How to Make China Trade Negotiations More Successful – Part 3 – Common Discussion Points

When visiting your suppliers’ offices, the meeting is usually held in their showroom. Taking a close look at their product presentation and display should give you a pretty good idea of ​​how well or poorly organized that company is.

Unsightly, cluttered and dirty showrooms do not reflect well on supplier diligence. However, that impression can mislead you because your provider may still live up to your expectations.

I found that at least 50% of most vendors’ showrooms in Hong Kong look like a garbage dump and you may be too scared to work with these vendors. Rest assured, you can work with these providers, but you need to take some precautions. If you follow my checklist and get satisfactory responses from your vendors, you may want to give your new vendor a try.

It’s all about competition and if you feel like your new supplier has enough, go ahead and make your day.

Effective questions for the supplier

What questions should you ask during your meetings with each of your providers? You want to ask at least the following questions:

• What is your FOB price in US$?
• What is your usual port of loading? They may sometimes offer you the option of multiple ports.
• Do you have your own factory, what is it called and where is it located?
• When was the company incorporated?
• Who are the owners?
• How many production lines do you have?
• How many workers does your factory have?
• What are your main export markets? If the answer is Europe, your next question should be: What countries are there?
• Who are your main clients? Of course, you are mainly interested in customers in your country, but it would be interesting to know if big companies like Wal*Mart or Carrefour are buying from them.
• What is your delivery time during normal season and peak season?
• Are you outsourcing part of your production and, if so, which parts?
• Does your factory have its own injection machines?
• Does your factory have ISO 9000 approval?
• In case the quantity on your shopping list is not enough: What is the minimum order quantity per product?
• Which lab are you using for your approvals?
• What approvals does your company already have?
• What certificates have been obtained?
• What new products do you have that are not on display?
• When will I be able to see sketches, drawings or photos of these new products?
• Can you please send me an email with your bank details? You will need this to pay for the sample cost when you order product samples

Here are more details on what to discuss based on the above questions:

Delivery time and backlog

You should ask the factory management about the delivery time during peak and off season so that you have information on how long it will take to ship your products. This is also important to understand the lead time required when placing purchase orders.

Another thing to ask yourself is your current order book. This indicates how well the factory is working. If they don’t have many orders, there may be a reason for that, which may be important in your decision making. If the factory doesn’t talk about low order backlogs, chances are your competitor will know about it, showing once again how important it is to visit factories in person.

loading port

Since factories may sometimes use different loading ports, you should ask which one is generally used because applicable freight charges will apply and you need that information to correctly calculate your unloading cost. Some ports only have one ship leaving per week and you should know this in advance when planning shipments with strict schedules.

Nearest international airport

I want to mention that some products can only be shipped by air. Laptops and MP3 players are typical examples. The key components of these products are integrated circuits that constantly fluctuate in price. Currently, prices are constantly falling. Buyers need to receive their products in a short time or they will not be able to make a profit. The price they must charge will be higher than the price charged for the goods that were shipped by air. That makes air shipping unavoidable.

Bank data

When discussing payment terms with factory management, ask them for their bank details, which will allow you to run a background check before placing your orders with them.

Payment terms

Finally, you must negotiate the payment terms, which are generally by means of an irrevocable letter of credit at sight (L/C). This is usually the safest way to pay the factory and also allows them to get loans from their bank to start production on time.

Never let the factory talk you into sending a down payment of, say, 20-30% of the total order value by T/T to allow them to start production. Ask yourself why they ask this of you. There is only one reason, and that is because the factory has no money and obviously there are no other orders. They want to boost production with their cash. If something goes wrong and the probability is quite high, you will lose your money and never receive a shipment.

If the staff member you are meeting with can answer most of these questions, you can be relatively sure that they are not a commercial company. Even if they pretend they have multiple factories working for them, they probably don’t know all of these details.

I should point out that you should have already revealed the contents of your shopping list before asking all these questions.

About your shopping list

This is the information your shopping list should include. You must include all the products you want to obtain. Your specific requirements may go beyond this basic list:

• Product description
• Target FOB price in US$
• Quantity of the first shipment
• If possible, an estimate of your annual amounts
• Earliest requested delivery date
• port of destination
• Packing information if not standard
• Number of samples needed

It is not advisable to immediately inform all suppliers of your target price. You could end up with prices that match your target price, but you may have been able to negotiate a lower price.

On the other hand, let your provider know your target price if they quote a price that isn’t even close to what you want to pay.

It is essential to provide your company specifications before requesting quotes. Of course, you can play hide and seek by not disclosing your requirements to the supplier. The big downside to this is that you will be involved in lengthy negotiations later because the supplier will tell you that their price was based on their own standard and anything above that must be added to the originally quoted price. There can be no doubt that the provider is right.

I think it’s fair game to fully disclose your requirements up front. Doing anything less may force your supplier to reduce product quality by using cheaper materials to get the purchase order.