The Foreign Entrepreneurs In China blog posted a very interesting article: 36 Tips on How to Deal or Negotiate with your Chinese Suppliers.
I started reading it, and I had so many comments to add that I am reproducing it all below. >> My comments are in italics.
LOOKING FOR SUPPLIERS…
Tip #1. Initial Search for Suppliers: directories, trade-show directories and internet
>> At this point you can already orient your search for suppliers of the right size, capabilities, etc. (it saves you time during subsequent short-listing).
Tip #2. Not all good suppliers have English websites, get on board somebody who can help you search in Chinese
>> But be careful, this Chinese-speaking person should not come to represent you, or she might get a commission from the factories in your back.
Tip #3. Existing (good) suppliers may be able to help expand your supplier network in non-competing products
>> Right. But again, be aware of the danger of commissions and inflated prices.
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
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
>> Interesting point. Probably true most of the time.
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…
>> And also customer references, main export market, level of apparent interest, number of irrelevant questions asked about the product…
Tip #9. Ensure you are not dealing with the middle man (I): Visit the factory… ALWAYS!
>> Not enough! They might bring you to a factory they don’t own. The only way is to pay for a background accounting check.
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
>> Same comment as for tip#2. And it might not be necessary if an experienced salesperson/merchandiser can speak good English.
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)
>> The above 4 tips are so true! Right on the money.
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.
>> If you pay too much, you are not sure what you will get. If you pay too little, you are sure you will get substandard goods!
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.
>> That’s a great point… provided they have the right components at that moment, and provided it does not require them to stop a whole production line.
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)
>> “somebody you trust” and who is “qualified for the job”? I am certainly biased here, but I would be very careful about who I send to the factory. Better work with professionals. A day of third-party inspection is below $300…
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”
>> Right! The inspection can be less in-depth and/or only after production. If the quantities are small, you might want to skip some lots from time to time, but the supplier should know about it at the last moment.
Tip #30. Always be ready with back up options- you would be surprised about how many last minutes surprises happen
>> For customized products, I always advise buyers to do the development job with 2 factories, and to decide which one gets the order after that step. If the lucky one eventually gets stuck, the backup one can get up to speed immediately.
Tip #31. Expect Delays in your Supply Schedule (power shortages are common, national holidays…)
>> Importers should take AT LEAST 2 weeks of safety in their schedule. For new suppliers or new products, at least 1 month.
Tip #32. “Problems don’t finish after production. Supervise Logistic Paperwork! There are often mistakes that will get your shipment stuck
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
>> Right. Switch to new ones for the next order, even if it consumes a lot of your time. But never say never again–you might start working with them again, especially if they get better organized or change a few key managers.
Tip #35. Take care of good suppliers, they are not easy to find. Look for win-win when problems come up.
>> Make sure you are seen as one of these “good customers” who are necessary for their long-term profit and development goals. It means you should inquire about their interests, and adapt your way of working to accomodate them (within reasonable limits). They are like you, they evaluate and compare their customers.
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)
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