The basis of effective negotiation in China is to ‘make friends first, and do business later’ – something that is hard to achieve with disrupted travel situations and unpredictable lockdown protocols.
How to Negotiate with Chinese Suppliers for Small Businesses
You might enjoy bargaining in a market in Asia when you bought a watch for half the price you were originally offered. Negotiating with a Chinese supplier is really not like that! As the Pulitzer Prize winner, negotiation expert Stuart Dimond points out in his article in the Harvard Business Review, one of the common errors people easily make is in being self-centred and ignoring the other side during negotiations. As such, it’s important to figure out what the ultimate goal of negotiation is supposed to be.
Some companies take “getting the cheapest price “as their only thought when searching for suppliers in China. Pricing is of course important, but a good supplier should not only include price, but also quality, lead time and communication. Getting benchmark quotations from a handful of suppliers is a good start, alongside the understanding that “The best price” is never just the “cheapest”.
If you want to establish and benefit from a long-term partnership, one that involves investing in production assets. It’s important to find one that requires time for all parties to get to develop and grow. Such relationships are the driving force of long-term stability.
Check Potential Partner
A proper and healthy relationship between a customer and a supplier should be win-win and based on mutual benefit which is based on a good understanding of each other. So, you should do your due diligence and understand your supplier first. Prior to starting any serious negotiation, it is vital to understand whether you are negotiating with the right supplier or not. Based on covid rules, this effectively means using a 3rd party within China to check that the potential partner has the production equipment, team and certifications claimed.
Know Your Product
You know your product – you know what equipment you would like to have available, and how to produce the quality of the product that you require – so start from this position – specify what you think you need to achieve the standards you require, and ensure you get a good quality translation of your requirements to help open your opportunity to as many suppliers as possible. It is pointless negotiating based on assumption alone – be specific, and be clear about what you want albeit whilst including some questions as to how the factory will ensure conformity in production. Leave some space in the details provided for a genuine supplier to impress with their knowledge.
The objective should be to find the right supplier, and the right supplier will open up a symbiotic relationship and achieve a win-win that can pay dividends over the long term. As such, the negotiation & Contract Negotiation & Liaison becomes a ‘dance’ often a ‘long dance’ in which you can start a constructive dialogue and develop the initial relationship needed to form ‘guanxi.’
Face for Negotiating with Chinese Suppliers
Think carefully about who should handle the negotiation – if you are communicating directly with an owner-director in China, ensure that you match the discussion with your equivalent. Ensure you research and understand ‘face’ and manage the negotiation carefully regarding such cultural sensitivities. Examples of what to avoid would be slang, particularly sarcasm.
Discuss All Aspects
Whilst much of the detail can follow at a later date, it is essential to discuss all aspects that are within a manufacturer’s control (ISIR Reporting, Production Reporting, INCOTERMS, payment terms, packaging) and those that are out of their control such as Exchange Rate and Material Cost. It will be an early test of the relationship if you start to include processes that you had ‘assumed’ would be included.
Take your time with both negotiating and decision-making – small businesses do not usually have the luxury of dual sourcing, so take the time to get it right. Work out how you can start the relationship in a way that is ‘safe’ for you. Whilst we all want to get the best price based on a reasonable MOQ, negotiate fair pricing for the time and effort to establish the relationship and the high inspection overhead you will have in the short term.
Tricky Issues for Small Businesses
Whilst it might be uncomfortable to discuss be clear that you need a mechanism of how to deal with non-conforming parts. We would suggest agreeing and establishing regular feedback on all deliveries which provides a stable basis for reporting minor issues.
T’s & C’s
Agreeing Ts&Cs in China is complicated. Most suppliers look to impose their standard T&C on suppliers – these are generally governed by English law, and effectively provide no protection in China. Chinese companies will rely much more heavily on developing the relationship with you, so consider this more important and such a relationship will provide the basis for managing disputes in a constructive way.
Effective negotiation with the right person at the right supplier can open the door to a long-term successful partnership of mutual benefit – whilst it might not be straightforward – give it the time it deserves and reap the benefits.
For more info on How to Negotiate with Chinese Suppliers for Small Businesses and Product Manufacturing – call uson 01225 460 388 or find out more by email@example.com
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