Be aware that before you even walk in the
]
door of any factory, its managers have already
researched you. They know your volume of
purchase, what your typical payment terms
are and whether you pay on time. Factory
owners are familiar with specific people in your
organization, and how capable they are.

Asian vendor knows exactly who you are, and understands just as well as you do what’s happening in your market.

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Conflict resolution: In the US, we depend on our contracts, and expect people to operate within their provisions. When they don’t, we tend to get very litigious. In Asia, a certain “fuzzy logic” prevails –- contracts, rules, regulations can be changed according to the environment and the business situation. People readily accept this.

 

Conflict resolution starts with knowing who makes the decisions. Be aware that most Asian companies wait until top management makes a decision before they communicate it to you. In our Hong Kong company, we are trying to empower our directors and managers to make more decisions. But this is a process –– we think it will take many more years for our manager levels to be comfortable making high level decisions, because to do so is simply not the culture.

paid $4 last year and this year walk in with a target price of $2.50, your vendor will pay scant attention to that number. He will revert automatically to the historical price, and start from there.

 

If, on the other hand, you’re at $4 and you explain to the vendor that there are price and margin pressures in your market, and that you need to pay $3.60, you will be much better received. The vendor will feel you are sincere, that you are explaining yourself, and will be much more inclined to negotiate productively with you.

A word of warning: Going directly to the top management of a vendor with small (normal operating) problems can compound them -- it can cause hard feelings with lower-level people. They may get embarrassed and they may lose face, because what you are saying is that the problem was too big for them to handle.

 

So, do try to resolve the issue at the manager and director level before you call the president or factory owner. If you can’t, obviously you have to do what you need to do. That’s understood. But starting at the top is usually a mistake.

 

Pricing heads the list of issues to be resolved. Typically, Asian vendors price products based on historical information: What did you pay last season? What is the trend in pricing? Also, vendors have to consider local economic conditions. Have your prices gone down every season, or been relatively stable? These factors will, in many cases, determine what price you’ll get in the season upcoming.

 

Know that unrealistic price targeting is a dangerous game, and could have a negative effect on your negotiations. If you

If you have in the past taken an extremely low price on one item and a higher price on another, attempting to “average” the margin, you need to explain that very carefully.

 

If the prices you’re offered seem ridiculously high, either the vendor doesn’t understand your situation –– in which case you need to explain or re-explain it –– or the vendor might not want to continue business. Perhaps the factory is not comfortable with the product, or management is not comfortable with you. Perhaps the vendor had a costly or bad production run on your product. Perhaps the company makes more with other customers, and business is very good. Perhaps you were too demanding, or cost them too much money, and so they have made a decision to discourage you.

In any case, you’re back to diplomatic fact-finding.

If, on the other hand, you are offered a suspiciously low price, you should definitely ask a lot of questions, because you are likely to get what you pay for.