Negotiation could be considered one of the most important parts of sourcing products from China, because without the right quality, pricing, and terms, your business may have a hard time being profitable!
In the above interview video, we will be talking about negotiation with Chinese suppliers during an interview with Meghla Bhardwaj from Global Sourcing Summit. Amy Wees and Steven Selikoff are the experts and pros when it comes to sourcing from China, and in this interview, we give great tips on negotiation with Chinese suppliers but we also reveal the one word that will help you get lower prices from your supplier. What do you think that one word is?
Below you’ll find a transcript from this video interview for the readers stopping by.
Meghla: Yeah. Okay, so let’s start first of all with you, Amy why don’t you tell us a little bit about yourself and how did you discover Amazon and how did you start selling your own private label?
Amy: Well, I discovered Amazon in 2007. And I was in the military at the time, was in the United States Air Force. And I was in college full time and I had a lot of textbooks. And I discovered this little button on Amazon where I used to buy books back then that said “sell yours”. I started selling my textbooks on Amazon. And then after that I was kind of hooked. I was like, “Oh wow, I can sell my textbooks. I wonder what else I could sell?” I started selling things merchant fulfilled from all over my house. I would sell CDs that I wasn’t using anymore, media, whatever I could find. And then I started selling on eBay, just for fun, to diversify my channels a little bit. And this was just a hobby while I was in the military while I was in college. Back then Amazon was really different. FBA wasn’t a thing yet. I eventually got stationed in Hawaii, and I stopped selling on Amazon during that time period, because shipping from Hawaii would be quite expensive. I said, “Okay, I’m gonna take a break from it for a couple of years”.
Then we retired from the Military and we moved to San Antonio, Texas where I still worked for the Air Force. But I had a problem with stinky cat litter box and I couldn’t solve it, there was nothing on the market to solve it. I said, I have this idea. And I would really love to turn it into a product. So that kind of started my journey. And it wasn’t really an Amazon journey so much as starting a brand and inventing a product that solves a problem for people.
Since I was already familiar with Amazon, I knew that I could launch my product on Amazon. So that made my business planning pretty easy for the sales and distribution portion of it. I started sharing my journey and I started kind of gaining a following because people were like, “Oh, hey, this lady is sharing her journey and I’m on the same journey”. That’s how my little group Amazing at Home was born and, and here we are a couple years later and I have 2 private label brands, 2 more on the way, and I have my partner Steven who is joining me every year in China. So that’s pretty awesome.
Meghla: Awesome. Great. Steven, what about yourself? How did you discover Amazon and private label?
Steven: I go back. Let’s start off with just dealing with China. I worked at Microsoft for 12 years and I was assistant manager to two vice presidents worldwide retail sales and marketing, which runs a lot of divisions including something called Xbox, all of our software that sold in stores and so on. So retail was involved there, but more importantly, negotiating. Microsoft helped train me at the beginning, starting off with China and India, actually. And then Japan where they actually sent me in person to do some negotiating, that was successful and back to China and so on. But I also had my own businesses as well. And my first business where I sold anything on Amazon had started off selling something to retail. This was back in 2006. It’s a weight loss product. And I knew that the end of the year was coming, people would want to buy weight loss products at the beginning of the new year. In October of 2006, here in Seattle, I had heard some news about Amazon just launching something new called FBA. within a month of FBA being launched, I already signed up saying yeah, this sounds good. Let’s start this off. And probably if they went through all my records, my records would be right there at the top when they first began back when not only did you get fulfillment but you also got a website, which was really cool. They don’t do the free websites anymore or anything else. I go all the way back, but then also to let you know I had a pretty successful product, Amazon wanted to sell it themselves. they brought me into Amazon vendor. And of course, I still had successes with retail. I stayed away from amazon seller central for a while and when I came back, everything was different. And that’s how I found Amy because she was full of wonderful information on something that I had stepped away from for a few years as I focused more on retail. And, of course, during that time, I’m still dealing with China, with my factories and using everything that I learned both in my own company and from Microsoft. And that’s how I built my negotiation skills, which will be talking about and sharing when I’m in Hong Kong.
Meghla: Exactly. That’s fascinating. You have so much rich experience, you know, sourcing from different countries and working with suppliers. Okay, so let’s dive right in into the topic for today, which is negotiation for suppliers. Steven, first of all, tell us is its common practice to negotiate with suppliers when sourcing from China? Is it expected?
