How can you be savvy to purchase in China?
If you are a businessman, you really should not ignore the china market. With the rapid economic growth, it has become the center of the world’s factories. In the past six years, I have been to China many times. Every time I go, I will find myself more in love with this place. It has developed rapidly and has become the center of global business. In the past, when many people heard of China, they would associate cheap, dirty words with it, but now it is not. The hotel I stayed in in China was even more luxurious than Manhattan!
Here are the lessons and achievements I have accumulated in my work! They helped me escape all sorts of “pits” and made my product maintain a good profit. I want to share with everyone the “nirvana” I learned from China. It made me maintain a dominant position in key business negotiations. At the same time, I give some suggestions for the complex Chinese business environment and I hope to help everyone!
Negotiation: Creating a Win-Win Situation
Please remember to inspire your Chinese business partners forever. It is important to let them know the benefits that they can gain in cooperation and ensure that they maintain a win-win situation in each transaction.
When I first started setting up Kogan, there was no money in my bank and no venture capital. When I placed orders for 10,000 television products at some Chinese factories, all the manufacturers sent me quotations. I chose the one with the best price/performance ratio. Then I told them that what I want is a trial purchase order, which is currently only 80 units. They laughed at me. Because television assembly production lines rely on mass production to increase efficiency, large professional manufacturers will not accept small orders because small orders cannot make them profitable and disrupt their production arrangements.
The person in charge of the manufacturer of my choice apparently had no desire to cooperate with me, because it did not have any good for him. In order to lobby him to cooperate with me, I lost sleep for a few days. Later, I discovered that the companies I seek to cooperate with are very large. The quotation that I received was all in Chinese and very unprofessional. There can be 15 different fonts and colors in a table. There is no one central content and product descriptions do not achieve the desired effect. Their TV user manual is even more logical, and many are not illustrated.
I spent a few days redesigning the TV manual for this manufacturer and told them sincerely: “I have no ability to bring you huge orders, but I can help you redesign this manual to assist your business.”
(Domatters Digital Marketing: When we fail to meet customer requirements in certain areas, we can also say similar things to customers in order to recover customers. For example: “We cannot afford to drop to the price you want, but I can ***** helps you to assist your business”)
A few hours later, the factory’s manager replied to me and received my 80 orders, and the price was lower than before.
A week later, the manufacturer’s manager told me that they had won a lot of users in the US market. This is because in many competing companies, their products are the most professional, and product specifications are also the best.
Not all “win-win” transactions should reach an agreement. In many negotiations, I would often be asked like this: “Why not receive our supply? We can give you a better price!” And I will tell them: “I do not receive this supply because you are not a liar It’s a fool. I need a long-term partner! I want to guarantee their profits!”
(Domatters Digital Marketing: A real buyer will not only think about his own profit: At the same time, he will also think about partners (suppliers) so that they can win a win.)
Jump out of your limitations
Once I was sitting as a representative of Kogan in a conference room of a large Chinese manufacturer. At that time, I was only wearing jeans and a T-shirt. The other five managers are very formal, but only one can speak English.
At the beginning of the meeting, I talked with the manager who knew English. He would translate my words to colleagues and discuss them at the same time. This discussion is very serious because it involves the price of new orders, payment terms and quality issues. But every few minutes, they will laugh once. It makes me feel very uncomfortable because the topic we are talking about is not funny. I am very curious about what they are talking about and really want to have a good translation around. However, when I later realized that I was bringing the translators, they would certainly say much less.
Then my brain came up with an interesting idea. When they talked and laughed at themselves, I took out a mobile phone to record their conversation. Later, I simply put the phone on the desktop and recorded the entire meeting. When I returned to the hotel, I uploaded the audio file to the internet and I found several online translators to translate it. A few hours later, I obtained translations of the entire conference, including their private conversations. I knew their quotes, strategies, and the most important reserve price. From another perspective, I have gained an advantage in this negotiation. (Alex note: I have personally experienced this kind of thing personally. In 2009, accompanying a colleague to visit the chief representative of Brazil’s procurement office in China, we all thought that the Brazilian did not understand Chinese and used it when communicating with him. It was in English, but I also exchanged views with my colleagues and I continued to use Chinese to exchange opinions. At the time, after the first generation had left after two years, we listened to their company, the Chinese said that this Brazilian is a Chinese language of Zhejiang University. Graduates majored in Chinese have spent 7-8 years in Chinese. The Chinese language is very good. Fortunately, there was nothing wrong with the exchanges with colleagues at the time. This was taken down, but it was still terrible to think about it.)
Time is the best negotiation tool
In China, the price of nothing is set to die. The best tool for price negotiation is time. As soon as Chinese businessmen realize that they are losing customers, they will immediately change their prices. You can never let them know what they need, nor can they let them know that their schedule is urgent.
We will lock in deals and products as soon as possible so that we will not be at a disadvantage in negotiations with the Chinese. For example, the Olympic Games in July 2012 will definitely lead to the demand for large-screen TVs. We started targeted negotiations in January. We actually got a good price in January, but we remain silent until February. The owner of the factory knew that we needed the goods but it was always confused why we did not sign the contract. Actually, this manufacturer is the only supplier, but we lie to him and say: “We have better suppliers and basically won’t respond to you.” Then they reduced prices by more than 10% in February. !
In March, we continued to tell him that we had found a lower-priced supplier and asked if he could give a lower price. He said that this price could not be achieved because we entered the Cold War. After a few weeks of silence, we realized that the manufacturers would not trade at this price. At the end of March we raised the price of the order and finally reached an agreement. The price of the order is 30% lower than the first quotation in January!
