36 Tips on How to Deal or Negotiate with your Chinese Suppliers

During the last year, I have interviewed several entrepreneurs who source products from Chinese factories. Their tips and insights are scattered across a number of posts (and a few of them I’ve not even published). Today I am going to compile most of the tips I’ve heard so far on how to deal / negotiate with Chinese suppliers ( I say most because I am probably forgetting a few). Here is the check-list:

LOOKING FOR SUPPLIERS…
Tip #1. Initial Search for Suppliers: directories, trade-show directories and internet
Tip #2. Not all good suppliers have English websites, get on board somebody who can help you search in Chinese
Tip #3. Existing (good) suppliers may be able to help expand your supplier network in non-competing products
Tip #4. If there is any IP involved, register it in China before you approach anybody
Tip #5. Consider registering your IP for categories similar to the one you manufacture

SHORTLISTING SUPPLIERS
Tip #6. Approach them first with an introductory email presenting yourself, your company and detailing as much as possible the product you are after
Tip #7. If they do not answer fast (1-3 days) move on, they will give you trouble in the future
Tip #8. If you have a good number of suppliers to choose from, create a “pre-selection system” that helps you shortlist: level of response to your introductory e-mail response, telephone check (do they exist?), factory address provided, factory license, any certification your business requires, quality certifications…
Tip #9. Ensure you are not dealing with the middle man (I): Visit the factory… ALWAYS!
Tip #10. If you can’t visit the factory, get an Inspection Company to do it for you. It is not that expensive

NEGOTIATING WITH YOUR SELECTED SUPPLIERS
Tip #11. If you are not a fluent Chinese speaker, bring a native Chinese speaker to the negotiation- he/she will be a valuable support
Tip #12. Understand perfectly the production process
Tip #13. Be very clear on who is going to be making decisions
Tip #14. The best way to do business in China is face-to-face” Technology is great, but I do not think it is the way Chinese people are wired to work
Tip #15. “I can’t” is not in their vocabulary, so be wary if you get silence for an answer…
Tip #16. Make them recap the agreements, do not assume they understood just because you feel you were clear enough”
Tip #17. Give realistic purchase estimates. If you promise 10 more times than you are planning to buy, they will cut corners to meet their profit so it will hit you back with poor quality (they work on small margins)
Tip #18. Expect long negotiations: even points that have already been agreed will be raised again in the future
Tip #19. Pricing: Do not get obsessed with the cheapest deal. Quality has a price and you should also consider that.
Tip #20. Track commodity prices used in your products
Tip #21. Learn about your suppliers cost structure (how much goes into labor, materials cost…),
Tip #22 . If your IP is involved, make sure they agree to sign a good non disclosure agreement, with non use / non circumvention  provisions (I read this one at the China Law Blog- worth reading the whole post about it)
Tip #23. Make sure you have good contracts in place. It will be a good use of your money to get a China knowledgeable lawyer to draft them (so that the terms are enforceable and it covers all the points you need to cover- IP, stocks, product quality, product specifications, penalties, etc)
Tip #24. Ensure they have the machinery & capability to produce your product. Ask them to produce a few samples in front of you, even if they don’t match your exact specifications.

PRODUCTION & SHIPMENT
Tip #25. Make sure you visit the factory during product development. It will speed the process, as nobody will tell you on the phone when they’ve got stuck with something (especially if the product is technically sophisticated)
Tip #26. Visit the factory during production & for quality control
Tip #27. If you can’t visit factory send an inspection company or somebody you trust (and is qualified for the job)
Tip #28. Don’t pay till you are sure all the product is in good condition (make sure the contract is draft that way)
Tip # 29. Never relax! Even with good suppliers. “Quality Control: Always, even with good established suppliers”
Tip #30. Always be ready with back up options- you would be surprised about how many last minutes surprises happen
Tip #31. Expect Delays in your Supply Schedule (power shortages are common, national holidays…)
Tip #32. “Problems don’t finish after production. Supervise Logistic Paperwork! There are often mistakes that will get your shipment stuck

