Tips for Negotiating with Chinese Manufacture

[exclusives88]

I'm in the watches industry and I am currently trying to negotiate with our OEM Watch Manufacture.

I know that these guys are charging me at a huge mark up. I have done some research and talked to other watch manufactures and it seems like our current manufacture is charging us $25 too high per unit.

I've heard not to be too upfront with them telling them that they are cheating me with the price and that other manufactures are charging XX% less.

Any advice on the best approach? I can pinpoint most of the upcharge..

@Walter Hay

 

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[Ajita]

I'm in the watches industry and I am currently trying to negotiate with our OEM Watch Manufacture.

I know that these guys are charging me at a huge mark up. I have done some research and talked to other watch manufactures and it seems like our current manufacture is charging us $25 too high per unit.

I've heard not to be too upfront with them telling them that they are cheating me with the price and that other manufactures are charging XX% less.

Any advice on the best approach? I can pinpoint most of the upcharge..

@Walter Hay

From what I remember reading in Walter's thread, one of the best ways to negotiate with a manufacturer on price, without coming off as "rude" is to show a quote from at least one other manufacturer with their lower price (with their company information and important details censored). This may have them match the price or at least meet in the middle. Though obviously hearing it straight from Walter would be best

 

[exclusives88]

This is what I found in Walter's thread:

"2. The simplest way to negotiate softly is to obtain competitive quotes and use them in non forceful way. It helps if you can scan and email a copy of a competitor's quote, but it is best to obscure all identifying printing including company name, address, phone/fax numbers, logo, etc.

When using a competitor's quote to try to get a better price, you should mildly compliment the supplier you are negotiating with, and add that you would prefer to deal with them because of those good points, but you must consider the costs.

Because you have already given away a negotiating point with your praise, they will rarely match that price but they will often lower the price to a compromise level. The praise is used to help cement your relationship, and in my opinion the risk of not getting them to lower the price all the way to match the competitor is worth it if you believe you have found a really good supplier."

Do you think I can just tell my current manufacture that based on discussing with other manufactures, they are giving me a price of $60 - $65 per unit. The break down of each component is XX for the strap, XX for the buckle, XX for the PVD Coating....etc Unfortunately, I do not have a formal quote where I can e-mail the current manufacture.

 

[Ajita]

This is what I found in Walter's thread:

"2. The simplest way to negotiate softly is to obtain competitive quotes and use them in non forceful way. It helps if you can scan and email a copy of a competitor's quote, but it is best to obscure all identifying printing including company name, address, phone/fax numbers, logo, etc.

When using a competitor's quote to try to get a better price, you should mildly compliment the supplier you are negotiating with, and add that you would prefer to deal with them because of those good points, but you must consider the costs.

Because you have already given away a negotiating point with your praise, they will rarely match that price but they will often lower the price to a compromise level. The praise is used to help cement your relationship, and in my opinion the risk of not getting them to lower the price all the way to match the competitor is worth it if you believe you have found a really good supplier."

Do you think I can just tell my current manufacture that based on discussing with other manufactures, they are giving me a price of $60 - $65 per unit. The break down of each component is XX for the strap, XX for the buckle, XX for the PVD Coating....etc Unfortunately, I do not have a formal quote where I can e-mail the current manufacture.

I'd imagine it depends on multiple factors. Have you at all mentioned that you are on a very fixed timeline for production? Because pushing to get these details sorted in a matter of 50ish hours would put you at a big disadvantage if they sensed your urgency, I think. This also depends on the attitude of the manufacturer.

I think they'd be much more convinced and willing to work with you if they saw a scanned copy of a competitors quote, it means you have very little resistance stopping you from jumping ship and ditching them altogether, making them more willing to work hard to keep you.

Or they could just have a sub-optimal source for the specific component you are targeting, and they are giving you THEIR realistic prices, even though they aren't great. It's hard to know.

 

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[exclusives88]

I'd imagine it depends on multiple factors. Have you at all mentioned that you are on a very fixed timeline for production? Because pushing to get these details sorted in a matter of 50ish hours would put you at a big disadvantage if they sensed your urgency, I think. This also depends on the attitude of the manufacturer.

I think they'd be much more convinced and willing to work with you if they saw a scanned copy of a competitors quote, it means you have very little resistance stopping you from jumping ship and ditching them altogether, making them more willing to work hard to keep you.

Or they could just have a sub-optimal source for the specific component you are targeting, and they are giving you THEIR realistic prices, even though they aren't great. It's hard to know.

