How to negotiate with a Chinese factory

Negotiating with a Chinese factory is usually understood as haggling over price. That is the fastest way to get a worse product at the same price. A factory squeezed on price will almost always find somewhere to save, and most of what it saves on is invisible until the order arrives. Price is one parameter among several, and it is generally the one worth opening with last.

What determines your leverage

Before you start, it is worth knowing where you stand. Three things matter more than any technique:

• How prepared your request is. A full specification in English with dimensions, materials and tolerances tells the factory it is dealing with someone who knows what they want. A general request invites a general quote and a conservative price.
• How many factories you are talking to. One quote is not a negotiation. Three quotes on exactly the same specification change the conversation entirely.
• What you are worth to them over time. A factory prices a small first order differently from a customer who intends to come back. It is worth explaining the wider picture, if it is a real one.

What to negotiate before price

Four parameters that affect your viability no less than price, and on which the factory is more flexible — because they do not come out of its margin to the same degree.

1. Minimum quantity. The most flexible parameter, particularly on a first order. It can sometimes be brought down in exchange for a future commitment or for giving up a special colour.
2. Payment terms. A split that leaves a significant part to be paid after a successful pre-shipment inspection is worth more than a discount, because it moves risk.
3. Production time. Two weeks of difference can be the difference between making the season and missing it.
4. Liability for defects. What happens if a problem appears after clearance. Agreeing it in advance is worth a great deal, and almost nobody asks for it.

How to ask for a quote

Most of the negotiation is settled at the moment the request goes out. A good request produces quotes that can be compared with each other; a loose request produces five quotes each on a different product.

• Send every factory exactly the same document, and ask for the reply in the same structure.
• State the quantity you are genuinely considering, and ask for a price at a larger quantity too. The gap tells you about their cost structure.
• Ask for a breakdown of what is included: inner packaging, carton, marking, and what the terms of sale are.
• Ask for the production time and the cost of samples separately.
• Ask explicitly what is not included. The answer to that question is usually the most useful information in the whole exchange.

How to read a quote that is too low

A quote significantly below all the others is not good news but a question. There is usually an explanation, and it is almost always one of these: thinner material, cheaper coating, simpler packaging, or the factory did not understand the specification.

The way to find out is not to ask "why is this cheap" but to ask them to detail the material specification and the weight per unit exactly. A factory that evades that question has already answered it.

Tone, pace and style

A few things that work in practice, not as techniques but as conduct:

• Be direct and courteous. Aggressive pressure does not work well, and it costs you the priority you get when the factory is busy.
• Do not rush. Answering a question about price too quickly signals that you have no alternatives.
• Ask for an explanation instead of demanding a discount. "What makes up the price" gets further than "take ten per cent off".
• Summarise every conversation in writing. What was not written was not agreed, and that holds for both sides.
• Be prepared to walk away. It is the only point that genuinely changes the price, and it only works if it is real.

What has to go into the agreement

At the end of the negotiation, what remains is what is written. Five clauses worth having in it:

1. A full specification, including a reference to the approved sample as the binding standard.
2. A prohibition on changing material or subcontractor without prior written approval.
3. A pre-shipment inspection as a condition for the final payment.
4. A schedule with a target date, and what happens on a delay.
5. Liability for defects, and the way they are to be dealt with.

Four things not to do

Most of the damage in a negotiation comes not from what you did not ask for but from what you did do.

• Revealing that you have no alternative. The moment the factory understands you are talking only to them, the negotiation is over. Even if that is the situation, there is no reason to announce it.
• Asking for a discount without changing anything. A discount given without a change to the order comes back to you another way — in material, in packaging or in time. If the price comes down, something in the request should change too.
• Agreeing verbally and moving on. A good conversation that was not summarised in writing does not exist at the stage where you will need it.
• Treating the factory as a one-off supplier. Factories prioritise customers. Someone who conducts themselves as a long-term relationship gets different treatment when there is a backlog, and that is exactly the moment it matters.