The key to negotiation is not to let the other party feel desperate, but to use time to lock in the floor price of the transaction. The “wait and work” approach ensures that you get better deals.
Never reveal the reserve price
Usually, the Chinese will ask you: “What is your target price?” And I will directly say: “0 yuan!” Or “Do not ask me the target price, just give me the best price just fine. When you When entering the supermarket, they will ask you the bread price target?”
Chinese negotiation techniques are very sharp and they will get business information beyond your imagination. They will use this business information to set prices. What you have to do is keep confidential your own needs information and don’t leak it out easily. For example, if they know that the price of the product you sell to the customer is $50, they think that if you have only 30% of the profit, you will be happy to accept it. Therefore, they will set the price at 35 U.S. dollars. And the corresponding product may only sell for 10 dollars in their country!
You want to make sure that your information leaks are as small as possible and make them realize that there are many manufacturers bidding for your orders. What you need to do is to select the best price vendor based on your own order specifications. (The negotiation is actually a competition between the data and intelligence of both parties. The more accurate the data and the more detailed the intelligence, the bigger the winner will be. The third largest iron ore enterprise in the world put all the key data of the major steel plants in China. It’s all very clear, so when the price of iron ore rises, it completely prevails, and the rate of price increase just happens to make you earn a little bit of money, but that’s it. Let the Chinese steel mills fight for the miners New years.)
Environment, abandon the “Chinese textbook” of Chinese culture
I have never read a book about Chinese culture or how to do business in China. There are hundreds of similar books. Some of my western partners have read some of them but they have been misled. The descriptions in the books are very different from the real ones.
Regardless of how the book is said, the transaction is finally completed by payment. As long as the number of products you buy is large enough, no matter what language you use, manufacturers will relocate. Whether you eat with chopsticks or eat with a knife and fork, they will not mind. Many books say that in the Chinese model of business, relationships are more important than commercial contracts. But in fact, even if you have the best factory in the world and are familiar with some of the people in the Chinese factories, they will not ship to you without payment. It is very important to maintain good relations with your main supplier, but you cannot influence your business judgment because of this relationship.
In those “textbooks”, they will tell you to try your best to finish the Chinese food, so that you can have the opportunity to cooperate in business. Once we had dinner with a Chinese supplier. There are a lot of bizarre dishes on the table. I didn’t eat a few mouthfuls, and my colleagues ate a lot, but I could see that he was very miserable. Later he realized that the introduction in the book was meaningless: as long as we kept large orders and paid on time, suppliers would be happy to supply us. Now we still give this supplier a meal every few months, but the location is a hotel we are familiar with.
Always look for a backup supplier
Make sure that your supplier knows you are constantly looking for other suppliers. You can’t let them think that your manufacturer can’t do without them, and that will make them proud and arrogant.
I don’t like trade fairs because I think it is outdated. However, I will still send my team to attend such meetings and visit our suppliers’ booths. In this way, we can look at all suppliers’ products under one roof and bring them some hints: We are also looking for new manufacturers everywhere, and they must do their best.
Whenever I meet a supplier, I tell them I just came from a meeting. At the end of the meeting, I will let them know that they are going to another meeting.
Our bottom line is that regardless of whether the contract expires, if the other party fails to meet our requirements, it will immediately refer to the partnership. At any time, we have Plan B and Plan C, and we also make sure that suppliers are aware of this. As we are always looking for new partners and suppliers are feeling the pressure, they provide us with better prices and services. And we will also transfer the corresponding benefits to consumers.
In China, everyone claims to own their own factory. For any given product, there will probably be 20 Chinese manufacturers. There are about 200 trading companies for each product, and each employee has about 25 employees. This means that there are 5,000 intermediaries available for contact. However, if you want to obtain absolute price advantage, you must contact the manufacturer directly. You spend 10% more for every link you make. The biggest problem now is that no one will admit that he is a middleman. They all claim that the manufacturers are themselves. Exposing the truth is very important to you, but it is extremely difficult, but there are still ways to follow:
1. Check their emails. This method is obvious, but many people ignore it. However, this does not work for all companies because some giant company employees still prefer to use Hotmail.com email accounts.
2. Visit the manufacturer – find the corresponding manufacturer by the address on the business card.
3. Check the staff’s uniform – pay attention to the brand on the clothes.
4. Ask the producer if you know the person who introduced the product to you.
With the above simple method, no one can deceive me at present. When I asked a person to randomly open a factory door, if it couldn’t be opened for a long time, I knew that the factory was not his.
For most Chinese factories, they are just production lines. If you need a product, they get the corresponding components and then assemble them.
Products from different factories usually have no difference in appearance, but internal components are still very different. When you are comparing prices, you need to carefully test the product and take a closer look at the components inside. In addition, when you are bidding for the mass production of your own product, make sure that you are not ambiguous about the product and the description. Make sure to repeat the verification.
Money in the bank is the best contract
Many Westerners have wasted time on drafting contracts with the Chinese. In fact, the contract on paper is of little significance. It is unrealistic to ensure that all kinds of contracts are executed because of the intervention of embassies and local officials. In my experience, China has always insisted on its role in trading. We need to be clear about everything and ensure that both sides have a clear understanding of expectations. In fact, this is also very easy to do, as long as they can confirm via e-mail if they understand it.
To ensure that the transaction goes smoothly, you must pay for the product after you see it produced, so that you can protect your property well and eliminate unnecessary lawsuits.
Caution is the boat
China’s population exceeds 1.3 billion, there are millions of foreign trade agency companies, tens of millions of foreign trade salesmen, and tens of millions of factories. Finding the right partner is not an easy task. A good way is through the manufacturer’s web page to understand what they recommend. In short, you cannot be careless in China.