…ON-GOING RELATIONSHIP
Tip #33. Payment Terms… Some buyers feel that, once you build the business relationship,  things get easier (ex. Not requiring advanced payments)
Tip #34. Get rid of unreliable suppliers A.S.A.P. If they trick you once, it will happen again
Tip #35. Take care of good suppliers, they are not easy to find. Look for win-win when problems come up.
Tip #36. “Renegotiating conditions” is quite common. Your Chinese supplier sees the contract as the “beginning” of the relationship. If you follow tips 20 & 21 (track commodity prices & know suppliers cost structure) you will be able to assess if there is a fair reason to give in (hopefully in future productions)

Would you like to add your tips?

Tips for Negotiating and Dealing with your Suppliers in China (III): Original Equipment Manufacturing (OEM) Agreements

Are you sourcing your production from China? If you are, have you signed an OEM agreement with your suppliers? If so, is it good enough?

Today, I just want to recommend a few posts on this topic from the China Law Blog.  Last week they posted an article titled “Sourcing to China. A Tale of Two Companies” in which they give two real life examples on how good or bad your bargaining power can be depending on whether you signed a good OEM with your suppliers. I have heard a lot of business people talking about how often prices get a last minute hike or productions get delayed…and how little they can do about it…. Well, this post may show you that this should not necessarily be the case.

I also recommend you to go through the rest of the really good posts they have written on the topic (also mentioned in that same article), so that you can assess whether you have covered all the right points in your agreement:

http://www.chinalawblog.com/2010/04/china_oem_agreements_ten_thing.html

http://www.chinalawblog.com/2010/03/china_oem_agreements_you_are_n.html

And can read their advice on what language contracts should be signed in, or how to resolve disputes:

http://www.chinalawblog.com/2009/07/china_oem_agreements_we_like_o.html

12 Tips for Negotiating and Dealing with your Suppliers in China (II)

This is a second post in the series “Tips for Negotiating and Dealing with your Suppliers in China”. You can read the first one here.

Today, I will capture 12 tips shared by businessman “Mike Smith”. This is not his real name… but his company would rather keep a low profile when it comes to their sourcing business in China.

Tip #1 . “Visit the factories”
You must visit the factories yourself. What you see on internet has nothing to do with what you find here. This may sound like a very obvious tip to a lot of people, but I was new to China sourcing when I landed here… and for me it was a big surprise to find out how far from reality what I read on the net was and how many middle men you could end up contacting.

Tip #2. “Be very clear on who is going to be making decisions”
Another beginners tip…Make sure you are talking directly to the decision maker. It will save you a lot of time.

Tip #3. “Good suppliers may be able to help expand your supplier network in non-competing products”
I have managed to develop a good network of suppliers (through trial and error!), and I’m currently finding them a great source of good referral information. My business has a technical side, products need to meet certain standards, and they know who works well in their industry.

Tip #4. “Effective Communication (I): The best way to do business in China is face-to-face”
Technology is great, but I do not think it is the way Chinese people are wired to work. When we are working on projects, I send my regular suppliers technical information, blueprints… I discuss specifications, I explain standards….and I try to assess by fax and phone whether all the information I am sending to them is clear. But it is only when I follow up on the projects with a factory visit that I realize how many questions and issues they may have! And I’m talking here about regular suppliers, so they know me and, supposedly, we have already created good communication channels!
This is why I always ensure regular visits to my suppliers. What really works here is doing business face to face.

Tip #5. “Effective Communication (II): “I can’t” is not in their vocabulary, so be wary if you get silence for an answer…”
They find it really difficult to say they cannot do something. I do not even think they are trying to fool me, I honestly feel they are just ashamed of admitting they cannot do it.  So I would advise you to start developing some basic “Chinese non-verbal” communication knowledge. A silence will probably mean “we can’t”.

