Adverse Results of Low Price in China Manufacturing

Negotiating too low of a price in your China manufacturing can lead to some adverse results.

What would cause a vendor to accept a low price that in the end they are unable to work with?

It could be an eager sales person, a factory with a hidden plan of giving lower-quality material, a vendor not understanding all the work involved with a project (ie simply underestimated and misquoted), a desire to secure long-term business by any means, the client negotiated too hard, …all these could be reasons why the situation ended up like this. Going very aggressive in price negotiations and price hunting can lead to a world of hurt.  China is different than it was 10 years ago.  Back then, large amounts of price negotiations were common.  Price negotiations are not such a big part of sourcing today, but what buyers do is search and search a supplier until they find someone who will tell them what they want to hear.  I frequently see this for the promotional product industry;  if buyers look hard enough they can always find someone offering lower pricing.

A few situations in which you’ll find yourself if frequently buying solely based on price:

Cut Corners:  Cutting corners is common.  The Chinese factories in the low-cost manufacturing world don’t view efficiency and improvement as a way to save costs but only but cutting, slashing, fudging and pinching pennies.

If you are able to muscle them down or find someone to agree to your price dreams, this may be what you get.  Lower-grade material (not easily perceived by the untrained eye but will come out later in durability), less material, or…and here is a doozy…skipping a crucial process during production.  They will implement less of their own QC methods and not extract poor quality pieces because they cannot afford more waste.

If the supplier or factory are not making sufficient money on the job, they are going to rush it out of the factory sooner.  Perhaps it’s not skipping a process but instead of a using a more thorough method, they choose a quicker, base-line attempt.  This can be found many times in printing and print control.

One order in my early days;  the factory ran out of material and simply substituted random pieces in the cartons that were nothing close to what we ordered.

Assembly Line in the Low-Cost World

Assembly Line in the Low-Cost World

Strife:  For all you good folks in the promotional product, ad specialty industries, many times you buy from trade companies, not factories.  If there is not enough money to go around, ie trade company not making their preferred margins, factory not making their preferred margins, a breakdown down between factory and trade company takes place and this where things can get really nasty.

I’ve seen orders where the trade companies no longer have control over the factory that is controlling your merchandise.  Days go by without news.  Factory won’t budge on issues, trade companies won’t budge…all the while, your delivery time is ticking down.

Nobody likes to work for too-low of a margin.  So if attitudes are bad, efforts are bad.

This can also indirectly lead to strife and delays between supplier and freight-forwarder; especially if unforeseen transportation costs come up.

Loss of Credibility and Favor:  Once you’ve won a low price and you start doing all the things buyers do…unrealistic quality standard, unclear quality standard or request add-ons to production – especially add-ons without proposal of increased price, the suppliers really start rolling their eyes and thinking “what did I get myself in to?”

Wanting to find the lowest price in the market and then expecting 100% perfection on quality is unrealistic.  Learn what quality standard is in correlation with that pricing (here is an older post that expounds on this topic:  Proceed with Caution in Asking for Lower Price).  “Cheap” in China has  different meaning than “cheap” in the Western world.

I frequented Wal-Mart while living in China and that’s a true “cheap”.  The items are much, much lower in value, substance and durability in comparison to a Wal-Mart in the States, for example.  But the proportionally the price levels are the same, but value for what you get in the Western world is much higher.

It’s curious when a buyer requests something additional after the order is open and they don’t mention or acknowledge that the price should go up.  It’s like they are thinking that if they don’t mention it, hopefully the factory will forget or will be a real sport and add it in as a freebie.

————

A Western mind would indignantly say, “Well, if they couldn’t successfully manufacture at that price, they should’ve never agreed to it.”.   When your order is in the tank, quality is on the line and it’s even possible the factory could stop production, your main concern shouldn’t be who’s at fault, but how to get your order successfully delivered to your client and how you can avoid this ever happening again.

I smell another blog topic there…how to avoid the factory from quoting too low??

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  • Very good points.
    How to avoid the factory from quoting too low? Very good topic for a future post!

    •  Thanks Renaud – many things buyers can do on their end to make life easier on the manufacturing side.  Unfortunately, like you said in your recent post, their mindset is “the factory will know what to do”… yeah right…

  • This reminds me a little the “Market for Lemons” theory.  It says that when sellers know more about the products sold then the buyers, buyers end up buying a product too expensive or that does not meet the standard. 

    Another phenomenon, in the auction process, is that too often, the lowest price in an open auction is bid by a supplier that either misunderstood the requirements or made a mistake.

    So I guess, if you want to find the lowest of the lowest price, you are vulnerable to this phenomenons.

    •  Right Etienne, good point.  The supplier that bids the lowest, especially in my industry, many times is a supplier is not calculating expectations of quality, a process, a packing aspect, etc… 

  • Dave Fisher

    Exactly! As the Chinese say, 好货不便宜,便宜没好货

    •  Exactly, Dave.  Thanks for adding some culture to the blog.  For the benefit of readers that says that “goods are not cheap and cheap items are not good”.  In the States and probably a good chunk of the West, cheap can still be good.  In China, it’s a rarity to find that kind of balance in a product.  Thus, pursuing “cheap” from your vendor can lead to surefire problems.

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  • Interesting
    post and analysis. Cutting corners can be relatively common in China.
    For example, some factories risk the safety of their product
    shipment by using cheaper packaging just to save a small amount of
    money. I totally agree with you, there are definitely a lot of risks
    when buying from China. My co-worker wrote a post about whether or
    not it is even worth going to China and how to evaluate the costs of
    buying and shipping from China. Have a look and let me know if it was
    helpful!

    http://www.chinaperformancegroup.com/2012/04/evaluating-the-costs-of-buying-and-shipping-from-china/

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