Chapter 10 – Essential Tools for Your Negotiations

Cell Phones

I suggest you check with your cell phone provider at home to see if your phone will work in Hong Kong and China. Give your cell phone number to any business partner that is traveling with you and get theirs in return. Do the same with any suppliers that you prearranged to meet. It may be very difficult to locate somebody at the factory without going through their operator, but using their cell phone number will usually do the trick.

The call charges to Mainland China are very high and many visitors buy a SIM card from a China Mobile retail outlet upon arrival to reduce phone costs.

The call charges in Hong Kong are cheaper but you can also buy a SIM card from one of the many local service providers.

The obvious disadvantage is that your Chinese business partners do not have the new number yet and cannot reach you after you have changed a SIM card.

Depending on how many calls you have to make, it might be better to keep the SIM card from your home country or do what many local people do, use a second cell phone with your Hong Kong or China SIM card. That way the staff at your office and suppliers can reach you at any time.

You Will Need a Digital Camera

A digital camera is one of the most important tools you will need during your visit. You will have many opportunities to shoot photos of products, production operations, and quality control operations. These will include close-up photos of details that cannot be seen in a catalog.

During your guided tour of the factory premises many photos can be taken. Important examples include the working conditions on the conveyor belt and any special equipment you are not familiar with or that differs from other factories.

You can and should take photos of any unique new products that some of the suppliers will show to you in the mock-up stage. It may only be a mock-up but in just a few weeks the tooling will be complete and plastic injection can start. You should always be on the lookout for new products that interest your homeland customers. Feeding them this important information can lead to a big sale.

Another way a digital camera comes in handy: Chinese people love to take photos and love if photos are taken of them alone or with their customers. Also, having photos of the people you met during the factory visit helps you remember who they are and what their title is. People always like being remembered when meeting a second time.

Do not forget to bring a spare battery with you because you probably will not have a chance to recharge the battery while traveling between factories. You may also need another memory card if you do not already have one of those 2-5 GB cards in your digital camera. Another way is to upload your photos to your notebook computer on a daily basis. In that case one memory card will probably be sufficient.

You Need a Notebook Computer

If you have a notebook computer bring it to every meeting. If you do not have one consider purchasing one. That purchase will be worth the money you spend for it. Your notebook provides you with the necessary information for your business negotiations, plus it allows you to show background information about your company, and the packaging concept for your products. This is all very helpful to factory management.

Of course, you can input vital information during your discussions without the need to take hand written notes. That is made easier if you have an associate along, but with a bit of practice you can manage it alone. It is also so much more convenient than using a paper notebook. I have experienced and appreciate the changes that have occurred over the last few years.

  1. Before, people wrote everything on paper, the notes were then passed to their secretary for typing after returning from their business trip. Only then could the information be distributed to all the people needing it. You can imagine that it took at least 4 precious weeks from the start of your business trip until everything was completed.
  2. Some people wrote everything on paper and in the evening dictated the content into a small micro cassette recorder. Their secretary at home would then type it and distribute it to the people that needed it. You can imagine that it took 2-3 precious weeks from the start of your business trip until everything was completed. Alternatively, the micro cassettes could be sent by courier service, which saved some time.
  3. Nowadays, people type their vital information in their notebook computer and send it to the head office together with the matching photos at the end of each day. In that way, colleagues at home can interact and ask for additional information if something important was missed. Upon returning home from your business trip, everything should be ready for further processing and decision making.

I suggest a large capacity battery for your notebook computer. One that lasts up to 6 hours. If this battery type is not available for your model, bring another fully charged battery along. When you have meetings away from the hotel, you will find that there is not always an electrical socket nearby to connect to your AC adaptor.

Sometimes suppliers will also pass you data on a memory stick (photos, line drawings, product descriptions, etc.) that you can immediately download to your computer.

That is especially important if it is a new development and no samples or catalogs will be available for some time.

Remember, the most up-to-date information is what you want to obtain during your factory visits.

You Need a Briefcase on Wheels

If you are not into weight lifting exercises, you had better bring a large briefcase on wheels.

It is torture trying to carry your heavy briefcase all day long (with your notebook computer, catalogs, notebooks etc.). Catalogs collected during your factory visits weigh a lot and you will be exhausted half way through the day from carrying them.

Your Company’s Catalog

If you have your own company catalogs, bring a few sets along with you for the meetings with key suppliers. You do not have to carry them all with you but have at least one set to show to your suppliers during your meetings.

From my experience, it makes a good impression and helps to cement the relationship with your supplier if you hand over one set during the most important meetings.

Remember you are your company’s ambassador and want to show your company in the best possible light.

Your Corporate Identity Artwork Concept

Creating your own corporate identity concept is very important. After spending a lot of effort on it at home, it would be a very good idea to bring it along with you to show it to the suppliers during your meetings. It enhances the impression you make and helps suppliers better understand your needs.

Sketches, Drawings, and Photos are Perfect Tools to Inform Suppliers

You should also bring along any sketches, drawings, or photos clarifying what you are looking for from your suppliers. Do not forget that you are at the factory to see something new and collect a lot of information.

Sometimes suppliers will tell you where you can find products and help save you a lot of time.

Also, bring ads from newspapers and magazines showing a product that is already being distributed by somebody else.

Hand over color chips of a specially selected color to suppliers. You can ask them to prepare samples for you, saving the time and cost of sending color chips after you return home. A supplier may also have a question about the color and you can discuss the details face to face.

Your Specifications

What is a specific requirement? A specific requirement could be a more complex sales packaging. For example, a window box that is more expensive.

Another specific requirement could be an instruction manual in several languages that are often needed for Europe. Importers from EC countries sometimes request up to 12 languages in their instruction manual, which is more expensive than only 1 or 2 languages.

Another requirement often requested by Hypermarkets and Supermarkets is an additional semi transparent PP strip. This prevents customers from opening the sales packaging during shopping and removing part of the contents. Depending on the size of the sales packaging, two or more of these PP strips maybe needed.

For electrical products, the plug is a substantial cost factor. The British BS plug is more expensive than the US plug.

The length of the electric cable is another cost factor. If your toaster must have a cable length of 1.50 meters, it will cost you more than one only 0.75 meters long.

Quality Requirements

Your quality requirements are a very important cost factor. The requested quality standard is defined by your requested Acceptable Quality Level (AQL) that sets the limits for the satisfactory process average.

Usually you have 3 defect categories:

1. Critical defect

2. Major defect

3. Minor defect

Here I will only provide a short overview because this subject is thoroughly covered in my other eBook How to Assure Quality Imports From China.

If a critical defect is discovered during a Final Random Inspection, the whole lot will automatically be rejected and must be re-worked or re-produced.

Allowed Major defects range mostly from Major 1.0 – Major 2.5 but that depends on the products. Hi-tech products such as consumer electronics or small/large electrical home appliances range between Major 1.0 – Major 1.5.

Allowed Minor defects range mostly from Minor 2.5 – Minor 4.0 but that also depends on the products. Hi-tech products such as consumer electronics or small/large electrical home appliances range between Minor 2.5 – Minor 4.0.

License and Royalty Fees

Other important cost factors are license and royalty fees that have to be negotiated with certain suppliers. DVD players/recorders, MP3 Players, etc., are examples.

If you or the factory does not pay these fees and you get caught after importing the goods, it will be very expensive and could even ruin your company.

You should realize by now that you need to know all the details before discussing or negotiating prices with any factory during your visits.

Since you expect them to quote realistic prices, you need to inform them of your requirements in order to avoid lengthy e-mail negotiations later. 

Your Shopping List

Hopefully, you have your essential tools together now but one other important list needs your attention. Factory visits are time consuming and can easily distract you from your original goal of finding suitable products at competitive prices that you can sell with as much profit as possible. To avoid being distracted, you have to prepare your shopping list of the products you want to source. This list should include at least the following details:

  • 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 prices right away. You could end up with prices matching your target prices but you may have actually been able to negotiate a lower price. You should however always bear in mind that even with the abundance of cheap labor there are still limitations to a factory’s production and pricing capabilities. You will find that out sooner or later when the 5th supplier informs you that a specifically requested target price is unrealistic.

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