Tip #6. “Effective Communication (III): Make them recap the agreements, do not assume they understood just because you feel you were clear enough”
Communication can become a real challenge even when you are sitting face to face with your supplier. I have started developing my own “techniques”, so now I always ask them to rephrase themselves each point we agree on. It is a bit like forcing them to do “active listening”! And you would be surprised to hear how different their take on your clear instruction may be!

Tip #7: “Expect Delays in your Supply Schedule”
They just happen, and if you are not their biggest client there is not too much you can do.
In winter, some factories may see their power supply reduced… and they need to close some lines because they don’t have enough power to work full capacity. In summer, again, power shortage problems arrive. Residential housing has priority and AC takes a lot of the power supply, so you may also find they are not working full capacity.
I’m positively sure it is not a tale they’re telling me because I’ve been able to use other sources to verify this information.
Then you obviously have Chinese New Year when everybody goes home and things slow down for a few weeks.
All this is really difficult to deal with, because in our business, as in most cases, we try to work with low stocks and as much “just in time” as possible…

Tip #8. “Payment Terms… Once you build the business relationship things get easier”
This is at least my own experience. I have developed a good network of suppliers and managed to work on the relationship and trust. Right now, none of my suppliers requires me to do advanced payments.

Tip #9. “Pricing: Do not get obsessed with the cheapest deal”
If you need good quality you will need to pay for it. I am now working with reliable suppliers that deliver consistent quality 50% cheaper than what I would get back home. That works for me. I’m sure there may be cheaper options out there… but I think I am following the right strategy for my business.

Tip #10. “The perfect world doesn’t exist. I also have a supplier I would get rid of… if I could”
So, although I’m really happy with the supplier network I’ve built, there are always things you may not be able to control. One of my suppliers is extremely good from a quality and technical perspective, but he believes “a contract can be re-negotiated continuously”. I would love to get rid of him but, for that specific product, I’ve not been able to find anybody good enough to substitute him… He is in my replacement list, though!

Tip #11.  “Quality Control: Always, even with good established suppliers”
For some of our products I can make a direct assessment myself. Some others, though, have to go through certain lab tests. In those case, I always courier it back to our head office and await their feedback. It means we need to wait around one week for production approval but we have built that into our timings and processes.

Tip #12. “Problems don’t finish after production. Supervise Logistic Paperwork!”
You do not want your shipment stuck in customs because papers were not filled in properly (which happens quite often!). I always ask for copies of all documentation (BL, packing list, commercial invoice…) and ensure there are no mistakes. My piece of advice here is “Supervise!”

7 Top Tips for Entrepreneurs Starting Business in China.

Are you considering setting up a business in China? Would you like to hear some top advice from experienced entrepreneurs?

In 2005, Juan Gutierrez and Veronica Menendez set up LinkPoint Europe, a China consulting and sourcing business. Their five years experience has provided them with valuable market insights that they are now willing to share with new comers to the Chinese market.

Tip 1: Start with a lean structure and minimum expenses.
Experience: When we landed here we set up a big office, we decorated it… we incurred in a lot of unnecessary expenditure. This is something we would definitely do different if we had to start all over again.  Fortunately everything worked out well but not having a bunch of bills to pay allows you to make no-pressure non-rush decisions and places you at that stage in a better negotiating platform.

Tip 2: Land here with a client in your portfolio.
Experience: It may sound obvious, but ensuring that you already land here with a project in your portfolio is a really good situation to see yourself in.  So, if your business nature allows it, do a bit of homework back home before you base yourself here. We came here for a three month project. Once in China we realized that there were plenty of opportunities in the market. We felt we could do a much better job than what we were offered locally (as a matter of fact, we had to re-do our local marketing agency’s job), so we decided to settle here and benefit from the existing opportunities.

Tip 3: Be opened to shape your business as the opportunities materialize and your market knowledge expands. The idea you have when you land may not be the best business opportunity after all.
Experience: During our first years here we did lots of consulting work. After 3 or 4 years, the trading part of the business started growing and taking a bigger share of our time, with also more satisfactory results.  It is not what we first foresaw, but it is working really well for us. We are also involved in some very interesting longer term investment projects that we hope will further reshape our business.