I take it you are following my campaign

Some issues I came across with my current manufacture is that they told me just last week that their MOQ needs to be higher for each watch variation. I had a 6 AM call on Saturday trying to negotiate down the MOQ. They aren't willing to negotiate. Since then, I had to tell my backers that we no longer can carry our last variation which resulted in backers cancelling out.

We even discussed pricing and they said that it's is already the lowest they can go. I've been in contact with 2 other watch manufactures who have had a very good reputation on watch forums. I discussed them about the pricing and they told me that it is $25 too expensive.

My goal is to negotiate down one last time with them and tell them that if they can't work with us, then we have to move forward with another manufacture. They do know our urgency but this can also mean that we have the money and need to move forward quickly with them or without them.

If they are willing to bring it down, I would just self fund the rest. I'm only $3k short.

 

[Vigilante]

Read the book Thick Face Black Heart

 

[exclusives88]

Read the book Thick Face Black Heart

Done. Purchased. I remember you mentioning it at the summit

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[Walter Hay]

I'm in the watches industry and I am currently trying to negotiate with our OEM Watch Manufacture.

I know that these guys are charging me at a huge mark up. I have done some research and talked to other watch manufactures and it seems like our current manufacture is charging us $25 too high per unit.

I've heard not to be too upfront with them telling them that they are cheating me with the price and that other manufactures are charging XX% less.

Any advice on the best approach? I can pinpoint most of the upcharge..

@Walter Hay

I think you have reached the stage where you can no longer be gentle, but you need to be blunt.

The watch industry runs on component parts manufactured by numerous different sources, so that can be a genuine reason for high MOQs. It should not be a reason for high prices.

I would start my email to them with words such as: "I regret that costs quoted by you are well above my expectations, which were based on a lot of experience in the watch industry, and discussions with other suppliers." You would then write about being unable to place an order due to those costs.

Walter

 

[exclusives88]

Read the book Thick Face Black Heart

Hi Dave - Your PMs are turned off. We are trying again with reaching out/negotiating with manufactures. I was wondering if you had time this week to discuss any tips/advice on the best way to approach them. I got the book - thick face black heart and will be reading it soon.

 

[Vigilante]

Hi Dave - Your PMs are turned off. We are trying again with reaching out/negotiating with manufactures. I was wondering if you had time this week to discuss any tips/advice on the best way to approach them. I got the book - thick face black heart and will be reading it soon.

My time is crazy right now but if you post obstacles in your thread people from all corners of the forum can chime in.

Read that book.

 

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[David Young]

I have worked with Chinese engineers on numerous occasions. I found that they generally have a different perspective and values to US/ EU engineers. You therefore need to take this into account. For example, until you have a very good long relationship trust will be an issue. Double /triple check everything and ensure you have it in writing. You also need to present any argument in such a way that they do not lose face or feel undermined in anyway. Pride, respect goes along way.

 

[#nowhere]

My time is crazy right now but if you post obstacles in your thread people from all corners of the forum can chime in.

Read that book.

Hey Vig,

short question... can you confirm this statement on the book: "After having read Thick Face Black Heart the first time, I threw all other self-help books I owned (Tony Robbins included)in the trash. I haven't missed them since."

Thanks in advance!

(will read it anyway...)

 

[Vigilante]

Hey Vig,

short question... can you confirm this statement on the book: "After having read Thick Face Black Heart the first time, I threw all other self-help books I owned (Tony Robbins included)in the trash. I haven't missed them since."

Thanks in advance!

(will read it anyway...)

That seems a bit over the top. Maybe a lot over the top. It's on my recommended reading list though for sure.

It is a good book though on the cultural differences between the way westerners look at business specifically vs. the way that Asia looks at business. Understanding the cultural differences can help you better understand the mindset of the "opponent."

 

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[Walter Hay]

I have worked with Chinese engineers on numerous occasions. I found that they generally have a different perspective and values to US/ EU engineers. You therefore need to take this into account. For example, until you have a very good long relationship trust will be an issue. Double /triple check everything and ensure you have it in writing. You also need to present any argument in such a way that they do not lose face or feel undermined in anyway. Pride, respect goes along way.

Once that trust is established the whole relationship is changed and stabilized. I still correspond with former suppliers I first began dealing with almost 30 years ago. What began as a strictly business relationship developed into friendship.

They still keep me up to date on the situation in China, and occasionally they ask me for help in relation to dealing with customers or prospective customers in western countries.

Such is the value of building a strong relationship, but it takes time. One very important factor is the need to understand their culture, as Vigilante has emphasized. Another is to demonstrate your trustworthiness. It doesn't have to be a big thing. For example you might mention X quantity of the latest shipment was faulty, but you say: "I don't want a refund or credit, I just want you to be aware that someone in your QC section let some faulty items slip by." What I am talking about is related to the concept of guanxi.

