The Online Seller’s Guide To

Negotiating
with Chinese Suppliers

• Learn six things you can negotiate besides price

• Understand the mindset of most Chinese suppliers so you can

negotiate more effectively

• Quickly find the right price that you should be negotiating for

• Be prepared with all the tools you need to negotiate with

confidence
This page has been left blank intentionally.
The Online Seller’s Guide to
Negotiating with Chinese
Suppliers
By Gary Huang, 80/20 Sourcing

When you think of negotiations what’s the first thing that comes to mind… PRICE?
Did you know that price is not necessarily the most important thing you can negotiate
for with Chinese suppliers? Besides price there are at least six other things that you can
negotiate for when sourcing products from China. And if if you do it right, the impact can
be bigger on your bottom line than just price alone.

The art of negotiating with Chinese suppliers isn’t just about dollars and cents. Many new
sellers are worried about negotiating with Chinese suppliers without offending them. Or
saying the wrong thing that can make them think you’re small and new… even if you are.
The good news is that with this Guide to Negotiating with Chinese suppliers you will:

• Understand the mindset of most Chinese suppliers so you can negotiate more
effectively
• Learn six things you can negotiate for besides price
• Learn when you should email, call, or meet a supplier face to face when negotiating
• Quickly find the right price that you should be negotiating for
• Recognize “who’s the boss” in a Chinese Factory so can negotiate the outcomes
you want
• Avoid common mistakes that both newbies and veterans make that can leave money
on the table
• Be prepared with all the tools you need to negotiate with confidence

The Online Seller’s Guide to Negotiating with Chinese Suppliers 3

Contents

Who’s this guide for? 6

Lesson 1: Mindset 7
In China negotiations are a way of life 7
Money ain’t a thing — Be THICK-SKINNED when negotiating 7
They EXPECT you to negotiate 8
Avoid analysis paralysis — Enter the 70% Rule 8

Lesson 2: The six things you can negotiate for besides price! 9
Price: You get what you pay for! 9
Payment terms 10
Sample costs 11
Product quality 11
Freight costs 11
Packaging and labeling 12
Product quality issues and compensation 13
Case Study 1: Problems discovered at the factory before shipment 14
Case Study 2: Problems discovered after product lands 14
Monetary compensation 14
Product compensation 15
Lesson 3: The art of negotiation 16
Prepare yourself 16
Market pricing 17
Bottom-up pricing 17
Your desired outcome... and theirs 18
Tell them your story… and what’s in it for them 18
The offer 19
The reaction and response 19
Bring something new to the table 20

Lesson 4: Price, quality, and time — Pick two 21

How can I negotiate a better PRICE? 21
How can I negotiate better QUALITY? 21
How can I negotiate a better lead TIME?

Lesson 5: Negotiation methods 24
Face-to-face negotiations 24
Skype or telephone call 25
E-mail 26

Lesson 6: Who’s the boss? A who’s who look at a Chinese factory 28

Sales representative — The messenger 28
Factory owner — The emperor 28

Lesson 7: Seven deadly sins of negotiating - The most common mistakes

that newbies and veterans both make 30
Leaving money on the table 30
Going for the kill too early 31
Going below the price floor 31
Thinking that price is everything 31
Forgetting to negotiate better payment terms to increase cash flow 31
Not getting the supplier to compensate you for order defects 32
Forgetting to negotiate packaging, labeling, and shipping 32