Steven: Absolutely. It’s expected it’s common, whether you’re sourcing from China or any other place. But to be clear, there’s also haggling. And when you go to China, when you go to Hong Kong, there’s going to be people selling t-shirts and tchotchkes. And you know, all sorts of souvenirs. That’s haggling that’s different. Where someone says here, what’s the price? They’re gonna say “Oh, 500 RMB and you grab your chest and you say, “you’re killing me here!” “No, no, I only want to pay 50” and they say, “No, no, it’s gonna be 400”. You say “no, it’s gonna be 75 “and then it’s “okay, I’m leaving”. I turn around, I walk away, and hear “come back for you. I make special price”. That’s hard. Like it’s a lot of fun. That’s not the same as negotiating.
When you’re negotiating for your business, the goal is not just a low price, but you also want to build a relationship. That should be your number one goal, building that relationship with the Chinese called guangxi because then you’re going to be talking about your price and a whole lot more. That’s your business. The answer simply is yes.
And if you do like the haggling, go get some t-shirts, you will have a good time.
Meghla: I remember when I first moved to China in 2006, one of the first words that my colleagues taught me was a word which means make it cheaper. They said this is going to be very useful for you when you go shopping. When we’re sourcing from China, what is the right time to start negotiating? Is it okay to ask for a lower price as soon as we start talking to a supplier and we get a couple of samples, is that the right price or should we try to wait a bit longer when we are further down in the process?
Steven: So, negotiating with China is a long dance and there’s a lot of give and take, there’s a lot of steps to go through it takes a lot of patience.
It’s not just a few questions back and forth in an email. because there’s effort involved in it, I really advise people to narrow down their choices of suppliers first. If you’re sourcing online, get your samples, look at the samples, compare them, make sure you’ve got someone’s offering the quality that you want that’s responsive, that’s communicative, that’s helpful. Look at all of those features versus you choose your suppliers and then after you choose your suppliers, you begin the negotiation. Same thing at trade shows, go from booth to booth and choose who you want to take the next step with. And only then begin the negotiations because if you think about it, as just few questions back and forth and say no, I want a lower price.
That’s not going to get you anywhere Who’s your supplier? And then you begin the negotiations, and you build a relationship.
Meghla: But when we’re just starting out, how do people know what the right price of a product is? You know that you talk to one supplier, they may be saying, Okay, $10. But how does one know whether or not this is the right price? Or they’re overcharging? Or you know, they should negotiate. What’s the way to do that? I’ve got a friend that calls that you don’t know what you don’t know.
Steven: Let’s say that I am negotiating for this wonderful little Screen Cleaner I was given today for your computer. Don’t start with saying what is the right price for this? Instead, think about your business. What are people willing to pay for this and there’s lots of ways even just walking up to strangers in the street and say, how much would you pay for it? Once you know what people are going to pay for this, you want to set your target price and your target price should be one seventh of that. You want a 7-x multiplier. So now you know what your target price is. And on Amazon it can be even more. So let’s say that people look at this and they say, That’s wonderful. That’s great. I will pay $19.99. Now you know that your target price is $2. For your business to make sense, you have a target price, if you’re going to be able to sell this product and make profit, make a business out of it.
If you’ve been approaching suppliers, and they’re saying, oh, we’re going to sell it for $5 $6 walk away. There are lots of great products out there. You want to have a product that you’re going to make money from otherwise you’re just going to give yourself headaches, you’re going to worry about saturated markets and competitions and so on. You want to target price, not what is the price that is the right market price. The right market price is higher than what’s right for your business. That’s the wrong product anyway, we go in with your target price and just to be clear when you start that negotiation, start lower, always build up.
Meghla: Okay, that’s very interesting. What happens when the supplier agrees to lower price, is it possible that the supplier might reduce the quality using inferior material for example, or make another adjustment in the product that would decrease the price but also decrease the quality because, as they say, in China, you get what you pay for? Sometimes you get less than what you pay for.
Steven: I’ve had some lower the quality without lowering the price and without informing me either.
I had pillowcases that were 330 thread count, they were actually being delivered at almost just above a 250 thread count and so on in the middle of just about six, seven months into selling them, suddenly, the product changed.
