Price Negotiation with Chinese Suppliers
The whole point with importing from China is the cost advantage. It’s cheaper than buying from West and certain products simply cannot be found outside of China. While China is slowly losing its position as a the world low cost factory, importers still have a price focus and negotiation is part of the process. The Chinese love to bargain, it’s part of their culture and even expected in many situations. However, there are plenty of misconceptions and mistakes made my importers - especially small ones.
The supplier must also make a worthwhile profit
Rather few importers are aware of the (very) low profit margins that most Chinese suppliers struggle with. It’s simply not possible for them to offer a 10 - 20% price reduction, unless the price was way off to begin with. Asking them to lower the price with anything more than 0.5% - 2.0% is the same thing as asking them to lose money on your order.
Some importers simply cannot accept this and keep pushing for major price reductions, sometimes only for the sake of it. If you’re lucky, the supplier will simply tell you to get lost in a nice way. If you are less lucky, the supplier will give in and offer a price reduction, and adjust the quality accordingly. The likely outcome is a batch of products with horrible quality and a large number of defective units.
However, I’m not saying that should not attempt to negotiate the price. I encourage it, if only for the sake of showing that the supplier that you have clear limits. That can discourage them to make any bold moves on the price in the future. All I’m saying is that you shouldn’t expect price to be cut more than a few percentage.
Price Negotiation is all about good timing
You must give incentives to people if you want them to give you something in return. The same applies when negotiating prices in China. Keep in mind that a supplier will not reduce the price because they want to be nice; it’s a cold calculation that’s aimed at getting your order. If a supplier already knows that you’ll place your order regardless of price, they no longer have an incentive to cut back on anything. This is very common, and may occur in any of the following situations:
When a supplier knows that you don’t have any additional suppliers to fall back on
When you’ve invested a lot of time and money into product samples and development
When you are just about to place a new order
When you need products fast. This means the supplier can simply hold out until you become even more desperate.
When any of the above occurs the supplier is fully aware that you’ll place your order with or without a price reduction. For natural reasons, the supplier is very unlikely to offer even the slightest reduction when this is the case. On the contrary, some suppliers even consider such a situation an excellent opportunity for a price increase!
Be ready to leave the table and walk away
Many Chinese suppliers take a “you want this order more than we do” approach to negotiations. I’ve found that this strategy works very well when reversed. The key to success is to always make the supplier feel that you are well prepared and ready to leave the table and take your order elsewhere if they refuse to meet your demands. Although, you’ll have to leave many tables if your demands are unrealistic to begin with. This can be achieved by doing the following:
Always have plenty of supplier options available until the moment you place your order. This means that you need to negotiate with many suppliers at a time.
Never make any promise or confirm future orders. This makes the supplier feel in control.
When you’ve withdrawn from a negotiation, then that’s it. If you keep coming back you’ll like you're out of options. This certainly doesn’t give the supplier any incentive to reduce the price.
Avoid importing products with razor thin profit margins
Since you're reading this I assume you are not a purchasing manager working for Wal-Mart or Tesco. Thus I suggest that you forget about competing with large multinationals in terms of pricing. Instead I advise you to find a product niche where you can enjoy a fairly high profit margin. This is becoming especially important now since the “China price” is under a lot of upward pressure, mainly due to rising wages and inflation.