My gift to you: Negotiations bonus pack and sourcing masterclass 33

Global Sources Summit for Online Sellers 34

Source smarter with Global Sources 35

Who’s this guide for?
First things first. This guide is not for
everyone. If you’re an Amazon FBA seller or
importer who sources products from China
and does not have a buying office then this
is for you.
If you’re a large corporation with a buying
office in China, you probably have sufficient
resources and a team who can handle this
process for you. That along with the benefit
of being a whale in the eyes of the supplier —
these are the Walmarts, Disneys, and Targets
of the sourcing business.
I’m writing this guide for the little guys. The
small and medium businesses who may be a
one man or woman show. They may be doing
an Amazon business as a side hustle. Or they
may be full-time digital nomads sourcing
from China and selling their products online
to support their travels.
They have some experience sourcing
products but would like to do better, get
better pricing, and negotiate better terms to
grow their business.
They also believe in the Lean Startup
mentality of creating a Minimum Viable
Product quickly so they can validate their idea
on the marketplace rather than spending
months (or years) trying to perfect something
before releasing it “perfectly”. If that sounds
familiar then this guide is for you.
6 The Online Seller’s Guide to Negotiating with Chinese Suppliers
This guide is based on my
years of experience working
with boots on the ground
in China. My name is Gary
Huang and I’m an American
based in Shanghai. I have
been sourcing from China
since 2008. I’ve sourced many different types
of products from China, including auto parts,
exercise equipment, clothing and apparel,
packaging and hangtags/labels.
I’m fluent in Mandarin Chinese (enough so
people often confuse me for a local Chinese
though they cannot tell where I’m from
exactly — makes for a great conversation
starter!) and fluent in the cultural aspects of
doing business in China.
I’ve worked with and visited hundreds of
suppliers across this huge country so I have
seen the good, the bad, and the ugly. I will
share with you stories of my successes and
failures. I will show you how you can do it
yourself in less time and with more results.
Unlike other “China sourcing experts”, I also
have an e-commerce background as I have
sold products on Amazon, eBay and my own
website. I have a unique perspective from
both the sourcing and the e-commerce sides.
But enough about me, let’s talk about
negotiations!
Lesson 1: Mindset
In China, negotiations are a way of
life
The first key is that in China, negotiations are
a way of life. Whether it’s shopping, salary,
benefits, or rent negotiating very common in
your day-to-day life.
Unlike the US and many parts of the Western
world, in China negotiations are a way of life.
Having lived in Shanghai, Nanjing, and Beijing
I’ve started getting used to negotiations as a
part of life.
I remember when first traveling to Beijing,,
and visiting the local marketplace I saw that
there were tons of knockoff Ralph Lauren
polo shirts and leather belts! But I noticed
something missing — there were no price
tags anywhere!
The only way to learn the price was to ask.
They would take a glance at me to size me
up and then make a starting offer. “Yi Bai
The Online Seller’s Guide to Negotiating with Chinese Suppliers 7
Kuai” or 100 RMB or roughly $15. They would
offer a high starting price and expect me to
come back with a counteroffer. Over visits to
several street stalls hawking the same wares,
I quickly learned that the opening bid is high
but there is also a market price for this item.
For example for the polo shirts it was around
RMB80 or roughly $10. They would expect
you to bargain them down.
But don’t expect to be successful on your
first try. I failed many times. Sometimes after
thinking I got a good deal I later found out
that I paid too much in the beginning. Later I
tried the other extreme and tried to be ultra
aggressive and come back at RMB40. The
seller was furious and was offended by my
offer… even though I said it with a smile on
my face!
Later I learned to tone it down to a more
reasonable price but still below their price and
say it with a smile.
Money ain’t a thing — Be THICK-
SKINNED when negotiating
The second mindset to understand is that in
China people tend to be very transparent
talking about money. For example asking
someone how much they make is not rude!
Or how much they paid for that Louis Vuitton
handbag. Or how much for their apartment.
So the takeaway is that you must be THICK-
SKINNED when negotiating. Don’t be afraid
to ask. And keep in mind that the worst thing
that can happen is that they say no. Unless
you really are trying to lowball someone, few
Chinese suppliers will be offended when you
try to negotiate. They know it’s all part of the
game of business.
In fact they’ve already embedded some
margin into the price they offered you. Which
leads us to the next point…
They EXPECT you to negotiate
Negotiations are EXPECTED. Like the Polo shirt
street vendors, Chinese suppliers expect you
to negotiate. In fact they’ve already added a
premium in their opening price as a cushion
against your negotiations. So if you don’t ask
then you’re leaving money on the table. Be
sure to negotiate before accepting their first
offer.
How do you negotiate this? We will cover this
in a later section in this guide.
So remember that Chinese suppliers expect
you to negotiate for a lower price. They
are thick-skinned and are not likely to be
offended.
Finally when preparing to negotiate, you
should cast a wide net and ask many suppliers
to learn of the range of prices of the market. If
you’re not sure how to do this, I’ve prepared
a bonus webinar video which walks you
through the process which you can access at
the end of the e-book.
Avoid analysis paralysis — Enter the
70% Rule
8 The Online Seller’s Guide to Negotiating with Chinese Suppliers
But at the same time, once you have this
information ready, it’s vital that you avoid
ANALYSIS PARALYSIS.
Many sellers, new and old, suffer from this
disease. Once they have enough information,
they keep going back and forth over the
numbers. Or they keep trying to research
for more information. They keep putting off
making the call, or asking for a better price, or
submitting the purchase order, or wiring the
money.
It’s human nature but this will not move your
business forward.
To avoid analysis paralysis, collect enough
information, about 70%, to take a smart
decision and move your business forward.
I love Jeff Bezos’
70% rule. As
the founder of
Amazon.com he
clearly knows a
thing or two about
doing business. In
his 2016 Annual
Letter to Amazon
Shareholders
he wrote, “Most
decisions should
probably be made
with somewhere around 70% of the information
you wish you had. If you wait for 90%, in most
cases, you’re probably being slow. Plus, either
way, you need to be good at quickly recognizing
and correcting bad decisions. If you’re good
at course correcting, being wrong may be less
costly than you think, whereas being slow is
going to be expensive for sure.”
Lesson 2: The six things you
can negotiate for besides
price!
Price: You get what you pay for!
For most people when they think of
negotiating the first thing that comes to
mind is… PRICE! Lower, cheaper, less, give
me the best price! Many people who are new
to online business and sourcing make this
rookie mistake — assuming the lowest price
= the best supplier.
ROOKIE MISTAKE: Lowest price doesn’t
mean best supplier! You will get what you
pay for! Cheap product means cheap quality.
I recommend you start out casting a wide
net and contacting as many suppliers as
you can. Some of them may even be trading
companies but that’s OK for now. At this
early stage you are doing research to get the
market pricing.
After you get a rough estimate or “ballpark”
pricing, then you can use this as a
benchmark to begin negotiating price.
Two key points that will save you time and
help you focus on the right suppliers:
First there’s no need to negotiate with
everyone on the longlist. Another rookie
The Online Seller’s Guide to Negotiating with Chinese Suppliers 9
