Archive for the ‘China Business Negotiations’ Category

Focus on Common Discussions Points to Make Your Business Negotiations in China more successful

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

Ugly, untidy, and dirty showrooms do not reflect well on the supplier’s diligence. However, that impression may deceive you because your supplier may still live up to your expectations.

I have found that at least 50% of most supplier’s showrooms in Hong Kong look like a garbage dump and you might be too scared to work with these suppliers. Rest assured that you can work with these suppliers but you need to take some precautions. If you follow my checklist and receive satisfactory answers from your suppliers, you may still want to give your new supplier a try.

It is all about competence and if you have the impression that your new supplier has enough of it, go ahead and make his day.

Effective Questions for the Supplier

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

  • What is your Fob price in US$?
  • What is your usual port of loading? They can sometimes offer you a choice of several ports.
  • Do they have their own factory, what is the name, and where is it located?
  • When was the company established?
  • 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: Which countries there?
  • Who are your main customers? Of course you are mainly interested in customers from your country but it would be interesting to know if large companies like Wal*Mart or Carrefour are buying from them.
  • What is your delivery time during normal season and peak season?
  • Are you subcontracting part of your production and if so which parts?
  • Does your factory have their own injection machines?
  • Is your factory ISO 9000 approved?
  • In the event the quantity from your shopping list is not sufficient: What is your minimum order quantity per product?
  • Which laboratory are you using for your approvals?
  • What approvals does your company already have?
  • Which certificates have been obtained?
  • What new products do you have that are not on display?
  • When can I see sketches, drawings, or photos of these new products?
  • Can you please e-mail me your bank details? You will need this to pay the sample cost when you order product samples

Here is more detail about what should be discussed based on the previous questions:

Delivery Time and Order Backlog

You need to ask the factory management about their delivery time during the low and peak season so that you have information about how long it will take for your goods to ship. This is also important to understanding the lead time needed when placing purchase orders.

Something else that needs to be asked is their current order backlog. This indicates how well the factory is doing. If they do not have many orders, there may be a reason for it, which can be important in your decision making. If the factory won’t talk about low order backlog, there is a chance that their competitor knows which proves one more time how important it is to visit the factories in person.

Port of Loading

Since factories sometimes can use different ports of loading, you need to inquire which one is usually used because the applicable freight charges will apply and you need that information to properly calculate your landed cost. Some ports have only one vessel departing per week and you must know this in advance when planning tightly scheduled shipments.

Closest International Airport

I want to mention that some products can only be shipped by airfreight. Notebook computers and MP3 players are typical examples. The key components of these products are ICs that constantly fluctuate in price. At present, the prices are in constant decline. Buyers need to receive their goods within a short time or they will not be able to make a profit. The price they need to charge will be higher then the price being charged for goods that were air shipped. That makes air shipment unavoidable.

Banking Details

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

Payment Terms

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

Never ever let the factory convince you to remit a down payment of let’s say 20 or 30% of the total order value by T/T to enable them to start your production. Ask yourself why are they asking for this? There is only one reason, which is that the factory has no money and obviously no other orders. They want to jumpstart production with your cash. If something goes wrong and the likelihood is rather great something will, you 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 it is not a trading company. Even if they pretend that they have several factories working for them, they are not likely to know all these details.

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

About Your Shopping List

Here is the information your shopping list should include. It needs to include all of the products that you want to source. 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 yearly quantities
  • Requested earliest delivery date
  • Destination port
  • Packaging information if other than standard
  • Number of samples needed

It is not wise to inform all suppliers about your target price right away. You could end up with prices matching your target price but you may have actually been able to negotiate a lower price.

On the other hand, inform your supplier of your target price if they quote a price that is not even close to what you want to pay.

It is essential to provide your company’s specifications before asking for price quotes. Of course, you can play the hide and seek game by not disclosing your requirements to the supplier. The big disadvantage with this is that you will be drawn into lengthy negotiations later because the supplier will tell you that his price was based on his own standard and everything above that must be added to the originally quoted price. There can be no doubt that the supplier is right.

I believe it is part of fair play to fully disclose your requirements up front. To do anything less may force your supplier to lower the product quality by using cheaper materials in order to obtain the purchase order.

Make Your Business Negotiations in China more successful by talking to the rights Persons

Thorough trip preparations will make your business trip to China more successful and will help reduce your travel expenses. Therefore, you are best advised to prepare yourself in order to make a favorable showing when negotiating with your suppliers. Poor preparations can leave a negative impression about how your company conducts business and will not achieve the desired goals.

With Whom Should You Negotiate on Your Supplier’s Side?

