Many importers go on Chinese trade shows or browse online directories to find their suppliers. They find companies that display the product they look for, they ask for prices, and then they go for the lowest quotation. Most of the time, this is a big mistake.
In such cases, the lowest quote is usually below costs. There are two reasons for this:
- Some suppliers want to start developing a product with you and manufacturing it for you, and they will find reasons for increasing the price along the way (usually after the deposit for the first order has been wired).
- Some other suppliers simply don’t know what the costs are. They have never made this product, even though it is displayed in their booth. They will wonder where and how to manufacture it after you have sent them a PO.
Which case is the worst? Both are extremely frustrating for importers, but the second case is the most dangerous. Not only will you get unexpected price rises, but you will also certainly get poor quality products.
A Chinese supplier that tries to reduce his costs will tend to purchase the lowest-quality components he can find. He will then process/assemble and pack them in a small and unstructured workshop that has no idea about the customer’s standard. That frequently leads to quality disasters.
Don’t get me wrong, I am not suggesting that you choose the most expensive offer either (except if there is enough value behind it).
In most cases, the majority of quotes will revolve around a certain price. It is the “market price” in China at that point in time. You should avoid the outliers that offer prices 20% below that price. If it is too good to be true, a degree of deception is probably involved.
Even if you place one-shot orders based on pricing, the lowest quote will often be more expensive than the average quote.
Anybody disagrees? What do you think?
Related article: the Alibaba fraud