mistake is trying to negotiate with everyone.
There’s no need for that. Remember the
80/20 Rule and apply it to sourcing. In this
case out of 10 suppliers that I contact there
probably will only be two on my shortlist.
You can use ballpark pricing as one of the
initial filters to shortlist your suppliers.
For example if you request for quotations
and find that most fall within the $4 to $5
FOB range. There may be a few outliers
that quote at $8 to $10. I would filter them
out. Similarly there may be ones that quote
at a ridiculously low quote of $1 to $2.
This would raise a red flag and make me
want to investigate the quotation further.
Maybe there’s some confusion with the
product specs - for example, they may have
misunderstood the material.
Secondly, you will not get the best pricing
on your first order. When you place a trial
order normally your order volume will be
quite low to the supplier. With such a small
order there’s little chance they can leverage
economies of scale to offer a great price. As
a rule of thumb as your order volumes go
from 500 pieces to 5,000 pieces then you can
expect to negotiate for better pricing.
Similarly as your relationship with your
supplier grows stronger, so will the pricing
that they can offer you. This concept is
known as “guanxi” in China.
So remember with your first order, there’s
no need to be a hero and go for the home
run in your first at bat. You are more likely to
strike out or frustrate your supplier if you try
to nickle and dime them back and forth for a
couple more pennies.
So if the pricing
is in the ballpark
for the trial
order, aim for
a base hit first
to get on base
and score later.
You will be able
to get better
pricing as your
volumes increase and relationship grows.
1) Payment terms
Payment terms are another very important
item in doing business that I see if often
overlooked when negotiating with suppliers.
The reason is because as you grow your
business you will need to put more cash into
inventory. This comes down to cash flow.
So in a nutshell, the earlier you pay your
supplier, the less cash you will have for other
expenses such as shipping, rent, Amazon
PPC, adding new product SKUs, and even
paying yourself a salary.
10 The Online Seller’s Guide to Negotiating with Chinese Suppliers
On the other hand, better payment terms
will mean you can hold off on paying your
supplier until later when you’ve had more
time to generate more sales. You can read
more about Payment Terms in a post I wrote
here:
Payment Terms and how to negotiate them
to increase cash flow, reduce your risk, and
gain leverage if problems arise
Normally most people will negotiate
payment terms of 30% advance payment
and 70% before shipment
or upon copy of the Bill
of Lading. But you can do
better as your business
grows, your relationship
gets stronger, and as trust
develops with your supplier.
Better payment terms
you can negotiate for can
include:
• 100% payment upon shipment
• Net-15
• Net-30
• Net-60
In each of these scenarios you are
negotiating to pay your supplier LATER so
you will have more cash on hand to reinvest
into your business.
How do you get suppliers to agree to this?
The key is trust. If the supplier trusts that
you can a reliable client and that you have
potential to grow their business then they
may be willing to offer you better terms.
Note that with the Net-X pricing these means
that the payment is due X number of days
after the order is shipped. For example if
your order ships on Jan. 1st and you have
Net-30 terms then the payment is due on Jan
31st. This means that you have an additional
30 days to generate more revenue to pay for
the order. This will reduce pressure on your
working capital so you can pay for your other
expenses (and pay for your salary!).
Note that these terms are not set in stone. It
really depends on
your business type, Best Practice: Be sure to keep
the type of products track of this agreement via
you’re dealing with,
email or in writing somewhere
the suppliers’ risk
tolerance, TRUST,
so you can refer to it later.
and guanxi. You can
negotiate a combination of terms as well — priced component to save you money!
for example 30% deposit, 70% net-30, etc. The opposite is true of higher quality
components however.
2) Sample costs
Before placing your first order, it’s a good
rule of thumb to order a sample to evaluate
product quality and service level. As a general
rule, sample costs can be returned to you
when you place your first order. Normally
ordering samples is part of the initial vetting
process. When you order a sample be sure to
ask that the fees be credited to you when you
place your first order. Not only does this save
you $50 to $100 this also incentivizes them
that you are looking to do business together.
So this is a no-brainer.
All you have to do is to ask them.
The Online Seller’s Guide to Negotiating with Chinese Suppliers 11
3) Product quality
TRIPLE CHECK YOUR SPECIFICATIONS - I’ve
said before that quality control is a “Never-
ending Story”. When initially placing your
order, make sure to TRIPLE CHECK your
specifications. You must make sure that the
specifications are right. A tiny difference in
the thickness of piece of stainless steel that
is 0.3cm versus 0.5cm thick will have a huge
impact on your customer experience. For
example the difference between something
being a piece of “Made in China” junk
versus something that feels like a quality
product.
Sometimes if one part
of your widget can
be of lower quality to
save costs, tell your
supplier! They may
be able to use a lower
So remember product quality is tied into
product cost and this can be a sliding scale.
You can use it to lower cost but beware you
get what you pay for.
4) Freight costs
Did you know that you can negotiate
pricing and payment terms with your freight
forwarders when shipping your product?
Shipping costs may vary somewhat from one
freight forwarder to another. So you can and
should shop around to find out the market
rate of shipping 1 cubic meter of product
so you can use that as a target price to
negotiate with your forwarder.
Be aware that ocean freight is only one part
of the equation. I didn’t realize this until just
recently that some forwarders make next to
nothing on the ocean freight but the rest of
the logistics supply chain — e.g. trucking,
warehousing, unloading, palletizing, labeling,
etc — is where they make most of their
margins.
Be aware that shipping costs can fluctuate
widely. This is especially during peak season
in the months leading up to the 4th quarter
and Chinese New Year when shipping rates
will skyrocket.
Besides pricing, don’t forget that you can
negotiate payment terms with your freight
forwarders as well. Though you they might
not agree to this when first starting out when
you are only shipping Less than Container
Load (LCL) shipments. As your volumes grow
forwarders may be able to offer you better
terms for example; Net-30, Net-60, etc. But be
12 The Online
Oniine Seller’s Guide to Negotiating with Chinese Suppliers
prepared to spend more on shipping as well.
Some forwarders require a monthly spend of
$20,000 before allowing payment terms.
But the key thing is to be aware that you can
negotiate and ask! Otherwise you won’t get
any of these benefits to lower your costs and
increase your cash flow and working capital.
Remember the worst thing that can happen
is they say no. Just ask!
5) Packaging and labeling
Packaging options can range from a simple
PP bag to a luxurious Apple-esque box. The
pricing on packaging is based on a sliding
scale as well. Often times if you want a
simple package or box that the factory has
done before, they will be able to include it at
little or no additional cost.
Note: They don’t manufacture this in-
house and will outsource it to a packaging
company which is normal business practice.
So it’s up to you do decide on your
packaging quality that strikes a balance
between the added value that the
packaging brings to the customer and
enhancing your brand image. Because
this will come at a cost and also the time it
takes to develop it.
Keeping in mind the “Lean Startup” theory,
in one of my past projects, we spent about
3 months developing a beautiful box and
logo for our fashion bracelets. However by
the time we finished it was already halfway
through Q4! By the time they finally went
live online it was January and we had
already missed the holiday shopping season!
Lesson learned.
If I were to do it again, I would have spent less
time and used a simpler packaging to get it to
market because this way we would have been
able to launch early in Q4 to capture more
holiday sales and invest that into the business.
And we would have developed the premium
packaging in parallel and launched it starting
in our second batch of products.
But be careful going with packaging that is
too “cheap”. This will diminish the image of
your brand and make a bad first impression
when your customers receive your product.
PP bags or plastic bags are an example
of this. Though you can cheaply and
quickly get these made to package your
products, it doesn’t do anything to help the
customer experience and in fact might even
“cheapen” an otherwise quality product.
This may even leave a NEGATIVE first
impression in the eyes of your customers
and make them more likely to look for
problems and leave you a negative review.
The Online Seller’s Guide to Negotiating with Chinese Suppliers 13
Labeling is another item you can negotiate.
This includes barcode or FNSKU stickers,
insert cards, paper instructions, carton labels,
and pallet labels.
Amazon charges $0.20 for each label. Freight
forwarders in your home country ( e.g. US or
EU) may offer this service as well. But if you
think about it, it’s a no-brainer to have this
done in China because of lower labor costs
and material costs.
In fact all the suppliers I’ve worked with
have agreed to add FNSKU stickers at no
additional cost. This saves you at least $0.20
per product and that’s money back in your
product.
You may have some concerns about them
being able to do it correctly. But by sending
clear guidelines, properly monitoring the
production process, and arranging a pre-
shipment inspection you can reduce this risk
to nearly zero.
Tricks of the trade: When initially creating
barcodes, ask suppliers to send a picture
of their barcode. If you don’t have a
barcode scanner, Jungle Scout founder
Greg Mercer shared that he uses the
app “Shop Savvy” on his smartphone
to test if barcodes scan correctly before
proceeding to full-scale production!
6) Product quality issues and
compensation
In the sourcing and manufacturing
business despite our best efforts mistakes
happen - product quality problems
and noncompliance, order delays, damage Case Study 2: Problems discovered after
during shipping, and more. product lands
In my previous work, I had a client from Brazil
Smart sellers know that key here is not only who asked us to source auto parts from
to complain and moan but to resolve these China. They had a whole library of hundreds
issues constructively and so you can carry on of different varieties of this one type of auto
with your business. part. The basic structure was the same but
it came in all different types of sizes. But
Let’s take a look at quality problems first. because of the low cost of the items, the wide
range of product, and difficulty in defining
Case Study 1: Problems discovered at the the accepted product quality tolerance, and
factory before shipment against my advice, the client decided NOT to
If discovered before the products leave arrange pre-shipment inspections.
the factory floor (you did arrange a pre-
shipment inspection, right?), get the supplier After the products arrived in Brazil the client
to fix them. Often times if you ask and if you later discovered that the springs were falling
negotiated payment out of one of their
terms correctly product SKUs. This made
Murphy’s Law: Whatever bad
you can use that as the product completely
leverage to get them can happen, will happen. defective because if
to fix the problems. it were to be used in
vehicles and if the spring fell out then it
Remember if you have found a trustworthy would be an accident waiting to happen. In
supplier then you and the supplier are on the other words it was a serious safety hazard.
same side. You’re teammates, not enemies.
They are a key to your success just as you are As a result we went to the negotiating
a key to their success. table to demonstrate that if the supplier
was at fault for shipping noncompliant
So they are incentivized to want to products then they should offer on a fair
complete the order according to the agreed compensation.
requirements in the purchase order so they
can get PAID. In this case there are two types of
compensation you can negotiate: monetary
So you should either implicitly or explicitly and product compensation.
let them know that they will be paid as soon
as the problem is fixed so the products are Monetary compensation
delivered according to the specifications in In the case of monetary compensation you
your purchase order. And this is what was would negotiate for the cost of the repair or
agreed upon in writing, period. product to be reimbursed to you. This can be
14 The Online Seller’s Guide to Negotiating with Chinese Suppliers
done either in the form of cash or order credit.
In this business getting cash compensation is
highly unlikely. Order credit is something that
most suppliers are willing to offer.
Product compensation
The second option is to get replacement
products. The advantage of this is that you
will have working products to sell. But the
disadvantage is that this takes additional
time for the supplier to manufacture AND
ship the product.
Another important factor is to properly
document the defects. Some suppliers may
The Online Seller’s Guide to Negotiating with Chinese Suppliers 15
require photos or actual defective product
sent to them so they can accurately diagnose
the problem.
Going back to this case, in the end we
took photos of the defective product, had
samples sent to China and negotiated with
the supplier for full compensation of the
defective product PLUS customs duties as on
order credit on the next order.
In any case if the supplier is at fault and they
didn’t deliver what was promised you should
negotiate to have them compensate you for
their mistakes.
Lesson 3: The art of
negotiation
Prepare yourself
Before you begin negotiating, you must
know your “opponent” or partner. Learn
as much as you can about him or her, their
company, their products, and whether
they are a suitable and trusted partner so
you know what levers you can use in your
negotiations strategy.
It’s also important to learn about factory
conditions such as their order backlog, how
busy the factory is, and their staffing levels.
For example, before Chinese New Year
factories will be in a rush to finish all orders.
Factory workers may leave for the holiday
early and they may be understaffed and
mistakes may happen as a result. Similarly
AFTER Chinese New Year, many factory
workers will return to work late (sometimes
taking a holiday of up to a MONTH or
more!) if at all.
This is a huge disruption to the factory
production schedule and factories may be
slow to the uptake after Chinese New Year
16 The Online Seller’s Guide to Negotiating with Chinese Suppliers
when manufacturing new orders.
Besides learning about the factory’s
situation, you should know about
the external factors affecting pricing.
This can include the market pricing,
currency fluctuations, material costs, and
government incentives or restrictions
affecting their industry. For instance when
the Chinese RMB depreciates, it’s a prime
time to negotiate for a price cut by the
same amount so long as other factors (e.g.
increased material costs, labor costs) don’t
offset the currency depreciation.
Also crucial to the outcome of your
negotiations is your relationship or guanxi
with the factory owner and staff. Do they
like you and see potential in you? Or are you
just a number to them?
Obviously there’s the risk of analysis
paralysis here with so many different factors
and variables.
So for the sake of simplicity if you’re an
 With this in hand then you can use this as a
“If you know the enemy and
target price to negotiate with. I have a free
know yourself, you need not RFQ script you can use to quickly contact
fear the result of a hundred suppliers. You can download it at my
battles. Negotiations bonus page.

If you know yourself but not
the enemy, for every victory
gained you will also suffer a
defeat.
If you know neither the enemy
nor yourself, you will succumb
in every battle.”
Sun Tzu, Author of The Art of
War
online seller, these are the two main
strategies for negotiating price.
Market pricing
For market pricing you want to learn the
average cost of your product by casting a
wide net of suppliers initially and sending
them Request for Quotations. By doing this
you will have a quick gauge of the market
price. Think of it as going shopping for a
camera. By doing research on Amazon.com,
Bestbuy.com, and calling your local camera
shop, you will get a good idea of how much
the camera should cost, right? Similarly by
contacting numerous suppliers you will
learn the market price.
By getting quotations from 10-20 suppliers
you will quickly learn what the market price
will be. And this way with your shortlisted
suppliers, you will instantly be armed with
the price you have targeted to negotiate for.
Bottom-up pricing
Another method is bottom-up pricing. This
takes more time since you will have to do
your homework. In a nutshell, you will break
down the product price into individual
component costs, labor costs, rent and
utility costs, transportation and fuel costs,
etc.
Not recommended - I don’t recommend
this method for most Amazon sellers
because it can be very time consuming and
not worth it.
Some may think you can ask for the Bill
of Materials (BOM) but if you’re placing
orders of less than $100,000 annually most
factories may not be willing to provide a
detailed list of components for you. It’s
usually much quicker to use the market
pricing strategy to get a quick snapshot of
the pricing you can negotiate for.
If you are PURCHASING (not selling) more

