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How to Negotiate with Chinese Manufacturers

The Chinese manufacturers enjoy a strategic advantage over the western manufacturers due to the fact that the Chinese market is small and so they can afford to invest less in research and technology and more in marketing. In recent years China has liberalized its economy and the foreign companies have been welcomed to participate. This trend is very favorable for the manufacturers because China manufactures most of the world products such as cars, shoes, garments, electronics, and many others. This means that the large Chinese manufacturer can cut down on its production costs while at the same time increase the profits by selling in the low margin segment.

However, there are few characteristics of a good Chinese manufacturer that we should look for before deciding to purchase their products. For instance most Chinese manufacturers have a web site for showcasing their products and the design pattern but seldom give information of the technical specification of the products. Similarly most of the companies do not conduct free-flow trade. Free flow means that the company allows the supplier to sell its goods in the market at the retail price and then take the difference between the original price paid by you and the retail price thus earned by the supplier.

Most of the Chinese manufacturers are small in size and do not conduct free-flow trade, therefore they can afford to charge you less for their products. You can find Chinese manufacturers who have established their own factories in third world countries. Many of these factory owners run their own plant independently and can afford to set up their factory in China with the help of Chinese banks. The products produced by these Chinese factories are sold in the local markets at the price fixed by the factory owner and they make things very affordable for the consumers. The quality and brand equity of Chinese products are also very high, so it is very difficult for us to identify a fake product from a real one.

The Chinese manufacturers prefer to source products directly from the raw material producing countries, such as Thailand, rather than buying raw material from overseas. This increases the volume of goods available from these countries at a much lower rate. They use their expertise in the field to get the best deal from the raw material producing countries and sell them at a much cheaper price to us. Many of the Chinese manufacturers are small operators and hence cannot manage to set up huge production plants, or they cannot manage to pay the hefty freight and delivery charges that we normally have to face. Therefore, they prefer to source products from different places and they use Chinese sourcing companies to make things easier for us.

In our view, the most important advantage of using Chinese manufacturers to source our products is that they are extremely cost effective. Unlike American or European manufactured products, Chinese manufactured goods are much cheaper when it comes to the manufacturing and shipping costs. Chinese factories utilize most of the machines that are used in the West and they can source products very cheaply. Most of the machinery that we commonly see in factories owned by Western companies can only be found in Chinese factories. Moreover, many Chinese manufacturers have an excellent machinery record and the quality of their workmanship and materials are on par with those of the reputed international brands.

However, there are certain aspects of Chinese manufacturers that we will not compromise on, which are mainly their price and pricing practices, their overheads and licensing agreements. The excessive overhead that they tend to incur may make it impossible for them to afford to set up a factory in your country and set up their own R&D and manufacturing unit to produce your products. Therefore, we strongly recommend that you work exclusively with a Chinese manufacturer who can readily commit to your project, who has an excellent management team and adequate funding, and who is willing to work within your stipulated margins and time frame.

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