Sourcing China Suppliers: How to Manage Suppliers Successfully?

2021-05-10

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Cross-cultural communication recognizes similarities and differences in cultures to engage effectively. Buyers in the west and suppliers in China understand this all too well, and make an effort to build a mutual understanding of one another's needs. When sourcing China suppliers, be mentally prepared to enter into a relationship that isn't merely transactional!

1. Familiarize yourself with the fundamental principles of Chinese business culture

Chinese businesses seek to build long-term partnerships. Their interactions and relationship-building efforts with potential or existing clients reflect this expectation. 

The principles of Guanxi are a crucial part of the Chinese belief system. Guanxi means connections or networks that open doors for new business and facilitate deals. It implies trust and mutual obligation between parties and defines how business is conducted in China. According to the Chinese culture, relationships are built first and businesses later. Such a concept is not quite fully understood by many foreign business owners.

It is common for negotiations and deal signing to occur over food and drinks. If you’re visiting a supplier in Shenzhen and they invite you to a karaoke bar to discuss business, that’s normal. You can also take the initiative and plan a lunch or dinner meeting with a supplier that ticks all the boxes. You are expected to pay the bill, just make sure you don’t flash your money to avoid being perceived as petty. 

The relationship-building process does not end at partaking in a sumptuous meal and belting out a song or two. In fact, it may have just begun! Bargaining is an inherent part of Chinese business culture. If you accept prices and terms without bargaining, you will be perceived as weak. On the other hand, the supplier won’t take kindly to pressure tactics or psychological manipulation, deeming you untrustworthy to do business with.    

So, what do you do? Be firm about what you want. In other words, if the supplier's price or terms can be better, make it clear. State your points with clarity and conviction. Explain politely how your margins or customer satisfaction may be affected. Also specify that you’re interested in a long-term relationship or that if all goes well with the first order, you may place bigger orders in the future. 

Sourcing suppliers in China can be a drawn-out process. The initial communications via email when you're sending out expressions of interest, are most crucial. If you’re an established importer, suppliers will take you seriously and give you priority. If you're a new Amazon seller or an importer, you’ll need to work a bit harder to gain the confidence of a large factory. What that means is that they will consider order quantity, prospects of future orders, ability to fulfil payment and so on, during the bargaining ritual.  

With the deal in the bag, you have more opportunities to win favorable terms down the line. Pay your supplier on time. Try to find a middle ground if the factory is facing temporary downtime issues. At the same time, keep the factory on its toes. Alert the factory manager to any discrepancies in product quality in previous orders. Encourage the factory to share bad news so you can resolve the problem as best as possible.

Take the time to learn about Chinese culture and national holidays, such as the Chinese New Year, when it is customary to exchange gifts. Show your supplier that you are making an effort to forge a strong relationship.  

2. Don't be too cheap or you'll lose out 

Quality is directly proportional to cost. You get what you pay for. The chances are that the lower the cost, the quality of the goods will also be low. When you try and negotiate too low a price, you can expect two outcomes. First, the supplier may prioritize delivering more “profitable” orders, resulting in delayed shipment. Second, to increase their margin on your low price, the supplier may swap out materials and components for cheaper alternatives. In both cases, you may end up paying a higher price than what you expect to save.

If you want nothing short of the best price for the products that you are sourcing, you will need to negotiate in a smart and determined manner. Consider these tips:

  •  Rather than a specific bulk quantity, ask for prices based on quantity tiers. That is, quotes for 200 (which may be the minimum order), 500 and 700 foldable hands-free headphones. It sends the message that you may place a bigger order if you’re able to get a discounted price. 

  • Finding China wholesale suppliers is just that: comparing a number of businesses to determine which one works best for you. As you will have done your research, you can use the data to gain an upper hand during negotiations. For example, after expressing interest in ordering 3x the MOQ, you could state the lower quote from another supplier. As the supplier you’re talking to doesn’t want to lose your business, they may consider the possibility of offering you a better price or assured discounts on the next two orders.  

  • Of course, emphasizing that you’re looking to buy from a single supplier will create the impression that the factory that gets your business can count on you for recurring revenue. 

  • Also understand that you are not your supplier's only client. Your supplier will only prioritize your order by the degree of your significance to them. That means if you don't order larger quantities as declared during your initial communications or delay payment, then the supplier won’t waste time haggling with you. They will move on so to speak and won’t be receptive to your requests or pay adequate attention to meeting your quality standards or delivery deadlines.  

Chinese factories operate on small margins. By putting more pressure on their profits, you will neither create a good impression nor get an acceptable product quality. There is no winning here. Rather, focus on negotiation prices and terms that work well for you and the supplier. A realistic price that allows you to source at a reasonable rate while ensuring that the factory doesn’t lose out will go a long way in fostering a healthy relationship. There is always room for discounts as your relationship grows. 

