Perhaps you’ve started a dialogue with a new Chinese supplier who says they can supply the products you’re looking for, but perhaps you’re not fully satisfied with what they’re proposing. Maybe it’s a price issue, or maybe something else about the product itself. What can you do?
Below are four tips on how you can better negotiate with Chinese suppliers to maximize your chances of success!
1) Provide Reasonable and Logical Explanations for Your Requests
When you ask your supplier to lower their price, speed up delivery, or offer you better payment terms, you should always present a well-reasoned explanation and justification for your request. If you don’t explain yourself, you’ll just come across greedy or arrogant, and that’s not helpful in any business relationship. The best reasons explain why your proposal will benefit the supplier, too.
For example, I recently placed a new order with a Chinese supplier I had been working with for more than a year. This was the first order after import tariff laws came into effect, which effectively increased my purchase price by 25%. I knew there was likely no way around this import duty, but I thought it would be worth asking if the supplier would be willing to shoulder some of the cost of the new import tariffs, by lowering their price.
I explained the situation to the supplier, and after several discussions, they agreed to lower their sales price by 12.5%. This meant that we were essentially splitting the cost of the tariff increase.
By stating the tariff increase as a reasonable and logical explanation for my discount request, my supplier was sympathetic and understood that I was asking for a discount because of external factors beyond my control, and not simply because I wanted to be greedy and increase my margins. In fact, I also pointed out that I was considering raising prices I charge to my customers, and that I would anticipate a drop in quantities sold due to the price hike. I think this was a convincing argument where the supplier could also see that offering a discount would be a smart way to prevent a drop in overall sales quantity.
Of course, your explanation doesn’t have to be based on something out of your control, like some new import policy. It could be related to your company’s recent cash flow situation, or even a miscalculation about expected demand on your part. Again, as long as you provide a reasonable and logical explanation, that will help your request go a lot further.
2) When Negotiating Price, Consider Alternative Compromises That You Value
You may find that after several discussions, your supplier may simply not be willing to lower their pricing any further than a specific price point. This is usually due to the way most manufacturers operate their sales department. Most manufacturers will use a cost plus markup model, where the price they charge you is based on the cost of their manufacturing plus some profit markup, like 20%. Sales managers may require a minimum profit markup that the salespeople absolutely must keep.
So, initially, a sales rep might quote you a price that represents their cost plus 25%. You may be able to negotiate this down to 20%, but if his department has a hard minimum at 20%, you will likely be stuck.
Instead of focusing only on the product price, you may want to consider a range of other negotiables, such as:
- Increasing the purchase quantity in exchange for a lower price
- Expediting your order’s manufacture
- Lower initial down payments or longer repayment terms
- Waive one-time fees such as logo printing or packaging
Make sure you don’t over-complicate things, though. For example, I would not recommend requesting an order payment plan that has more than two payments, as this just makes it more troublesome for everyone to follow. By introducing more conditions and terms, keeping track can become more difficult, and even lead to confusion and further disputes down the road.
3) Don’t Take No For An Answer, and Find Out The Real Reason
I have found that many Chinese suppliers will almost always say no to a request at first, almost out of habit. I think of it as almost a test – if you accept their “no” for an answer, they no longer have to deal with your request.
Especially when you request something slightly out of the ordinary, you should always follow up and understand the true reason for why they are saying no to you. If they haven’t provided any reasoning, or the explanation just doesn’t seem reasonable, you should be willing to push them a bit to explain it to you.
Oftentimes, you’ll find that they have a reasonable explanation for why they said no (for example, it would cost them 10 cents per unit more), but you can offer a solution in return (you would be willing to pay the 10 cents more per unit). All it takes is a bit of follow-up and communication skills.
Bonus tip – if you don’t seem to be getting through and getting anywhere with the discussion, switch up the communication medium. If you’ve been communicating through email, try WeChat or a phone call. If it’s an especially big order or serious decision, you might even want to schedule an in-person visit.
4) Understand Your Bargaining Power
The truth is that your manufacturer works with many customers, and they do not value them equally. Are you a significant customer to them? Or are you one of thousands of other customers that only purchase low quantities?
The same question can also apply to the individual salesperson you work with. Are you that salesperson’s VIP customer? Or are you more of an afterthought, or even worse, a pain in their butt?
Depending on where you land, the level your negotiating power will differ. If they do not value your business, a manufacturer can tell you to simply “take it or leave it” and refuse to budge at all. On the contrary, if you are an important customer, they may be willing to accommodate you a bit more.
Don’t forget that your value to the manufacturer is not only about the dollar value of sales you bring to them. Manufacturers also depend on customers for industry insight, feedback and future growth partnership potential.
In one instance, I had been working with a supplier who was quite firm on negotiating any of the terms and pricing. When the US import tariffs were about to first start, they began to worry that sales to their US customers would drop significantly. I explained to this supplier that the initial tariffs only affected particular categories of products, and the products they sold would not be subject to tariffs as long as the correct customs classification codes were used, something they were not aware of given how quickly the new tariffs were implemented. I provided documentation and links to the official US CBP data to explain this, and we were successfully able to complete the orders without being assessed import duties.
The supplier was extremely grateful for this information because they were able to pass this on for their orders from other US customers. Since then, this supplier has become very accommodating and the unit price they charge me has gone down significantly. Was I indirectly helping my US-based competitors with this information? Maybe, but by providing this value to the manufacturer, I was able to help secure lower pricing.