It’s important, as I said earlier with negotiation, if you’re building relationship, you want to have that relationship so that when you do need to have the price lowered, you can actually look at the components, you have enough of a conversation going with them to say, hey, this price is too low. But what can we change? Can we change this? We change the printing on it? Can we change the number of little bristles on this? Can this be printed on differently? Can this be screen printed? You want to have that conversation, so of course, it’s something that is changed and may change the quality of the product. But it’s not something that changes the user experience.
I’ve got a product that I tried bringing the price down and we looked at every element we could. And eventually, we looked at the handles, my handles are big and long and solid. And we actually created new molds and now the handles are hollow. And by having hollow handles, it’s a lot less cost. You don’t want to be in a situation where the factory does it without your knowledge. You want that to be part of the conversation. The two of you can figure out ways to bring the price down. And then going back to my own bed experiences. Always have inspections done third party inspections done and done by a real lab who can tell you that these pillowcases are no longer 330 thread count.
Meghla: Okay, that’s very interesting. apart from price what are the other things that can be negotiated with a supplier?
Steven: You can negotiate anything you want. Have them change the name of the factory to my favorite character in Game of Thrones, they’ll do that. I work with a with a factory whose English name is actually a character from a Disney movie. Oh, who knows. But besides price, one of the big ones is terms. And I talked to people about this all the time, right at the beginning, you need to be talking about terms and then there’s delivery dates, there was review times and so on. The terms are the very big one.
When are you going to talk about it if you don’t talk about at the same time you talk about price? bring it up.
Meghla: Okay, so basically, you’re talking about price, payment terms, delivery time, all of these things at the same time, right before?
Steven: Okay, you’ve shortlisted a supplier, you want to work with the supplier and then you bring all of these things up that hey, we like your product. We want to place an order but here’s what we want. Yeah, okay. Absolutely. And it’s here’s a little
When you talk to them, for example, when I talk to factories and they’re talking about terms, I’ll tell them what I want my terms to be. I don’t I proactively get right involved. I know that a lot of people are very comfortable going right into saying, well, I’ll pay 30% up front and 70% upon completion at some factories are so used to that being talked about that they’ll actually come forward and say, Oh, the terms are 30% 70% so on, but no, the terms are whatever you and the factory agreed upon. You may agree upon something different; you may start off right away saying, okay, and I’m going to pay 20% up front, I’m going to pay 40% on completion of inspection, and 40% upon possession, or on bill of lading, and you said, you could even say at the beginning I want to pay 20% up front 40% upon inspection, 20% upon BOL and 20% 30 days later.
Ask for what you want. This is a negotiation. If they don’t like it, they’ll come back and they’ll say something different. And course you want to talk it out. The other thing is, there are future orders. Here’s another tip, never promised future orders as part of the negotiation. That’s a big no no. You don’t want a promise saying, “Hey, give me a 20% discount now because next month, I’m going to order five times this amount”. They’ll hold you to that. And when you’re ready to pay your balance, they say, Okay, well, where’s the purchase or deposit for your next order? Wait I said, maybe? No, you said you will. And here’s the email or whatever. So never promise something future, but you can talk about the future. And that’s important for terms. you can say on this, this order this first order, it’s going to be 20 40 40. And the next order it’s going to be 10 40 50. The next orders to be zero up front and 100 percent at the end. And this is what I do with my other factories. I expect to be no deposit on my third order and my fourth and fifth order, we need to be talking about extending payments out 30 days. Again, the worst that’s going to happen is they’re going to say no, and there’s a big space between no and yes, but at least you have that conversation going.
Meghla: What if an Amazon seller is just starting out, and maybe they’re not placing a very large order? Maybe they’re testing a product and they want to want to order only 200 pieces, or they want to just do a small test order to they still have leverage to negotiate for price and payment terms, or should they wait until maybe they’ve tested the product and validated the product and they want to scale production and go all out with that product?
Steven: I suggest right at the very beginning you might have the first you start the conversation and the more times you have the conversation, the more comfortable you’re going to be, not every negotiation is going to leave you feeling “Oh, I feel like this was the best experience of my life”. But to make this more comfortable, not only should be doing it a lot, but you also need to be understanding what your goal is.