Tip 4: Promoting your business: Go for targeted efforts. Quality is better than quantity!
Experience: We have tried a variety of promotion strategies for our business. Our experience is that quality contacts are the best way to go. We have a sales director in Spain that approaches potential clients based on our knowledge of their markets and our conviction that we have value to add. We also get good business volume from our own network and from satisfied clients’ referrals.

We have done press and on-line advertising in the past, but we were not getting the same type of quality contact. We wasted lots of time trying to screen through the requests we received and in general it was difficult to assess which ones deserved our time and efforts.

Tip 5: Do not be afraid to set your own conditions and have a client screening process. Sometimes it is better to lose a potentially uncommitted client than to waste time.
Experience: We started chasing every project that would fall in our hands, and sometimes clients were not really committed to them. Now when a sourcing client requests our services, we charge a fee that gets deducted from their final order. This has several positive outcomes:

1)      Allows to screen clients that were not really serious or committed to looking for sourcing here

2)      Prevents us from wasting our time, so if no order materializes we at least get a remuneration for our work

3)      And, it does not penalize clients that finally place their orders, because it gets deducted from the order.

Tip 6: Be tough with bad suppliers and understanding with the good ones.
When we have a bad experience with a supplier, we stop the relationship. We had a case in which we had to reject an order because of a big mistake in the production. Later on, we realized they had started including small amounts of the rejected product in new orders. After we realized, we never worked with them again. If they are ready to play a trick on you once, they will keep on doing it in the future.

On the other hand, we have some suppliers that are really good and with whom we have developed a good working relationship through the years. It is not easy to find good suppliers, so, when a problem comes up with one of those (and they do come!) we try to work out with them the best possible win-win solution. It is a bit like working “the Chinese way”, building on “trust and relationship” to solve problems together.

Tip 7: Never relax! Even with good suppliers.
Experience: Never relax! Production monitoring and quality control is still critical even when you work with your most trusted suppliers! The underlying issue is that our perception of what “acceptable” means is quite different. Your supplier may candidly approach you questioning why you can’t you take a product which is not meeting your specification if it still serves the purpose…

So, do you have any good tips for entrepreneurs setting up business in China?

Negotiating Power. Are Small Companies in a Strong Negotiating Position in China?

Buying in China is definitely cheap, but I have some “not-so-great” news for you. If you are small, don’t dream about coming here and squeezing absolute bargains out of your suppliers.

The situation in China is changing fast, and small companies are not finding it very easy to negotiate super deals with their suppliers.  It obviously depends greatly on a number of factors like the product sophistication, quality standards, etc, but everybody seems to agree on one thing: “Good suppliers are pretty clear. If they don’t sell it to you, somebody else is waiting at their door to place an order”.

So it seems small companies are turning their efforts to achieving some other equally important wins: good payment terms, on-time production or higher quality standards.

Approaches vary depending on the entrepreneurs’ cultural background and personality. Some rave about the magic of gifting and developing the closest possible thing to a friendship. A young entrepreneur told me “I’ve never faced a problem with my suppliers. I bring them presents and I try to build friendships with them. I often receive emails from suppliers wishing me a good week, and I do the same with them. I email them for their birthdays and I wish them well in important dates, like Chinese New Year…”

Gifting is not for everybody, some people have issues with what they see as borderline ethical implications. And if you are not good remembering your partner’s birthday, keeping track of your suppliers’ major events may not be the way to go. The good news is that is not the only way to build a strong relationship. Another entrepreneur recently told me “My suppliers know I’m trustworthy and honest. I’m always available for them. I visit them often. Thanks to that we’ve evolved into a very favorable situation where I no longer need to make advance payments and rarely face production delays”.

So you may not have the winning card on the price negotiation front, but building strong relationships will definitely take you a long way!

Is your experience any different?

