBook]).
An importer once told me they were having a conversation back in their home country with a friend who complained that “China just makes cheap rubbish”. In response, this importer, who had been buying from China for over a decade, pointed out that China does indeed make a lot of cheap stuff because it’s exactly what the world asks for.
In other words, suppliers are typically driven by consumer demand. Importers demand cheap goods from China, so Chinese factories oblige them.
A drop in price usually corresponds to a drop in product quality
Bargaining is undoubtedly part of the importing process, regardless of where you’re manufacturing. But understand that obtaining a lower price almost always comes at a cost.
If you bargain for extreme discounts, factories will generally be willing to make concessions. But they still need to make their profit. So ultimately, it’s going to be your product quality, and sometimes lead times, that suffer. The factory will use cheaper parts and materials in production and push your order to the back of the queue behind higher margin orders that are a higher priority (related: Preventing Product Defects Starts with Negotiating with Suppliers)."A low price doesn't mean your #product #quality stays the same."
5. Bring your own translator and deal with the decision maker
If you’ve ever traveled to China to visit a factory, you might have been relieved to find an English-speaking employee that can make communication much easier. Most factories in China that deal with foreigners will hire young sales staff to deal with their overseas customers. In most cases, these salespeople have a very good grasp of oral and written English as many are university grads that studied the language in depth.
But as any importer who has experience negotiating with Chinese factories knows, there can easily be misunderstandings or ideas lost in translation during the process (related: 3 Ways to Improve Communication with Suppliers).
Another problem many importers encounter is that sales staff, particularly younger ones, have limited decision making power to negotiate on price and will have to defer to a more senior manager or the owner of the factory. This can lead to two potential issues:
- Confusion as terms of negotiation are passed between you, the salesperson and the decision maker and
- Worse yet, if you’re dealing with a “yes man” the salesperson may simply be telling you an embellished version of the truth, believing it’s better to tell you what they think you want to hear.
Why use an independent translator?
When it comes to negotiating with Chinese factories, bringing your own independent translator for support can go a long way to reaching a clearer and more favorable agreement. There are a number of advantages to bringing a translator to talk directly with the relevant decision maker at a factory, including:
- You get instantaneous feedback and more timely answers to questions;
- You receive more reliable information because you won’t need to go through a salesperson; and
- Since your translator doesn’t work for the factory, they’re more likely to have your best interests at heart and won’t sugar coat the terms of the agreement.
With so many opportunities for misunderstanding due to communication, having your own translator at your disposal can be a real ace in the hole (related: 4 Tips for a Better China Business Trip).
Negotiating with suppliers is an important part of manufacturing in China. Early negotiations and meetings set the tone for how the rest of the buyer-and-seller relationship will play out. If you want that relationship to begin on solid footing, it’s important to be prepared ahead of time. Effectively negotiating with Chinese factories can help you not only to reach a lower price, but to receive higher product quality and avoid unnecessary shipping delays as well.
And don’t forget to check out the manufacturing podcast episode that covers this article!
Do you have any tips of your own for negotiating with Chinese factories? Share them in the comments below. Stories are also welcome!