Your goal is to become partners. You want your supplier to be a partner in your success. I start every negotiation being very clear that when it comes to price, I want a price that’s going to make my customer happy, that’s going to make me happy and it’s gonna make you the supplier happy. Because if we’re all happy, we’re all making money, then we can work together to figure out how to make that happen. Here working together is different than Western negotiations. We’ve got two people coming in saying somebody’s going to win somebody’s gonna lose. Chinese negotiation is how do we work together to get to the solution and the solution is a price that they will like, and my customer likes.
Going back to your question about the new seller and they only want 200 units or 400 units and the supplier says okay, but the MOQ is 1000 units. You don’t have the money for that and frankly I don’t know if the product was going to work that’s what’s going through your head. But instead, keep the discussion going to understand why it is 1000.. Maybe that there’s a minimum, the packaging.
Packaging printing on plastic is more expensive done by an outsourced company or some of that so maybe you can do your first order with generic packaging. Maybe it’s just because they want to weed out the serious buyers from the non-serious buyers. And again, I love giving up hints and tricks here is another tip for you when someone says the MOQ is 1000 and you only want to order 400
Say Well, okay, I only want 400. What’s the surcharge? What’s that surcharge per unit when ordering under the MOQ? And they’ll say, Well, you know, your price per unit is $3. And the surcharge is going to be another dollar per unit because it’s only 400 units.
Okay, that’s affordable, I can do that. Now, will that surcharge be refunded back to me on my next order when it’s over the MOQ? And most times they’ll say yes, because this way now it washes out for you. you’re not out of that extra money. They are sure that you’re serious. You’re already talking about what your plans are, which you know, you want to do this, you’re not promising them some future order and return for a discount. But you are letting know you’re serious enough to be talking about future order and you want the surcharge to be refunded.
And, frankly, that discussion, again and again has an unexpected result. Not just the surcharge refunded but rather often times they dropped a surcharge because they were just trying to get an understanding if you were serious or not.
Okay, the Chinese suppliers are very smart they’ve done this with you they’ve done this with customer and customer before you they know that customers want to test it out know the customers want to prove that it’s selling. They know customers want proof that the factory or the supplier can deliver what they’re saying. The first small order is normal. And there’s no reason you have to be deceptive about it. You don’t have to say you’re a purchasing agent for a giant corporation. And I have to get approval my boss says I can only get 400 and I can’t pay this or that. Just have the conversation going on. We want to try it out. And if they’re saying this would be MOQ the next step was to talk about a surcharge and see what that surcharge is. A surcharge can be refunded and you can be much happier with the company and the conversation.
Meghla: Okay, awesome. That was great advice. you’ve worked within different countries, right? Is a negotiation process similar in India as well as other countries in Asia? Is it similar to what it is in China?
Steven: Japan? Yes. India, Middle East, are some of the toughest negotiators I’ve ever dealt with. Alright, and my favorite is Brazil because every time we had to negotiate in Brazil, well, there are parallels to China but in Brazil, it always occurred over drinks and dinner. I will tell you when we have negotiations in China, when you get to the point of visiting your factory and so on, there is food involved as well. China does business over food. you’ll be in fact, let me just give you a little heads up when you do get to the point of visiting your factories, you’re going to spend most of the morning just getting to know the factory and the owners and so on just lots of small talk, you’re not going to go into the price right away, then you’re going to have a nice big meal and everyone gets to know each other. They are not doing this just out of the kindness of the heart. They’re trying to gauge just how professional you are. They’ll ask you a little question like, where do you sell that trying to get information out and assess their situation, but you can do the same for them. But you had this a big meal, and then you may talk about other things you may visit battery of the floor of the factory. There are all sorts of things that we advise that you look for when you go to a factory visit, but then eventually, you will get to talking about prices.
Negotiating with China is a much more traditional, old fashioned type of negotiation. I love it. Of all of all countries. I prefer negotiating with Chinese more than other places.
Meghla: Okay that’s good advice so what does the negotiation process look like online you know it’s understandable when you’re face to face and you can kind of gauge the other person and get to know them but how do you do that online when you don’t have the opportunity to go visit the factory?
Steven: Yeah that’s really good because I’ll tell you right now meeting your suppliers at trade shows like in Hong Kong, going to the factories and meeting them that is absolutely the best way of having effective negotiations. A lot of it’s because you can see their face you can read them you can see body language and who you are talking to. In Hong Kong I’ll be talking about how to read body language when you negotiate with Chinese suppliers.
