China: 9 Tips For China Product Sourcing

Last Updated: 2 February 2016
Article by Daniel Harris

Helping American and European companies deal with their China manufacturers is something my firm’s China lawyers do every single day. And though our work focuses on the legal side, our having been involved with literally thousands of manufacturing related contracts (mostly NNN Agreements, Product Development Agreements, Licensing Agreements, and OEM Agreements) does mean that we are pretty tuned in to what works on the business and sourcing side as well.

So when I saw someone on Linkedin (please check out our thriving China Law Blog Group there!) link over to an article entitled, Supplier Negotiations: 9 Tips for Making the Right Deal, expecting great things. But the article never mentions sourcing from anywhere in Asia and it is in most respects simply not relevant for that. The writer is an Australian in Australia and so I will just assume that it was written for sourcing within Australia and examine whether and how each tip applies to China sourcing or not. Note that this is NOT an attack on this article, it is merely a contrast piece as to how sourcing from China can differ from sourcing from the West and to stimulate thinking and discussion on the best tips for sourcing from China.

The italic portion below are direct quotes from the article. The regular font portion are my own comments.

1. Learn about the supplier’s products, processes, costs and market. You’ll be your own best advocate only if you understand a supplier’s processes and its operating environment. By talking to a number of vendors, you’ll learn the industry jargon, the products available, as well as the expertise of individual suppliers. This information will be valuable during negotiations with a supplier, particularly in evaluating concessions that your supplier might consider. This does apply to China. We are always telling our clients to go visit their own factories in China and other factories and not just rely on what they are hearing from their agents or the factories themselves. This website quote from co-blogger Steve Dickinson rings very true here: “A day on the ground is worth a month in the office.”

2. Become a value-added customer. Before you enter negotiations with a supplier, consider how you can help the supplier realise the value in other aspects of his business. Doing so can turn a business transaction into a strategic partnership. For instance, let the supplier know you are a source of repeat business and make the company aware of how much business they can expect based on your purchase history. My strong sense is that this does not work for China, which is in many ways unfortunate. Chinese factories have had so many unfulfilled promises of future large orders that I think they mostly just ignore them. In fact, I sometimes wonder if making this promise might actually hurt in a sourcing negotiation. What do you think?

3. Change your demand pattern. You can revise your purchasing policy by consolidating your purchase orders. For example, rather than authorising individual departments to issue purchase orders to one supplier, require that the requirements be combined in one consolidated purchase order, the size of which must be large enough to earn a price discount.

Also, you might also create a purchasing consortium with other companies and place orders with one or a few suppliers, rather than many. Your company might also switch from one material requirement to a lower-cost product. Sure. Buying more will usually get you a better price than buying less.

4. Agree to larger deposits on orders. “Accounts receivable days” affect the cash flow of all companies, so you might agree to a large cash deposit on orders to secure you a significant product discount. For instance, a 50 percent upfront payment might earn a 10 percent discount, or improved delivery terms or product customisation. This does not translate well at all for China, for many reasons. First off, the lower the deposit the safer you will be. Second, most Chinese factories are pretty unyielding on their required deposits and just getting one to agree to a deposit as low as 50 percent would be a real accomplishment. We draft plenty of contracts where the Chinese factory refused to come down from 70 percent, sometimes even 90 percent upfront. For more on this, check out China Manufacturing Payment Terms. Limit Your Risks.

5. Agree to high-dollar purchase. If you transfer all of your business to one or a few suppliers, rather than many, you’ll receive deeper discounts and, perhaps, other perks. But before you give your business to a few suppliers, consider the increased risks of doing so. Not sure how this differs from numbers 2 and 3 above. Ordering larger quantities will usually get you a better price than ordering smaller quantities.

6. Be a customer that solves issues, not presents issues. A supplier’s profit margin can be eroded by customer production, delivery or quality issues. So to get a better deal, be reasonable when making demands. If by this the writer is suggesting that it will pay off for you to establish a good relationship with your supplier, than I completely agree and this holds true for China as well. For more on this check, out How To Keep Your China Manufacturer Motivated And Why That Matters.

7. Implement a bidding process. To ensure competitive pricing, use a bidding process to solicit business proposals from multiple suppliers. Doing so makes it clear your company will buy materials from the supplier that submits the most competitive bid. Yes and no. Yes, in that this can work if you really know what you are doing with respect to your product, with respect to the manufacturing of your product, and with respect to how Chinese companies do business. But if you do not know all of these things you might very well end up with really cheap product, really badly made.

8. Consider all aspects of your purchases. Supplier prices may not be nonnegotiable, but other aspects of a purchase, including the down payment, bulk discounts and shipping rates might be. For instance, you might negotiate an enhanced product warranty or extended payment terms, each of which can improve your cash flow. Again, Chinese companies are not big on negotiating payment terms. More importantly, you should always seek to have an “enhanced product warranty” (whatever that means) but at the same time, you should recognize that if your product causes USD$10 million in damages back in the United States or wherever, your enhanced product warranty is not going to mean that your Chinese factory has the money to remedy your damages problem.

9. Cease doing business with supplier. As a last resort, you can cancel existing orders and exclude the supplier from future competitive bidding rounds. Before you institute this process, meet with the supplier and ask for a price concession. Also, confirm that another source of supply is available. The most important thing to do before terminating a Chinese supplier relationship is to be prepared for all the bad things that will likely happen from that termination and to have another supplier already lined up and ready to go. For more on this check out How to Terminate your China Supplier: Very Carefully.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions