Last week I wrote an article about disclosing a target price, and I made it look like there is only one sequence in the sourcing process:
- Contact 10 to 50 potential suppliers on online directories or trade shows;
- Ask them about their export market, their size, etc. to avoid obvious misfits;
- Request a quotation, and call them to speed the process up;
- Eliminate the cheapest offers if quality is important to you;
- Work more closely with the remaining candidates, visit/audit factories;
- Ask them to develop samples and to refine their pricing;
- Allow them to launch production once you get a perfect sample in hand.
Actually, not everybody follows this sequence.
Many buyers are only concerned about the price, and that’s the first thing they ask.
On the opposite, I can see two common situations where the buyer might want to request quotation later in the sourcing process:
1. When the buyer is willing to spend time and money for rigorous due diligence at the beginning
Some sourcing agents want to research options thoroughly for their clients, before they get to pricing negotiations.
I had the opportunity to observe this process first-hand last month: we audited a few factories that had already been pre-qualified by a phone conversation. These factories asked us when they would be able to see the product to manufacture, and to submit a quotation.
About 10 days after the audits, the sourcing agent brought a European importer in the factories that had been qualified following our audits. Right then and there, they showed samples and got prices. They were able to gauge the factory management’s interest in the project, and to discuss technical points if necessary.
The importer got to see several potential suppliers and could compare their quotes. He had enough context to take a decision he could feel comfortable with.
2. When the buyer does not want to disclose confidential information
Sometimes it is very risky to send product photos/drawing/samples to many Chinese exporters. What if they realize it’s innovative, they copy it, and they propose it to their other customers?
In this case, better qualify the suppliers first, study their processes and their experience, check their reputation with a few of their reference customers, and THEN share technical information with the best candidate.
And don’t forget to consult a specialized lawyer and get an enforceable NDA!
Conclusion: do not obsess over pricing when you import from china!
A lower price is nearly always at the expense of quality. That’s something foreign buyers do not understand. As illustration, here is an excellent quote from the JLmade blog:
The Western mindset: low price means competitive. They will offer me the lowest price and the quality will still be great, the print / branding will look nice. Of course it should function properly and overall will be a great item.
The factory mindset: low price means cheap and low quality. We’ll give you a low price and we’ll lower the quality by using an inferior material, using lower capability machinery or even using less skilled workers on the production line. The print is definitely not going to be as nice, because it will be the lower-cost print facility or lower-end machines used. Overall, there will not be much of a life span to the product and we’re not sure how well it will work.
Thank you my friend for the mention. Due-diligence is the key and so many importers rush into situations wearing their “assumption hats” and only set themselves up for failure.
The info you provide the importer via your blog is priceless and I hope folks are taking the time to slow down, read and internalize the info.
Jacob,
Too many buyers ask for a price and a sample, and assume it’s like buying from a mail-order company in their country. But they are skipping many steps and taking maximum risks!
Renaud, do importers normally ask factories to sign NDA prior to showing their designs to get the prices? I assume the factories would not be able to give you a best estimate quotation without knowing what they’ll make but then isn’t it also a risk to giveaway designs/specs to, say, 3-4 shortlisted factories?
Stella,
You are right. There is a tradeoff between giving only limited information
and getting imprecise quotations.
If you want to manufacture a new-to-the-world product, I guess it’s not a
big problem to pay 15% too much on the factory’s FOB price. In this case,
you probably want to qualify 1 or 2 good suppliers, and talk about pricing
last.
If you work on a succession of new designs that might easily be copied,
and if you need competitive pricing, you should try to work constantly
with a couple of manufacturers. They will be in competition (as long as
there is a firewall between them), and you can watch what they do
carefully.
To tell the truth, there is always a risk. There is no easy solution.