The best way to do that online is actually to download and install WeChat. WeChat has a great video feature. when you’re ready to actually finalize everything out, and then edit to your purchase agreement, do it on WeChat video, I don’t see that done nearly enough, and that’s really makes things a lot easier. Again, you can see their face. You can see if they’re looking down at a list to see what the prices are. Or you can see a person kind of looking off the side trying to guess are they really serious about their price, how much wiggle room they have, you can see if they’re talking to other people, they may, you know, pick up their phone and call someone else to come in, they may have a factory engineer come in and talk to them. All of this you can actually see on the video when you’re on WeChat. we chat video is a wonderful tool for negotiation. Video face to face when you cannot do it in person.
Meghla: Okay, awesome. That was great information. Amy, you visit a lot of trade shows. And we’ll talk a little bit about your Canton Fair experience, which is a really exciting trip that you organize. But what kind of negotiation happens at trade shows?
Amy: Well, we talked about this in a in a previous interview where we talked about how during the Canton Fair experience, we actually do kind of one on one, what we call negotiating sessions at the Canton Fair. But that’s not really negotiation, right? We’re talking about the long dance. But there’s information that you’re going to want to get. As Steven mentioned, you want to vet your suppliers you want to get several suppliers, you want to get out there and start talking to them, start finding out what your options are, what kind of products they produce. And then there are areas of negotiation that you’re going to start to get a grasp for such as from the book that we give our participants so that they ask the right questions in order to get the right information. And those kinds of questions are you know, tell me about your factory? What is the MOQ on this particular product? What is the price? Give me a price for one (and that’s not the final price). That’s not even part of the negotiation. Really. They’re just it’s part of that dance, and initial communication. You’re finding out that MOQ, you’re finding out the price, the base price there that they’re giving you, and you’re getting a good idea for the feel for the communication with that particular supplier.
What we encourage our participants to do is not worry about closing a deal. You know, when you go to Canton Fair, you’re going to see in any trade show, really, you will see some big buyers closing deals and you’ll see people from Walmart, big buyers and $20,000 negotiations going on, deals being closed right at those little booth tables.
But a lot of people that haven’t been to Canton before, haven’t been to these trade shows. And we found this out from our participants. They really felt pressured, like, “oh my gosh, do I have to make an order?” We relieve the pressure. We say, “Hey, All you’re doing, you’re going to go to Canton or you’re going to go to the trade show with a validated list of product ideas that you’re going to source for. And you’re just going to get the basic information so that you can decide after you get back, how to move forward, which suppliers to move forward with. And, you know, you might get a really great price that actually works for you at the trade show. You might start establishing that rapport with that supplier and they say, the MOQ is 500. And you say, Okay, well, if I order to 50, is there a surcharge for that? They often say, Oh, yeah, it’s okay if you order less. their MOQ isn’t really their MOQ. So that’s why we teach our participants to ask all these questions because you’re going to find out what their firm on and what they’re not so firm on. You’re going to get a really good feel for them.
But they may give you a price at Canton or at your trade show that’s really good. And you write it down. And that way later on when you come back, and you start going back to that supplier and saying, “Hey, can you send me a sample? and they give you a different price. You go back to your notes and say I actually had that at $2 a unit with this MOQ. That’s what I have written in my book here.Can we start there? So that’s where your negotiation is kind of starting. That’s the start of the long dance and it’s also the start of your relationship building with your suppliers.
Steven: At that point in the trade show, and I’ve been on both sides. I have products that have been very successful been at trade shows across the US and so on. But particular when talking with your suppliers, there may be things about your product that you don’t want to share. You have don’t have an NNN signed. It begins there at the trade show but it continues afterwards. At the trade show, a lot of the owners are don’t have confidence in their English. they’ll hire college students who will sit in the booth and smile and talk and speak English. All they know about the product is what they’ve been coached beforehand. I told you about give you tricks and tips and or you will love the tips we do in Hong Kong at the summit. But here is another tip in China, Kings negotiate with Kings.
You are the owner of your company. there’s absolutely no reason why you can’t ask the talk to the owner of the factory because that’s the person you should be negotiate. That’s the decision maker. And they will bring one of those college students over to have them sit next to them to translate if needed, but this is a very traditional country.
