Updated by Neil
This chapter deals with all the elements needed to build a best-negotiating strategy. One needs to follow some cultural etiquettes, especially while working with Chinese suppliers or business people. This would be covered in the Relationship Building chapter.
The Search for Suppliers and Request Quotes are the two steps that have already been discussed in the previous Chapters. This chapter contains the next step, Negotiating with Shortlisted Suppliers.
Key Negotiating Elements
The following are the four critical elements needed to build a negotiating strategy for a purchase agreement:
Price of the product- The essential topic for negotiation.
Payment Terms- These terms denote how and when you will pay for the products. The standard payment terms for new importers are 30% in advance and 70% when the goods are ready. You can modify these terms best suited for your advantage only when you have made at least three big orders and have become well-established in the market.
Lead Time- The amount of time a supplier would complete an order from the moment it was placed is called Lead Time. Most importers negotiate on this topic and decide on which supplier to choose based on it.
Contract Terms– The contract terms should be detailed and distinctive. The contract should contain clauses for lead time, the penalty for delays, argument resolution instruments for smooth sailing of the deal.
The negotiating power decides who has the upper hand in the deal. Here are some elements that influence your negotiating position:
Order Value- The value of your order is the most significant factor for your supplier. If you have a higher value of the order, you will have more leverage to negotiate a more favorable price and payment conditions.
Previous deals with the supplier- If you have already made several deals with the supplier in the past and have built a business relationship, then they may be open to negotiating better terms for your current order.
The scale of the supplier’s business- If the supplier is a large business enterprise that enjoys monopolies of any size, they would not be open to negotiating about changes in prices or payment terms. Similarly, if they are a state-owned company, they would be a lot less flexible.
Your company’s status– A new business establishment cannot negotiate terms a lot, especially with a big-shot supplier firm. But businesses like Apple or Coca-Cola can dictate prices and payment terms as they see fit.
Local Chinese Business- Chinese suppliers would be biased to a local establishment. So, if you have a local presence in the market, it can prove beneficial for you. It can help you with an extension of credit or decrease the advance payment you have to deposit.
Industry Competition- Industries with high fragmentation have plenty of options for suppliers. Hence, your power of negotiation is relatively higher.
Construct a Negotiation Strategy
When you are negotiating with Chinese manufacturers and suppliers, you should always have an end goal prepared. Most importers see this goal to be a product order with the best possible pricing and payment terms. The product has to achieve a predetermined quality standard.
The majority of new importers have a familiar strategy of receiving at least twenty quotes on Alibaba and shortlisting these suppliers in terms of finding the cheapest three deals. Then they start negotiating with the three suppliers and find the best possible contract at the lowest price with all terms fulfilled. This may not always go your way as finding the cheapest product deal may hinder the quality standards.
Negotiate with Shortlisted Suppliers
After you have shortlisted suppliers and are ready to negotiate, you should move your communication to emails. This way, you can track responses, agreements, and other documents in an organized system. If the emails are being ignored or are left unanswered, you may communicate through WeChat or Skype. This way, you can communicate through short video calls or share short videos with potential buyers.
If you have a substantial budget, you can ask for samples from all three shortlisted suppliers. It would take at least two to three weeks for the suppliers to be ready with a sample order as most suppliers do not keep stock. They do not have samples ready all the time. Typically you would have to pay for the international courier shipping charges unless the supplier is confident that you are serious about the deal. If it is too expensive to get the samples shipped, you may request videos or images of the product. Although, you should make sure you order an example if you have finalized on a supplier.
Make sure you inquire about the lead times of each supplier. You should then compare the three responses and evaluate how they vary between busy and free periods. You should also note when these periods occur and tally them with the dates you estimate your orders to be most beneficial.
Negotiate the product’s price but keep in mind that it does not interfere with the quality of your order.
Most importers keep the price as their most vital negotiating element on a purchase agreement, whereas suppliers are usually looking at the volume and frequency of the purchase.
Compare your negotiating power with their negotiating power and construct a realistic negotiating strategy.
It would be best if you did not shortlist suppliers solely based on price. It would be best if you left price negotiation at the very last of the discussion. Prioritize knowing about each supplier’s capability and if they relate to your quality standards.