5 Tips for Negotiating and Dealing with your Suppliers in China

To kick off this series of interviews with entrepreneurs in China, I begin with an interview with Leonor Estrada, Founder and Director of Dalton Asia Ltd.

Dalton Asia Ltd provides brokering services to companies looking for packaging suppliers in China. Leonor Estrada’s background in purchasing in the electronic industry has helped her understand the supply chain and  her clients’ needs and expectation, and means she is no newcomer to the challenges you face in purchasing negotiations.

Leonor Estrada shared her 5 top tips on topics such as suppliers search, suppliers assessment, negotiation, production processes and quality assurance.

Tip #1. “You need a native speaker in your team (even if it is part-time!)”

You need to look for the information in Chinese! I initially searched the internet looking for suppliers in English, but you miss lots of interesting information. You need somebody who is a native speaker (or can perfectly read and speak) because not only do they find better information, but they also interpret it, they have the “feeling” to be able to assess when a supplier is worth pursuing.

It also comes in very handy during the negotiation process. We usually have in the meetings our suppliers’ sales & production guys. As most products need a bit of customization they are working together on setting a quote for us, so it is good having somebody with you who can capture nuances and what’s going on in general.

It is also cheaper to have your own Chinese interpreter or team member. This is like “World Link”, if you want it in English the suppliers are gonna make you pay a lot for it.”(1)

Tip#2. “ALWAYS visit the factory”

You need to know who they are, to ensure they can actually make the products and that you are not really looking at some intermediary.

I once got samples done by a supplier. I sent them to my client and they got approval and were registered in their systems. I subsequently realized they had been made manually and that the guy couldn’t actually manufacture the product.

My lesson: before you send anything to a client, go to the factory, check what machine is producing the product and make sure it is working. If the machine is not functioning that day I ask them to produce a few samples for me right there. If the manufacturer has goodwill he/she will do it. It may not have your exact specifications, but you will at least know the capability is there.

Tip #3. “Understand perfectly the production process”

Here I’ll tell you one of my horror stories:  A supplier started giving me excuses and delaying production. He claimed he had some issues with his glue supplier and the glue was not reaching him…. Later on, I realized he did not need any glue in the production process! The part for which he claimed he needed glue had to actually be sealed with heat. That time I believed it!

My lesson: You need to absolutely understand the production process. “Here you cut, here you paint, here you glue…and it comes out from that machine over here”. It sometimes helps to “train” yourself with suppliers that are not your main choice. That way you get to see the machinery, understand the processes, and once you sit in front of the one you are really interested in, you have already developed the know-how on that product, can show expertise and build good credibility.

Tip#4. “Always be ready with back up options”

I once had a confirmed order for which all the negotiation and product sampling had been done. It needed to be produced immediately as we had a tight deadline with a shipment the following week. When I arrived to the factory the supplier said he couldn’t start. I never found out what the problem was. “My boss is not here, the price is not right”… all type of excuses, the clock ticking and no production starting….

My lesson: Always have back up options identified. 4 to 5 suppliers that you have already visited and that you have ensured are capable of producing the product.

Tip#5. “Be very strict with your quality control. You will annoy them but the loss is on you if something goes wrong”

I always go to the factory when my products are being made. I don’t tell them what day or what time, I just show up.

When production has finished I personally inspect the product. I randomly inspect 10 to 30% of what has been packed. I make them open the boxes and I check the product is complying with the agreed specifications. I once made them open 300 boxes because I was not completely confident about the supplier.  They obviously don’t love it, it has a cost for them, but I don’t care. The loss is on me if something goes wrong.

I also wait till it has all been packed in pallets just as it will be supplied to the forwarder. Some suppliers don’t understand that the pallet may move 20 meters in the ship. It needs to be absolutely secured.

If you also work with China suppliers, you may want to share your best tips with us….


[1] For those not living in China, World Link is one of the main health care suppliers offering services in English by internationally trained doctors….. And it is really expensive compared to what is available locally.