Amy: Steven surprised me. He met me in a booth because Steven and I actually do a product together for every Canton Fair because we try to do it along with our students. And he met me in a booth and I had been talking to the salesperson and of course, I knew that, you know, this was the salesperson, but I didn’t even think to ask for the boss and Steven comes in and he’s like, hey, great to meet you. Where’s the boss? And you wouldn’t believe the boss was sitting up against the wall reading a newspaper, legs crossed nice and comfy. And that boss suddenly became alert because another boss was asking for him. And you wouldn’t believe the attention.
Steven: Then Henry and I started relationship I got to learn about his son who’s in Japan. Who’s not going to inherit the factory. That is how the dance begins. You get to know each other, he learns about me, I learned about him and then we start talking about products and prices and so on. Really nice people. I like them. I like the factory. And that’s always a big plus as well.
Meghla: Global sources summit, where both Steven and Amy are coming to speak, so if you want to meet them in person talk to them, then you have to be there at global sources summit. This is a three-day conference that will be held in Hong Kong in October, from the 27th, to the 29th. And it’s held in conjunction with global sources trade shows. the idea is you come to the conference, learn all about sourcing and selling. And at the same time, you can go down to the show floor and start sourcing products and meet with thousands of suppliers on the show floor. give it a try. I’ve got a couple more questions for Amy and Steven.
Okay, another question for you, Amy. can you give us a recent example, where you negotiated the price or other aspects and how do you do that? What did the process look like and what was the overall impact on your bottom line on profitability for your business?
Amy: Okay, yes. oh, my goodness, I have several. You know, I’m an inventor and I like to bring unique products to the market. I’m not really in the me too products market that much. And I had actually sewn a product myself and sent it to Amazon. I sent 20 of them I sold 20 of them. And I put just put them in a poly bag. I had a UPC for them. And I had a little product insert card. I just kind of made up some stuff. I was testing the market. I knew there was a need for this because it was a problem that I was trying to solve for myself. It was a fairly simple product. I don’t like to overthink things. The military used to say keep it simple, stupid (KISS). I like to do that as well. I sold 20 of these things and I sent them into Amazon and they all sold and they got really good reviews. And I was like oh, okay, so I have something here right but I didn’t want to keep sewing, I am not a seamstress. This was on was one of the products on my validated product list I took with me to Canton Fair.
Now, if you’ve ever spent any time with me, you know, I have serious squirrel syndrome. My brain is crazy and at Canton there’s 60,000 boots and suppliers. I have to have that list ready because I’m like, squirrel, squirrel. Oh my gosh, there are suppliers everywhere. And all this stuff is so cool. I need a list of vetted stuff.
So anyway, I started at Canton and I was looking for similar products because when you invent something, you’re looking for similar qualities in a product, you’re not going to find that exact thing. It doesn’t exist yet. I found similar products that would work for it. And I wanted to go start talking to some of those suppliers. My goal is always to get at least three suppliers. I walk into their booths. I start talking working through my Canton Fair workbook. What’s the MOQ? What are my options? Tell me about your factory… all of that kind of fun stuff.
Well, I get to one supplier and he’s kind of a big deal. I asked him, where is your primary market? Where are you exporting to? And, are you selling online? Are you selling this product yourself? That kind of thing. Well, this one was big in Walmart, and I was thinking oh, man, he’s used to really big orders, and I just want to make a small order. I just want to get this thing going. I started talking with him started establishing rapport and I felt really good about the supplier just because of the communication even though he was a big Walmart guy was good.
We started talking and this particular product as we mentioned earlier, we want you to have a target price in mind. Okay, I was selling this product for $20 on Amazon that means that for me, I aim for 10 X on Amazon not 7x. 7x is for retail because Amazon has a lot more fees and expenses. I aim for 10 X on Amazon. So my target price is $2. As Steven mentioned, you want to go a little lower than your target price. I asked “what’s your price and your MOQ on product like this? When I’m looking for a product like this, I want to get an idea. And he said it was around $4.98 cents a unit. I was just joking around with and said, “Oh, that’s really that’s steep, I sew it myself for $1, I can’t pay a manufacturer more than I sew it for myself”. I said, “but I’m really tired of sewing so can we work something out?”
