Procurement in China – Buyer Diary #14 Negotiations with Factories

We asked one of our clients to give us their impressions at a China factory visit during procurement recently. Read below to get an idea of how they felt during this trip. This is one of a series of blogs that we will title: Buyer Diary.

One of the most interested topics that businessmen are into is the negotiations with China suppliers, especially during procurement related services. Negotiations would most probably mean slashing of prices before signing the manufacturing contract; however, it is definitely more than that.

 

When can negotiations occur during Procurement?

Not only before production, negotiation can occur anytime during the procurement. Either during production or post – production.

Negotiations are also not specific towards price slashing which most would assume when having procurement in China. Negotiations can be for price, time, product and many other factors which will be elaborated as the following –

 

Pre – production
During pre-production,   the negotiation topics may be for the following, mostly concerning the purchase order –

• The design of your product

Can your design be incorporated in manufacturing? Is it practical? These questions must be advised from the factory and may end up in long discussions. This would include details such as the material to be used for your product.

• The unit cost of the product

Here is where most negotiations come in. As China’s business culture is to bargain for the best price, you will see many buying agents trying to negotiate for the best price possible. Read more at Negotiating with China Manufacturers.

• The production time for the product

Especially for a rushed production, this negotiation would be very important for you and your company. Through good relationships with the factory as mentioned in China Factory Visit – Buyer Diary #1: Culture & Customs, factories would be able to help you out as and when.

 

During production
Especially when production did not go as well as expected, negotiations are expected to occur. Such negotiations are most intense as it affects the entire production. Even though planning could go well before production; it is likely that mistakes would occur in between.  Negotiations could be for the following issues, and more –

• Rectifications to solve the problem
• Minimizing production time delay
• Additional cost incurred due to mistakes

 

Post – Production
As mentioned in China Factory Visit – Buyer Diary #13 Post – Production, it is often the case whereby you either finish the project smoothly, or tons of troubles come in your way. Negotiations at this phase would then depend on the progress of the procurement. Negotiations could be for the following –

• Additional Cost (Who should absorb the additional cost incurred throughout the project?)
• Compensation (If the project goes wrong, should there be compensation for any of the parties?)
• Future Potential Orders (This of course would only be for orders that completed smoothly)
• Feedback and Closure

This is not a comprehensive list, with many other possible issues during a procurement in China.

 

Coping with Negotiations

How should we cope with these negotiations then?
How should we be fully prepared to ensure the best scenario for our company?

With tons and tons of advice, these are a few that ODM can pin-point –

• Always have a Mandarin speaking translator with you
• Put all negotiations down in black and white
• Understand the situation from the factory’s viewpoint. (What are they trying to get from this negotiation?)
• Make sure you are clear about your company’s standpoint. (Will you be able to reap benefits for your company by making use of certain items that the factory does not?)
• Prepare all documents to point out factory’s mistakes if necessary.
• Negotiate with the decision maker in the factory
• Be clear on your reasoning (Bear in mind that factories would not be precise and exact, they prefer to go in rounds as mentioned in our Culture and Customs entry)

To be fully prepared for the negotiations during your procurement, make sure to browse through these pages –

• China: How to negotiate and other Chinese business practices
• 36 Tips on How to Deal or Negotiate with your Chinese Suppliers
• What You Need to Know When Negotiating in China