Negotiating with Asian suppliers is a very important and delicate process. You must understand that there is a very fine line between negotiating a good deal and receiving products of inferior quality. You must not negotiate too far, or you could literally be setting yourself up for failure. If you can remember one vital tip – don’t go sourcing in Asia with the mindset of negotiating a supplier down to half of the original pricing offered. We’ve all heard that you can go to China and barter with sellers and often offer them less than half of the original price, after getting into a bit of an argument with the seller and maybe even walking away, you can manage to get them to accept. This situation may be true at local markets or retailers at shopping complexes throughout Asia. In this case, yes prices are exorbitant and targeted to foreign tourists. But you must not take this negotiation mentality with you when dealing directly with factories or suppliers in Asia. Yes there will be an element of negotiation that can be discussed with the supplier. The supplier may be able to reduce their pricing by changing specifications, increasing volume or just generally getting a better deal for yourself. You may safely be able to negotiate a price 10-20% cheaper on some products. It all depends on what type of product you are looking to purchase. You must remember that you are dealing with a business, a business which must receive orders and make enough profit to survive in such a competitive marketplace such as China. Put yourself in the shoes of the supplier:
You have been discussing backwards and forwards with a potential customer who wants to buy manufactured goods from your factory. The discussions and feedback go well, then the potential customer tells you that your pricing is far too high, you must agree to make the goods for half of that price or you will not get the order. The potential customer is adamant that they will take their business to another factory down the road if you can not agree.
Of course the supplier does not want to lose the order. This then forces them to look at how they can reduce their raw material costs, manufacturing costs, labour costs, quality control costs, packaging costs – whatever they can possibly reduce to give you the desired price. Of course the factory will not make the order at a loss, they must make a profit, so they must decrease the quality. They know that if they don’t accept, the business will go to another factory. They are forced to accept the order but the quality will be reduced accordingly. This in turn can cause problems in your market.
If you have received a quote from the supplier, and you know that your Landed Price works in your particular market or your new venture, then do not negotiate too hard. You know your Landed Price works, so you know can proceed with your import with confidence.
One factor that is negotiable is the payment terms. Asian suppliers will not give you credit terms. They will not send any goods onto a vessel until full payment is received. There are some exceptions to this rule, if your company has setup a great long term relationship with the supplier, you may be able to negotiate balance payments after shipment. Generally speaking, you will have to pay for the goods upfront. But you can negotiate how you pay the deposit/balance payment terms. All factories will require a deposit payment to buy the raw materials, then the balance payment before sending the goods to the port. A typical deal is 50% deposit upon confirmation of order, 50% balance before delivery of goods. A good deal is 30% deposit upon confirmation of order, and 70% balance before delivery of goods. Never pay a supplier 100% upfront, keep the balance payment as security to pay when you are satisfied goods have been made to your standard.
PURCHASE ORDER CONTRACTS
Make sure Purchase Order contracts are drafted to ensure the supplier agrees to every specification of your order. Everything that has been discussed must be included in these agreements. Product sizes, quantity, specifications, standards, packaging, payment terms, shipping details etc. Yourself and your supplier’s Manager must both sign off on your Purchase Order and Proforma Invoice agreements before production is arranged.