THE MAFAN INDEX: DON”T THINK THAT THE CHINESE SUPPLIER CAN “FIGURE IT OUT”-Learn how to more effectively negotiate with Chinese
After working with a small but very talented USA company that is developing a set of new products for major arts & crafts suppliers and Walmart, I noticed several negotiation problems
they had that would have improved their margins in the long-run. They were making mistakes and assumptions about how to negotiate with Chinese.
As a general rule in China, I
is important to always understand your position or power relative to the person you are working with. For example, in many of those cultural tip books about China, the authors talk about seating arrangements. Your placement next to the “leader” is a testament to how important the Chinese think that you are. Don’t be naive, Chinese are always calculating position and power. If you aren’t thinking about this in terms of negotiations, you are not negotiating effectively.
Which brings us to suppliers. First, ask your self:
Ideally, in China, you should always try and work with large suppliers.
This small USA company was originally very bullish about their products success in US. They had a purchase order from a major USA retailer. There was a lot of interest on the buy side in the US, but they made some errors (some forced by their retail buyer) that could have improved their margin.
The Chinese buyer knows this is a small company. The supplier does about $60,000,000USD in business a year. The total order volume was $20,000USD. Not a large order. Moreover, the order was extremely complicated. The products were very intricate, they had multiple components that needed to be packaged together. There were various designs that needed to be matched. The buyer also changed volumes 4 times from our initial meeting to when we wired the deposit. This was frustrating to the importer because the initial quote was very competitive and the quality was very good.
Warning: Chinese suppliers will almost always quote something for you. The quote will be based on their real costs and, I believe, often the 麻烦 MAFAN Index. Mafan literally means troublesome. Are you a troublesome client? Do you require a lot of attention relative to the value of your order? Are you rude, difficult to work with? Are you inconsistent? Does your order volume, product characteristics, or payment terms change a lot?
How to negotiate with Chinese more effectively:
Also, changing the order 3, 4, or 5 times will ultimately result in the MAFAN index rising as everyone gets impatient and you become a MAFAN client. Tell the factory EXACTLY what you want.
Therefore, when considering which factory to use, don’t assume that the lowest price and the largest factory are necessarily the best option for your small company. It’s possible to work with large suppliers if you are experienced and savvy. If you are small and inexperienced, you may want to use a smaller supplier. Your business will be more important to them and they are less likely to get frustrated or upset with you (and thus raise prices).
Thanks for reading about how to negotiate with Chinese more effectively! Tell me what you think!