The Online Seller’s Guide to Negotiating with Chinese Suppliers 17

than $1 million per year from the supplier
THEN the factory may be willing to
cooperate because you are a Grade A client
to them and they want your business.
Recommendation: Market Price Strategy
Cast a wide net to learn the market price
and use that as a target price with your
shortlisted suppliers. Too time consuming
to do bottom-up pricing. And remember
Bezos’ rule on decision making, get 70% of
information to make a decision and move
forward.
Your desired outcome... and theirs
Before negotiating ask yourself — is your
desired outcome realistic? Put yourself in
your supplier’s shoes and ask yourself these
questions:
1) What is their #1 goal? How can you
help them reach it?
2) What would solve their pains?
3) What would make the boss happy?
HINT: It’s not just about the price
you’re paying - long term business
potential, which marketplace you’re
in, do they see you as a Grade A
buyer, your payment terms, your
chance of success, etc.
These are the levers that you can use as
you negotiate. For example if they are
already in the EU marketplace but have
next to no business in the US, then you
are doing them a huge favor by opening
up that marketplace to them. Use this as
part of your negotiating strategy for more
18 The Online Seller’s Guide to Negotiating with Chinese Suppliers
favorable pricing, terms, etc.
Tell them your story… and what’s
in it for them
One of the best ways of negotiating in my
years of working with Chinese factories is
to tell them your story. At the end of the
day no matter if you’re American, British,
Australian, Italian, Chinese, Japanese we are
all human. And humans are all emotional
beings.
And one of the best ways to get our point
across is not with facts or figures but with
a STORY. So tell them the story of you and
your business and how you can help them.
For example, with my former Brazilian client
I would sit down with the Chinese Fatcory
sales person and owner and tell them the
story of my client.
They are a traditional Brazilian second
generation family business in business since
the 1950s (they are established and have a
reputation).
The son-in-law has flown 30 hours from Sao
Paulo to China to visit them today (getting
skin in the game).
They have an expansive sales and
distribution network to all the states in
Brazil (established sales and distribution
network).
They focus primarily on the aftermarket
market for auto parts (product fit with the
supplier).
Previously they manufactured all their auto
parts in their factory in Brazil. But now with
increasing labor and material costs in their
country, they are beginning to source from
China (opportunity for a Chinese supplier
to enter the Brazilian market quickly and
easily).
They expect to place four orders per year
and volumes of 60,000 to 100,000 parts
after a trial order (moderate sized business).
They would like to find a long term business
partner (stability) and they would be
happy to help them enter the Brazilian
marketplace (market entry).
If you were a Chinese factory boss and a
client visited you telling this story before
negotiating, and another prospect sat
down with an RFQ and spec sheet and
immediately asked for the best price, which
one would you rather do business with?
And who would you offer the best price?
No brainer right?
This may sound a bit woo-woo but trust
me, having dealt with hundreds of factories,
once they know your story with how you
can help the factory grow their business,
then you will be an actual person to them
and building a relationship with them, and
then you will be building business with
The Online Seller’s Guide to Negotiating with Chinese Suppliers 19
them. I may be over-simplifying a bit but
this is essentially how serious business and
guanxi begins in China.
The offer
After telling them your story so they know
more about you and your business, then
you will make your offer. “In order to begin
this business we have done our research
and our target price is XYZ. We hope you
can offer a price quotation that let’s us
begin business together.
The reaction and response
If they say yes, then do a little dance (in
your head) and proceed with business.
If no, good now we can begin negotiating!
You have the choices of either fine tuning
your proposal and making a counteroffer,
accepting their offer, or say no thank you
and walk away. Let’s walk through these
scenarios one by one.
If you feel that there’s still potential for a
better offer then you can fine tune your
proposal and make a counter offer. You can
either a) stand your ground; b) accept their
offer; or c) meet them somewhere in the
middle. All of this depends on what makes
sense for your business. So with this you
know which choices you have.
Tricks of the trade: In my years of
negotiating it’s a reality that you can’t win
them all. Nobody bats 1.000 or makes all
their shots. Many times I didn’t get what I Did you know that Michael Jordan MISSED
wanted. But the key is you have to go up 12,345 shots in his career? Most people
to bat. You have to keep trying, failing, don’t realize that because he’s remembered
and learning from it, you will not have any as the greatest basketball player of all time
successes. who won six championships, 10 scoring
titles, and multiple MVPs . So though it’s
Bring something new to the table not ideal, sometimes you have to accept
Another best practice that can help their offer or meet them in the middle is an
loosen a stalemate if you’re stuck at the acceptable solution for both parties to get
negotiating table is to bring something business going which is the most important
new to the table. Fine-tune your proposal thing. Also I like to think of this as only one
by offering something that would solve “at bat” you can accept this time but leave
their pains. For example, if you know that the door open for negotiating on the next
cashflow is a headache for the factory boss, order.
you found this out at the dinner table by
the way, then perhaps offer to pay upfront
in exchange for a 2% discount on the order
value. Thinking creatively and addressing
the factories problems can be a way to help
both sides reach a deal that helps everyone.
On the other hand, if worse comes to worst,
thank them and walk away. Don’t try to fit a
square peg in a round hole and force a deal
to go through. There are millions of Chinese
suppliers out there and sometimes you
have to cut your losses and move on to find
the right partner.

20 The Online Seller’s Guide to Negotiating with Chinese Suppliers

Lesson 4: Price, quality, and
time — Pick two
In the sourcing world, when we
negotiate it normally boils down to
one of three factors: price, quality,
and time. Sure we would love to have
it all but in reality you can only pick
two. If you want a product at a good
price and quality it will take time for
the supplier to manufacture it.