Walter

 

[MotiveInMotion]

Once that trust is established the whole relationship is changed and stabilized. I still correspond with former suppliers I first began dealing with almost 30 years ago. What began as a strictly business relationship developed into friendship.

They still keep me up to date on the situation in China, and occasionally they ask me for help in relation to dealing with customers or prospective customers in western countries.

Such is the value of building a strong relationship, but it takes time. One very important factor is the need to understand their culture, as Vigilante has emphasized. Another is to demonstrate your trustworthiness. It doesn't have to be a big thing. For example you might mention X quantity of the latest shipment was faulty, but you say: "I don't want a refund or credit, I just want you to be aware that someone in your QC section let some faulty items slip by." What I am talking about is related to the concept of guanxi.

Walter

Walter,

I have nothing to add, but sincerely appreciate your contributions.

This concept of Guan Xi is very interesting to me and I intend to not only study and read more about it, but cement and grow relationships with my suppliers with it. Importing and E-commerce will continue to be areas in which I practice and hone skills for the years to come, and I know you've had much experience. Thanks a lot for adding so much.

Do you know of some good ways to do nice little favors for suppliers that are doing their job very well? Also, do you encourage Skype/phone calls with suppliers to view the factories, or just go over some details "in person"? I understand flying out there can be helpful too.

TYVM

 

[Walter Hay]

Walter,

I have nothing to add, but sincerely appreciate your contributions.

This concept of Guan Xi is very interesting to me and I intend to not only study and read more about it, but cement and grow relationships with my suppliers with it. Importing and E-commerce will continue to be areas in which I practice and hone skills for the years to come, and I know you've had much experience. Thanks a lot for adding so much.

Do you know of some good ways to do nice little favors for suppliers that are doing their job very well? Also, do you encourage Skype/phone calls with suppliers to view the factories, or just go over some details "in person"? I understand flying out there can be helpful too.

TYVM

One of the best favors is to express your appreciation for their excellent service and/or quality. Tell them you are now confident that you and they can enjoy a long lasting relationship.

Check the Chinese holiday calendar, and when a special day or week is coming up wish them a happy time or success in the coming year etc.

Tell them about your children if you have any. If they have one (or maybe even 2 in a few cases) they will respond with information about them. Keep track of birthdays if you learn when they are, and send at least a card, or maybe even a small gift. If your contact person tells you she is pregnant, be sure to send a small gift once the birth is announced. Try to make the gifts something specific to your country. Remove any "Made in China" labels before sending them.

The post above by @JScot was very good, particularly the last paragraph.

Phone calls can be difficult because you will possibly be talking to the contact person who speaks English and not with the person you are actually dealing with. They might have video tours of their factory, but don't press them hard for that. Visiting will definitely cement your relationship, and will often repay the cost many times over, including the likelihood of lower prices.

Walter

 

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[Walter Hay]

I learned this lesson recently as well. We have several Chinese vendors, and the first time we had a quality issue, my response was very much the "American negotiating" stance: "Component failure was 4.2%...we need a 7% discount on future orders to cover our extra testing costs and we also want a guarantee of higher yields."

The response was basically, "Perhaps we're not the right company for you to work with." I was flabbergasted. I never had a supplier fire me as a customer!

After talking to a few people, I realized the issue. The next vendor that we had a quality issue with, my response was more along the lines of what you said above: "Hey, just so you know, I think you might have an issue on your line...we are seeing higher failures on this batch than the previous. No big deal, but I wanted to let you know in case you had any other customers that were seeing the same issues."

Their response was basically, "We're so sorry. I'll talk to our line manager to ensure that proper testing is completed on future orders, and we'll credit you back for any failures on future orders."

It was night and day responses.

Also, I've found that a single line of pleasantries in each communication goes a long way. Starting an email with, "I hope you had a wonderful weekend!" or "Just wanted to let you know how much we appreciate your company!" -- it feels a little forced, but it really works.

The big problem with your initial response to faulty products was that you caused your supplier to lose face. As you have now learned, the softly softly approach works much better.

Always try to give them a way out. This negotiating technique applies in most societies, but is most important with Chinese people. Try to make it a win-win situation. You can gain points by specifically stating that you don't expect a refund, credit, or product replacement, but you thought they would like to know about the problem.

That way they won't think you are trying to take advantage of them from a long distance away, and they will be much more likely to listen sympathetically to your complaints.

Walter