I see many importers coming to China and negotiating prices really hard. The experienced ones know that the factory might drop the order later, or worse produce with substandard material and/or methods. As long as they are aware of it, fine.

What I don’t understand, however, is that these same hard negotiators keep their supplier at a distance–even after the order is in production. They don’t describe their market precisely to their suppliers, they they don’t give long term and honest forecasts of demand, they seldom help the factory with changes in design that prevent probable quality problems, they don’t want to spend time specifying what they want in details, etc.

I think this is a big mistake. It means the factory will expect them to switch suppliers soon, so they won’t care about these orders. It also forces factory technicians to make guesses, and they will probably take decisions to save money — at the expense of product functionality and quality.

It reminds me of a passage from Wal-Mart’s founder’s book:

We would tell our vendors ‘Don’t leave any room for a kickback because we don’t do that here. And we don’t want your advertising program or your delivery program. Our truck will pick it up at your warehouse. Now what is your best price?’ And if they told me it’s a dollar, I’d say ‘Fine, I’ll consider it, but I’m going to go to your competitor, and if he says 90 cents he’s going to get the business. So make sure a dollar is your best price.’ If that’s being hard-nosed, then we ought to be as hard-nosed as we can be. You have to be fair and upfront and honest, but you have to drive your bargain, because you’re dealing for millions and millions of customers who expect the best price they can get. If you buy that thing for $1.25, you’ve just bought somebody else’s inefficiency.

-Claude Harris, Wal-Mart buyer, as quoted in Made In America, My Story (the autobiography of Sam Walton, published in 1992).

Now these guys know how to drive prices down. BUT they moved toward partnerships with their large suppliers, to share more information and decrease overall costs.

It started with Proctor&Gamble. Until the 80s, they communicated by “slipping notes under the door”. But they finally understood that P&G could produce and ship more efficiently if they knew about Wal-Mart’s inventory and sales in real time. And that means lower prices in the end…

This P&G/Wal-Mart deal has been a model for many other supplier/buyer relationships since then. And foreign buyers in China should also get some inspiration from these guys.