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3. Incentivize the supplier

In a long-term buyer-seller relationship, there are opportunities for each party to incentivize the other to continue supporting each other’s business. If your supplier has consistently met your expectations, you could work out payment terms that help the factory’s cash flow or any other 'reward' that the supplier can appreciate and also makes financial sense for you. 

At the very least, you can avoid establishing terms and conditions in the manufacturing agreement that penalizes the supplier if the production deadlines or quality standards are not met. These targets may seem realistic to you, but from a supplier standpoint, they may not be so. Despite them being unrealistic targets, your supplier may just agree with them only to get your order. In fact, when a supplier does not resist unrealistic prices or terms, that’s a red flag that they're using you as a 'fill-in' until they get more clients. At the time of sourcing China suppliers, keep in mind that any show of weakness or very high hopes (indicating a lack of awareness) will strengthen the supplier's position. 

Determine realistic timeframes and an acceptable level of quality. If you want a highly customized product, choose a manufacturer that has the equipment, tools and expertise to meet your demands. You can also consider offering them an incentive for meeting strict quality requirements early on. When there is scope for improvements, think about the different ways in which you can motivate your supplier to bring out a product that boosts your competitive advantage. 

4. Treat your supplier as your business partner

Your Chinese supplier is not just another business but an extension of your company (however small or big), helping you make money and grow. The relationship with your supplier is not just based on financial transactions but mutual trust and loyalty.

Keep communication channels open so you can get across everything the supplier should know. This includes any special requirements with regard to the product, quality management and product testing. Be sure to share constructive feedback: Chinese factory workers may not be familiar with ‘western quality’; what is fine for them may be sub-standard for you. Also, fill the supplier in about market trends so they get an idea of how you’re looking to respond and adapt. 

Making your suppliers feel like a part of your business can go a long way in building a healthy relationship with them. You may keep them informed about the release of new products or promotions to make them feel more involved in your business. Also, it is crucial that you listen to their concerns and address them appropriately.

While the point of sourcing suppliers in China is to gain a cost advantage, it is important to put the relationship in perspective. Where else can you go for prices that are just as good without compromises to quality and deadlines? This is not to say that Chinese manufacturers have leverage and buyers must always oblige. But as it stands, China remains the world’s factory and in order to benefit from a China sourcing strategy, relationship-building is necessary. And as it requires effort, western buyers prefer to ally with a China sourcing agent to manage their supplier.

5. Pay your supplier on time

We've said it before – Chinese factories face an intense pressure on costs and must deal with strict government regulations on labor and environment. By delaying payment, you're hurting their business. In an environment of increasing labor costs, strikes by factory workers or economic slowdown, late payments by buyers may even force the factory to shut down. 

There is a risk in sourcing Chinese wholesale suppliers that aren't telling you the full truth about their business. They could be middlemen so while they may still be able to supply products, they cannot possibly respond in the event of any emergency that affects the factory making your products. An international purchasing agent can remove this risk by connecting you to legitimate factories that specialize in your product. 

6. Know the right people 

In most cases, the supplier representative who takes your emails and calls isn’t calling the shots at the factory. This person’s job may simply be to pass on your message, and there’s no telling whether all your requirements have been understood. 

This is why you should insist on being introduced to the factory manager or some decision-maker who interacts with workers. On your factory visit, you can also identify a senior worker to be your point person for communications. The supplier may not have any problems with this arrangement. 

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7. Draft a detailed agreement 

A manufacturing contract is absolutely necessary from the perspective of supplier management and dispute resolution. The contract lays down instruction on product specifications, materials, packaging, tools, quality inspection, laboratory certificates and anything else that establishes the supplier's obligations.

The supplier is liable to meet these requirements, failing which, you will be in a better position in the event of a dispute. Say the factory sent out goods that have the wrong dimensions and are useless to you. If your manufacturing agreement clearly states the dimensions, the fault lies with the factory. You can have them adjust the dimensions (if that is possible) or replace all items at no cost. 

Usually, major issues with product quality arise in the following cases:

 - You haven't ordered a sample first. The factory should bulk produce the sample. When they have a reference, chances of fouling things up are rare. 

- You haven't double-checked with the supplier on your requirements. Emails are not enough; always follow up over the phone to confirm that they've understood what you want. 

- You keep delaying payments and the supplier wants to get rid of you. 

Sourcing China suppliers and getting the most out of moving production to China is less challenging when you have a sourcing agent to assist you. Unless you've done business in China before or have significant importing experience and cross-cultural perspectives, it is best to use a reputed third-party to manage supplier relationships successfully. 

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