All importers know the importance of negotiating prices in China. But, what they do not take into account on many occasions is that, depending on whether they focus on a manufacturer, a trader or a distributor, they must do so in a certain way. Randall Castillo Ortega is an expert in negotiating import and export deals with China, and shares his insight into how to properly negotiate the best deals.
A trader or distributor can have a margin of up to 50% on the product. However, a manufacturer has small margins, as its profit is in small sales margins on orders of thousands of units. Based on this, it’s impossible to negotiate the same with a supplier that has high-profit margins, as with a supplier that has minimum margins. Explains Castillo, “If importers know a sector, they may know what wholesale sales prices are for their products. At least, know a base price, to be able to negotiate prices below this, but have it as a reference. In this way, when the supplier gives a price list, importers will know to what extent they can negotiate to maintain their trading margins.”
It is traders and distributors who frequently speculate on prices. Direct manufacturers use small profit margins as the prices of a Chinese manufacturer are based on profits from small margins on large commercial orders. In addition, the price of raw materials or components plays a relevant role. If you already have a Chinese manufacturer and you are sure it is, you need to know how to approach our negotiation.
When the manufacturer provides you with the prices, keep in mind that these prices have a low commercial margin. This means that the supplier will not lose money for you; therefore, in the event that you negotiate a lower price, the manufacturer will have to lower the product in some way. There are many suppliers that have a fixed price, and from there, they do not go down. But, on the other hand, there are suppliers who, if they lowered that price, with the aim, of getting an order on your part. And this, it’s not always good for the future.
Normally, even if we write an extensive descriptive sheet of the product that we want to be manufactured, details are always left in the air. These parts that we have not specified will be used by the manufacturer to place the most economical part it finds on the market, with the aim of maintaining its commercial margins. But it doesn’t end here. Explains Castillo, “If you finally accept an order, in which you have negotiated the base prices that it offered you first, and which is very tight for the supplier, remember that you have twice the chance that the components or parts of your product are of low quality.”
We all want to get the best price, but suppliers often negotiate the prices of their products. This makes them have some experience to deal with the negotiations, as they have customer profiles established through experience, which lets them know how to approach the sale. Three factors that can be properly focused for our negotiation include how long will the product last, how many products will be purchased and what will be the regularity of orders. These three factors should be applied differently if you are negotiating by email than if you are trading at a trade fair in person. It is easier to forge a strategy if we are going to negotiate face-to-face than if we do so behind a computer, among other things, because of the confidence that it generates to speak personally.
Chinese manufacturers set their profits in adding small margins to high production volumes. In yes, it is a philosophy applied to many aspects of its business culture. For the production of minimum volumes, you will have a price, but for high volume productions, you will have another improved price.
Manufacturers want to keep their production lines busy all year round. There are different reasons, from being able to maintain and pay their workers, to going through the recovery of their investments and their financial growth, to minimizing commodity cost fluctuations. This means that, if you sign a multi-year, multi-year contract with partial productions and deliveries, the manufacturer can project and stabilize its strategy with you to work long-term and offer you a fair and competitive price.
Knowing the price factors on which you can put pressure on a Chinese manufacturer will give you an idea of how to negotiate the price of a product. This principle can be applied equally, both for the request for remote offers and for when we are in China with the face-to-face manufacturer.