And you know, we’re just establishing rapport and having fun and he says, Well, no, I can’t do that. Well, what we teach our people in the Canton Fair experience is, there are many things that can be changed. There are many costs that are variable. We teach you what costs are variable. I knew that the materials, the processes, the printing, all of that is variable. I started talking to him about variable costs. I knew that I wanted to get down to $1, max I was trying to get to $2. I asked him, I said, “is there anything we can change here? I don’t need all this stuff. I’m using this product for something else.”
And I’m not telling him what I’m using it for. Remember, we don’t have a NNN yet. We’re just talking about design options. And he says, Well, this reflective bar on here. If you don’t need that, its $3 Oh, awesome. I don’t need that. Let’s take that off. I said, Okay, well, what about this? This is a heat transfer kind of thing like a heat seal, can we sew it instead? And he said yes. it would be a lot less expensive; I would take longer lead times would be less expensive.
And we were still at about a $2 cost. And I said, Okay, well, what about materials? I don’t need this thick material that you have. In fact, I would like something a little more lightweight, but still durable. And he looks over and he pulls another unit off the shelf and he shows me a different kind of material, would this be better? And I said, that’s perfect. What can we do with that? And he said, Well, I can make that for $1.
So right then and there at Canton, I had a 20-x multiplier. Just being able to establish that rapport and now when I got back, I was so excited to work with him. And you know, they say you never get samples. Well, let me tell you, Steven, get samples, suppliers throw samples at him. They do. He had a backpack and I had a roller bag. And he’s giving me all these samples because this, I mean, they just take him so seriously. But I followed back up with this supplier and met him the last day of the fair. I said, Hey, can I stop by and pick up some samples from you. And we talked again, and I brought a whole bunch of samples home and he gave them all to me for free didn’t charge me for any of them. And so now we’re talking on wechat, he signed a NNN, and we’re sending our designs back and forth and talking about it and it’s been a really good experience.
So that is a great example of a negotiation that happened where I was able to get a 20-x multiplier and I’m working to develop a unique product with a great supplier.
Steven: It is an example of building a relationship. And the negotiation is not coming in and fighting, but having a conversation. It was a long conversation and you came back on the last day of the fair, that conversation is what leads to lower prices. Different lead times in this case, you trade it off the times for price, or terms and so on. Because now you have that relationship. The Chinese actually have a word for that business relationship Guangxi. That’s what you’re starting right there. That’s Chinese negotiation. That’s why I love it.
Meghla: And then I really like how you worked with the supplier to identify different areas and parts of the product where they could reduce the price, so it doesn’t really reduce their profitability, because it’s important for them to have their profits as well. I think that’s really important and fascinating. Thanks a lot for that, Amy.
Steven, you’re going to be speaking at global sources summit about negotiations and you’re going to be sharing a lot of the advanced strategies that you’ve used over the years to negotiate with suppliers. What can Amazon and e commerce sellers hope to learn from your talk at the summit?
Steven: Well, my goal is to have you leave after my talk with a with a whole menu of actionable items you can take that day, walking right downstairs and talking to suppliers right there. And being able to get lower prices to be able to get better relationships, to be able to start getting comfortable talking about terms. And just like I’m talking here, as you see, I love giving out real tips and real hints of ways for things to work. And I’ll use an example from the Canton Fair experience. We had a couple who had an established factory and after sitting down and just shadowing me during some negotiations and so on. During the two days between phase two and three, they went to their factory. And they came back all excited because they just repeated some of the phrases that I had suggested to use, which will be talking about in Hong Kong. But even with an established factory, they lowered the prices by 30%. And the factory was already working themselves on trying to lower an additional 10%. These are the phrases. These are the hints and tricks. And for those people who were at the summit and not during our meeting, now, they will get the one word, but we’ll be talking about it at the end as well.
Meghla: Okay, awesome. Great. you guys have a great trip that you organize every April and October to the Canton Fair. Amy, do you want to talk a little bit about your trip and who is it for and what are the benefits of attending?