If you try to rush them then mistakes

can happen. In other words low price
and quick lead time mean it’s not going to
be a high quality product.
Or if you want a high quality product with a
quick turnaround time then it will cost you
(higher price).
Put simply: Good, cheap, and fast — you
can pick two.
Now that we understand this let’s look at
negotiating them individually.
How can I negotiate a better
PRICE?
One way is to place larger orders. Larger
order volumes mean that suppliers can take
advantage of economies of scale to bring
down their per unit costs.
Normally in the first order or trial order
you place with your supplier the focus is
on beginning the business. The price will
not be the best price because honestly
your order is small potatoes for them. Your
first order is probably at or around their
minimum order quantity (MOQ) and you
may even be asking them to modify their
product. So this is going to take about the
same amount of time for them to run their

The Online Seller’s Guide to Negotiating with Chinese Suppliers 21

entire process but only for a small order.
The details are beyond the scope of this
guide, but in a nutshell the larger the order
the more the supplier can scale their raw
materials, production, and assembly to help
bring down the price.
A second way is to give them the long
term vision. This normally applies as you
place repeat orders and develop a long
term relationship with a supplier. Show
them the finish line and share with them
your sales forecast for the year. When done
right, this way they will see that you are
an experienced buyer (and not a newbie),
which builds trust. Also they may be
willing to offer you a lower price if you can
commit to ordering X number of units a
year. This helps with their internal planning,
purchasing, hiring, and operations.
Another way to bring down the price is
to consider lower quality materials on
certain components. WARNING: This is not
recommended unless you are certain your
market doesn’t mind the downgrade.
How can I negotiate better
QUALITY?
First establish a quality standard.
Understand the current defect rate and
your accepted defect rate. For example
typical accepted defect rates can range
from less than 1% to up to 3% or more
depending on your industry. You should
establish this standard from the beginning
and the fact if the delivered product has a
22 The Online Seller’s Guide to Negotiating with Chinese Suppliers
defect rate around this then the supplier
will be responsible for compensation.
When dealing with higher quality product
it’s a good idea not to rush them and give
them sufficient time to complete the order.
Haste makes waste so give them enough of
a delivery lead time.
Quality control checkpoints and standards
can be another method used to enforce
quality standards and improve overall
quality. For example, negotiate for 100%
inspection of the product and request
records of defects.
“QUALITY is remembered long
after PRICE is forgotten.”
Aldo Gucci, Son of Gucci
founder, Guccio Gucci
Another way to negotiate better product
quality is to request better quality materials.
For example, if customers are complaining
about dents in their cups upgrade from
aluminum to stainless steel. Or if you
find based on Amazon reviews the main
problem with your air beds is that they leak,
ask them to double stitch the seams. But be
aware that this will come at a higher cost.
How can I negotiate a better lead
TIME?
Negotiating for a faster delivery is very
difficult because there are many fixed links
in the supply chain. For example, though
you can ask the factory to rush their internal
production (which they may or may not do
depending on the queue) raw material and
component suppliers need time to fulfill
their orders as well and that may be the
bottleneck. Remember not everything is
under the factory’s control.
“Be quick but don’t rush”
John Wooden, 10-time NCAA
Championship Coach
Also remember that pushing a factory too
much can result in a greater likelihood
of mistakes, higher rates of defect, and
chances that your customers will be upset
leading to negative reviews and lost sales.
However there is a way to reduce the lead
time. In the past I’ve asked suppliers which
I have good relationships or guanxi with to
keep a stock of material or components at
the factory in order to cut down the lead
time of their material fulfillment process.
The Online Seller’s Guide to Negotiating with Chinese Suppliers 23
For example, for an order of fashion
bracelets, we found that the factory lead
time of 45 days was too slow for our
business as sales were increasing. So after
placing several re-orders and visiting the
factory to meet the owner and tell him
our story, we were able to successfully
negotiate the lead time down to 35 days.
We did this by asking the supplier to keep a
stock of the already dyed materials so that
they can quickly cut and sew, and assemble
the bracelets. In fact we learned that the
material dyeing process (which they sub-
contracted) was the actual bottleneck. The
dyeing house was so busy that it took 7 to
14 days to complete the job. So by getting
the factory to keep the finished material in
stock, we bypassed this process in future
orders and were able to cut down the
delivery lead time by 10 days.
However this comes at a price. Be prepared
to bear some of the risk as the factory may
ask you to place a deposit or commit to a
certain volume in future orders (or both).
Lesson 5: Negotiation
methods
There are several methods of communicating
with suppliers when negotiating. I will cover
three of them in this guide.
Face-to-face negotiations
One of the main
benefits of face-to-
face negotiations
is that you can get
immediate feedback
and reactions. You
can read their body
language and see
from their facial
expression and mannerisms whether they
are keen to this deal or feel concerned
about some issues. Body language is
universal and a smile or furrowed brow will
immediately let on how they feel.
Meeting with a supplier in China face-
to-face also shows that you are getting
some skin in the game. You’ve come half-
way across the world, flown 14 hours and
probably taken a train or car for several
more hours to meet with them. This shows
24 The Online Seller’s Guide to Negotiating with Chinese Suppliers
that you’re serious about doing business.
This puts you ahead of all the looky-loos
who blindly send RFQs asking for the lowest
price. By meeting with them in person you
can build rapport quickly, look them in
the eye, shake their hand, and build a
relationship and friendship.
You can have a meal with them and tell
them your story about you and your
business. Also about your hometown.
And you can learn their story. This is the
essence of relationship building or guanxi
in China. Building better relationships
builds better business.
You can even bring a small gift. These
gestures are appreciated and will add to
the relationship which can help you at the
negotiating table later.
There are some disadvantages to in-person
negotiations however. It can be very costly
to fly to China. Plane tickets, hotels, ground
transportation, meals, and other expenses
can add up quickly to thousands of dollars.
There’s also the time commitment. Be
prepared to spend at least 5 to 7 days
to make your trip worthwhile. Also
remember the jetlag, which may affect your
productivity. I know some people return
from a trip to China looking like they’ve
aged 10 years!
Note in terms of the meeting location the
options are usually it’s either at the factory
or at a trade show.
In my experience factory beats the trade
show for these reasons.
By visiting the factory you can see and get
a better idea if they are a legitimate factory,
notice any glaring problems, view their
equipment, organization, safety measures,
certifications and if there’s anything fishy
going on. Beware middlemen posing to be
factory owners - see my true story of how
a parking spot gave away a fake “factory
boss”.
Trade shows are a quick way to meet
many suppliers in person, see a selection
of the products, and be able to touch
and feel them so you can quickly size up
their quality if they’re the right fit for you.
However the entire factory experience will
be missing though. Though you can “kick
the tires” you won’t be able to see how the
sausage is made.
If you can’t make it to the factory then a
trade show is a good way to get a snapshot
The Online Seller’s Guide to Negotiating with Chinese Suppliers 25
of their business, staff, and service so you
can follow up later.
When it comes to face-to-face meetings, if
you can find a way to meet with the factory
definitely don’t pass it up. But be aware of
the time and costs involved. A meeting at
a trade show can be a good way to quickly
size up the company you’re dealing with.
Skype or telephone call
Skype or telephone
calls can be
made for next
to nothing these
days. Obviously it’s
much cheaper and
faster to pick up
the phone to call
someone in China than to fly there.
One of the biggest benefits to making
a call to a supplier is that you can get
immediate feedback rather than waiting for
an email reply. You can also “listen” for their
reaction based on their tone of voice, any
hesitations, or other signs how they feel.
Making a call can also be a great way to
build some rapport by making some small
talk. Remember that it’s an actual person on
the other end and you can ask them how
they’re doing, how’s the weather, how’s
their family, etc. to build rapport.
On the other hand there are several
disadvantages to phone calls. There can
be a language barrier. For the Chinese
remember that English is their second
language, not their mother tongue.
So sometimes the jokes, metaphors,
euphemisms, jargon, and other common
sayings that you take for granted may not
be understood. So be prepared to speak
slowly and use simple English and test to
see if they understand so you don’t get lost
in translation!
Another difficulty in phone calls is dealing
with the time differences. Often times one
party will be at the office during work hours
while the other party may be at home
either late night or early morning in their
pajamas when the call is made!
Moreover a phone call is not as effective as
a face-to-face meeting when it comes to
deep communications and trust-building.
In summary, calls are good for negotiating
solutions to difficult problems can be
challenging to explain over email. For
example resolving product quality issues or
packaging an item. If you cannot afford to
fly to China then making a call to negotiate
can better than e-mail alone.
E-mail
E-mail is fast, free, and scalable. It’s great for
sending initial RFQs because you can copy
and paste and blast it to a large group of
suppliers quickly. And the only cost is the
time required to compose and send the
e-mails.
26 The Online Seller’s Guide to Negotiating with Chinese Suppliers
E-mail also has
another strong
advantage in that
it keeps a written
and dated record
of communications.
This is essential for important documents
such as contracts, purchase orders, invoices,
receipts, Bill of Ladings, etc.
Another side benefit is that e-mail can be
less stressful than a face-to-face meeting or
call. You don’t have to worry about putting
on makeup or dressing up or getting
nervous before you talk to someone. E-mail
is more impersonal though that’s not
necessary a good thing.
A disadvantage to e-mail is that because
it is so impersonal it’s hard to build a
connection. It’s difficult to build rapport
with someone that feels like just a name
or number behind the computer screen.
Without that connection sometimes it’s
difficult to negotiate and get results.
Another disadvantage to e-mail is that
there’s no immediate feedback unless
the other person happens to be online.
Remember with time differences you may
be working on your side of the world but
they may be sleeping in China! So often
times there’s a delay of a day or two before
they can reply to your emails.
Sometimes the supplier may not
understand based on text alone and things
will get lost in translation. The worst case
scenario is “email ping pong”. Going back
and forth, back and forth, over email trying
to understand and negotiate can be very
frustrating.
The Online Seller’s Guide to Negotiating with Chinese Suppliers 27
Recommendation: E-mail is great for the
initial RFQ phase of casting a wide net.
Because you can create a single email and
copy and paste it’s easily scalable to contact
many suppliers quickly.
It’s also excellent for placing orders because
it’s saved in writing and dated.
But for high stakes negotiations of critical
target pricing with big business on the
line, intensive problem solving with a
high chance of error or misunderstanding,
schedule a call or better yet book a flight
to increase your chances of negotiating
success.
Lesson 6: Who’s the boss?
A who’s who look at a Chinese
factory
If you are dealing with a Chinese factory
then it’s important to know the key players
involved. By recognizing the roles and more
important the decision-making capabilities
of the people involved, you can more
astutely negotiate with the right people to
get your desired outcome.

Sales representative — The
messenger
The person that you deal with day to
day from the factory is likely the sales
representative. They handle inquiries from
online platforms like Global Sources, and
they normally make the rounds of trade
shows like the Canton Fair. Normally this
person is a millennial, has a basic if not good
command of English, and is eager to do
business with you.
You probably have a positive relationship
with them as you are dealing with them day-
to-day.
However it’s important to know that THEY
ARE NOT THE DECISION MAKER. There is a
severe limit to their power and how much
they can do. Normally they don’t have the
ability to decide lower pricing below what’s
normally offered, offer extended payment
terms, or agree to your modifications
without permission from above.
If you are negotiating one of these things,
normally they will have to report this to their
supervisor or to the owner directly. And he
or she will then make the final call.
In fact within the organization that’s a
Chinese factory I consider it a DICTATORSHIP.
Factory owner — The emperor
Put simply, the owner is the EMPEROR and
he or she calls all the shots whether a deal
can go through, whether to offer a “special
price”, extended payment terms, or any

28 The Online Seller’s Guide to Negotiating with Chinese Suppliers

other decision that is to be made.
This is reinforced further and deeply
ingrained in Chinese culture in terms of
respect for authority figures and elders.
So the sales representative does not have
the authority to make the difficult decisions.
However they can be the messenger to
the boss. Your relationship or guanxi with
the sales rep can increase or decrease your
chances of success. So make sure to clearly
explain how your offer can not only benefit
you but also benefit the supplier’s business.
In cases of advanced negotiations, if
the owner is present, even if he doesn’t
understand a word of English, he is giving
you major “face” or respect. So this is a
The Online Seller’s Guide to Negotiating with Chinese Suppliers 29
golden opportunity to explain your case,
tell him your story if you haven’t already,
and engage in negotiations. If done
properly this decision can be made during
the meeting. Or at least to get the ball
rolling and have the right people to follow
up on finding out if they can meet your
target price, fix your quality problem, or
make the modifications you need to stay
ahead of your competition.
Remember the factory boss has ALL of the
decision-making power. He can make magic
happen if the deal makes sense to him and
especially if you build a good relationship
or guanxi with the sales representative and
they put in a good word for you and he
trusts that you are a Grade A client to them.
Lesson 7: Seven deadly sins
of negotiating - The most
common mistakes that
newbies and veterans both
make
Over the years of negotiating with hundreds
of Chinese suppliers, here are the top seven
common mistakes I see.
1) Leaving money on the table
In these cases the client forgets or overlooks
something and they are leaving money on
the table.
Sample costs — They absolutely can and
should be credited to you when placing your
trial order. Any time a supplier requests for a
sample fee this should be your first reaction.
30 The Online Seller’s Guide to Negotiating with Chinese Suppliers
This will save you $50 to $100 immediately.
First round negotiations — You can and
should discuss product costs in the first round
of negotiations before placing your first order.
No need to negotiate with everyone but only
your shortlisted suppliers. Remember the
opening offer is just that. You should be able
to use your market pricing to negotiate a fair
price. But remember you won’t get the best
pricing in a trial order. Which leads us to…
Reorders and negotiations — As your
purchase volumes grow, so can the supplier
enjoy the cost reduction benefits of
economies of scale. So you can negotiate
further percentage points off. How much you
can negotiate depends on many variables
(how much you negotiated in round 1, the
product type, their margins, external factors,
etc) but you should be able to get a better
price as volumes grow so don’t forget to
negotiate!
2) Going for the kill too early
Another rookie mistake I see is trying to hit a
home run at your first time at bat. By swinging
for the fences when you’re just starting out,
you’re more likely to strikeout and get your
supplier frustrated with you if you keep
trying to kill them on price for an order of 500
pieces.
Remember “good things come to those who
wait.” Build up your relationship, build up your
order volumes, build up your trust, in order to
build up your business and benefits will come.
3) Going below the price floor
As a rule of thumb you get what you pay
for. The supplier has their own costs and
expenses. If you try to be really aggressive
with your negotiations and go below their
price floor, then they will have to sacrifice
quality and may cut corners as a result.
Forcing suppliers to go below their “price floor” will compromise quality.
In my view you can’t blame them. They are
in business just like you and need to make a
profit to stay in business.
Moreover another cultural factor is that
Chinese businesspeople may not be as openly
The Online Seller’s Guide to Negotiating with Chinese Suppliers 31
transparent about problems as Western
businesspeople. This again goes back to the
Chinese education system where students are
not encouraged to raise problems and disrupt
social harmony. Therefore often times Chinese
staff will keep problems under wraps and not
mention them thinking that they are doing
you a favor in not having to deal with them.
So in cases of going below the price floor,
they may substitute components for lower
quality components without telling you and
not think that there’s anything wrong with
that.
Doing business with Chinese suppliers, it’s
important not to assume anything. I’ve had
these problems arise in my experience. So
it’s important to ask even seemingly obvious
questions to ensure you’re getting what you
think you’re getting.
4) Thinking that price is everything
Remember at the end of the day, price isn’t
everything! Better quality, better payment
terms, on time delivery, and better service are
all things that can benefit your business. So if
you’re stuck on price then think outside the
box and remember there are other things that
you can negotiate for that can have a positive
impact on your bottom line.
5) Forgetting to negotiate better
payment terms to increase cash flow
At the end of the day this is an inventory
business. So your cash flow is your life
blood. Rather than “30% advance 70% upon
shipment” table stakes, as your business and
relationships grow, you can more towards
100% payment upon copy of B/L, net-30, net-
60, etc. All of these are options on the table
that you can negotiate to improve your cash
flow so you can scale your business faster.
6) Not getting the supplier to
compensate you for order defects
If there are quality problems and the supplier
was at fault, you should get them to fix it! If
you can demonstrate that the supplier is at
fault, then they should be responsible for
solving the problem. As I discussed before
it can be in the form of repairs done at the
factory, compensation, or replacement.
Otherwise you will be paying for their
mistakes in the form of customer returns,
complaints, negative feedback, frustrations,
and wasted time and money.
7) Forgetting to negotiate
packaging, labeling, and shipping
I’ve been guilty of this. Sometimes we are so
fixated on the product that we forget that we
should be focusing on the bottom line landed
cost to package, label, and ship our product to
the fulfillment warehouse.
So remember you can negotiate with your
32 The Online Seller’s Guide to Negotiating with Chinese Suppliers
packaging supplier for a better price or a
different type of packaging that can reduce
your packaging costs.
You can negotiate to have the labels printed
in China to take advantage of the lower
material and labor costs which saves you
money compared to US material and labor
costs.
And finally you can negotiate with your
forwarder for better pricing and terms as well.
This can save you money and increase cash
flow. I know some of the newer forwarders
allow you to pay by credit card so this can
give you another 25-30 days before having to
pay for freight not to mention the airline miles
you can get as a bonus.
In summary, remember when it comes to
negotiating with Chinese suppliers, it’s not
only about price. Knowing what you can
negotiate for, whom to negotiate with, when
to negotiate, and how to negotiate will help
lead to your business success by cutting
costs, increasing cash flow, optimizing your
business, staying ahead of your competitors,
and building a stronger relationship with your
supplier.
My gift to you: A negotiations
bonus pack and sourcing
masterclass video

In closing, thank you for reading this guide. To help you take action I’ve
prepared some special bonuses which you can download from this page:
www.8020sourcing.com/negotiate

• RFQ script to quickly contact suppliers and learn the marketing pricing for
your product
• Checklist of the six things you can negotiate for besides price
• The 7 Deadly Sins of Negotiating - Commit them at your own risk!
• Know when to use face-to-face meetings, calls, and emails
• Bonus Video: “Secrets of Successful Sourcing” Masterclass: How to find the
right supplier from China

The Online Seller’s Guide to Negotiating with Chinese Suppliers 33