Talking to the right or wrong person in your supplier’s hierarchy can be the key for successful or failed negotiations.

Typically your negotiations begin with the sales manager. If technical details need to be worked out the production manager and/or one of the senior engineers will be involved.

Meeting with Decision Makers

These managers however cannot make final decisions without consulting with senior management, when the meeting carries a significant importance. Typically these are meetings where the outcome involves a lot of money. It could be a negotiation to resolve a settlement claim or it might involve a large volume purchase order. I can only advise you to go right to the top decision maker. That means you must talk to the company owner. This can be several people if it is a shareholder owned company. You may need to meet with the chairman of the board, the chief executive, or the president.

It may prove difficult to get in touch with the supplier’s decision maker because they are usually shielded by their staff. Knowing the background of your supplier is essential to pinpointing the right person if your supplier has thousands of employees.

It may pay off now, of you have visited that supplier before and already know the company hierarchy.

I have discovered on various occasions that decision makers in China go into hiding and cannot be reached by your company when there is a major settlement claim. This might seem strange but if you do not nail down an appointment with your supplier’s decision maker, you may end up talking to the people that shield him and end up just wasting more time and money.

Have Current Contact Information On Hand

It should not be this way but believe me, even as a permanent Hong Kong resident it has happened to me. I have arrived at a supplier’s office address only to find out they moved to a new location several weeks ago.

Sometimes, managers may be using up a supply of old business cards and forget to let customers know about their new office location. Or maybe it has been a while since you last talked to them and when you call or e-mail to arrange a meeting, they have forgotten you do not know that they moved. This is especially true in cities like Hong Kong or Shanghai where offices frequently move. You need to make sure that you have up to date addresses in your records.

Even more important are the cell phone numbers because this is your primary way of contacting the persons while you are traveling. In large cities, the traffic conditions can at times be terrible and you will want to inform your business partner if you will not make it on time for an appointment.

A Few of Good Travel Tips

A sketch with a Chinese character description of the supplier’s location sometimes works wonders helping your taxi driver find your supplier’s location. You might be able to draw the sketch and have someone at your hotel add the Chinese characters or have the supplier e-mail something similar to you.

If your taxi driver still has trouble finding the supplier’s location, you can call the supplier on your cell phone and ask him to give directions to the taxi driver in the local language. This usually does the trick.

You can always ask your supplier to pick you up from the hotel to avoid this problem but it can be inconvenient and time consuming to wait for the supplier to send a car. Most Chinese factories are usually glad to send a company car to pick you up. However, companies in Hong Kong or Shanghai may not be willing to provide this service.

When visiting suppliers you will want to make plans that best utilize the available time. This is even necessary if you are visiting suppliers in one of the large Chinese cities like Hong Kong, Shenzhen, Guangzhou, and Shanghai. These cities are so vast that you need a realistic plan if are going to get much accomplished.

Be Absolutely Prepared For Your Business Negotiations In China

If you want to conduct business negotiations in China, you better be absolutely prepared. You are far from home and cannot just run across town to fetch a missing document or your contract if you forgot to bring it along. Of course, you may be able to ask your staff, at home, to send you the missing information by e-mail but you may already have lost your face with your Chinese counterparts because you were ill prepared for the meeting.

Therefore, first make a plan about what subjects must be discussed with each of the companies you are going to visit. After that has been established, you have to prepare a checklist of the documents needed for each meeting. If you want to conduct successful negotiations with favorable results for your company, you had better have everything on hand instead of guessing what else might be needed.

I suggest using a notebook computer during your negotiations. Notebook computers can store all of your previous communication with your supplier along with copies of any documents that might be needed.

Paper Documents

However, during meetings with your suppliers you still may need a paper version of the documents to provide to the participants. It is usually not very convenient to present documents on your computer screen when several people attend your meeting. The completely paperless office is still a future illusion so you need to have hardcopies of the most important documents ready for your negotiations. If more copies are needed, your supplier can make them for you.

Help Your Chinese Partner Prepare

The meeting may only last 2-3 hours total but your preparations will probably need much more time if you want to be successful.

It is also common for your Chinese business partner to request a summary of the intended discussion points in advance. This makes perfectly good sense so they can also prepare for the meeting and can ask for additional information if something seems unclear.

Chinese senior managers seriously dislike being confronted with details they were not aware of and for which they did not prepare themselves. If you wait until the meeting before disclosing key information, the Chinese decision maker will loose his face. The result will be negotiations that go nowhere despite your perfect preparations.

Unfortunately, the preparations were less than perfect if you fail to cover the Chinese side of the equation. Not helping the Chinese prepare for the meeting is a formula for failure.