Amy: Sure, what’s different about our trip is that it’s not just a trip. It’s actually a full course. And what we do that’s a little different. We don’t focus on Amazon. Now, we do focus on Amazon. But we don’t focus on just Amazon. Our goal is to teach entrepreneurs how to bring unique products to the marketplace. How to come up with a unique product idea how to validate that that idea is a good idea. To know that people will actually buy their product before they invest in it, and then how to scale their business into the 96% of retail that isn’t just Amazon. So of course, we encourage them to start on Amazon because it’s a great place to instantly launch no barriers to entry.
I don’t know about everyone else, if you have a unique product. But I know for me when I brought my invention to market, retail seemed like a big mystery. And I wanted to figure it out. Because I saw the potential. I wrote my business plan. And I saw that there are 50 million cat owners in the United States alone. And if I could just reach 1% of that market, I could be making some serious cash! I was really working hard on trying to get into retail. And then I meet this Steven guy who’s already got it figured out and shows me this is not that hard, that you just need the right resources. And sure enough, it’s not that hard. It’s exciting for us to be able to offer a course where we’re teaching people these concepts.
Because if you sell on Amazon, you know this. It’s all about the product. If you have the right product that people are just raving fans over. Those are the products that everybody’s trying to source. Right? Those are the products are selling so much. It’s crazy, right? That’s the goal is to be first to market with that great product. We’re teaching you the same processes that big brands use to bring unique products to market to validate them ahead of time, and then to scale them. We’re teaching you the logistics, we’re teaching you, most importantly, the negotiation so that you can get the right price for that product so that you can be profitable, and scale your business.
We do a hands-on portion in China at the Canton Fair, because the Canton Fair is pretty awesome, right? But before you go to Canton, we try to prepare you so we’ve got two months, a full two-month long course it starts in August and it starts again in February, so it’s a two-month long course. And it is three hours of webinars and one coaching session each week.
We bring in experts, you get Amy and Steven of course, but maybe we’re boring you and I know that’s impossible. But we bring in experts, industry experts, not people you see on YouTube, but actually people you see in Forbes magazine and big retail experts and business experts and intellectual property experts and we help you to really build a brand or expand upon your current brand, and make your business real. That’s our goal for you. Our goal for you is to be able to do this full time. To be able to make this your livelihood, and a very good livelihood at that. So that’s our goal for our course, it’s to teach you A to Z, how to come up with a unique product.
And then finally, to join us in China so you can learn how to source that unique product. Our China trip is a little bit different than other China trips, too. We prepare you for two months. But you meet us in China a few days early. And the reason you do that is because first, we do a product reveal. And that’s where Steven and I reveal the product that we’ve been working on this whole time alongside of you. And we give you a review of the fire hose of information we’ve given you over the last two months. We walk you through Remember this, this is how we prototype this, this is how we got to this, this is how we validated it. And this is how we got to this point right here. Here’s our target price. Here’s the suppliers we’re going to be looking for at Canton and we just kind of give them that review.
And then the next day, we take you on a factory tour. We’re talking about negotiation here. Right? Steven has been talking about negotiation and how it doesn’t really happen solely at the trade show. We want you to go to your factories. Well, that can be really scary for somebody who’s never been to China before. And it can be super scary for somebody who has been to China, like a lot of people are nervous, “I don’t know how to leave the fair and go visit a factory, somebody who doesn’t speak my language and all of that”. We take you on a factory tour, as a group together so you can learn how molds are made, you can learn what you should be looking for. You can learn what that long dance looks like, we go to lunch with the factory, we go and see their showrooms. We take you through the same steps and give you the confidence that you would need to go to your own factory and do those things yourself. it’s really cool.
And then we hold your hand at the Canton Fair and every night after the Canton Fair. We all stay at the same hotel. And we have these amazing dinners. And everybody’s invited to dinner. It’s part of the course price. And we have dinners with experts. we bring in experts, people that you’re going to love asking questions to after the fair. We have a Chinese attorney, it’s important that you understand how to protect your supply chain, and we’re preparing you for that. Remember, we’re teaching you the same tactics that big brands use. You come to dinner, you meet Chinese attorneys, you get to ask questions, and we’re all just having a ball together, because we’ve been working together for two months. It’s just a lot of fun. We have shipping companies that we’ve vetted. We have inspection companies, people that you’ve met before, but then you meet them in person in China, and you get to ask them questions after a long day at the fair at dinner. So that’s kind of how our trip works. And you know, it’s just been incredible.
There are other trips to China, we do have competitors and they seem to be having a great time too. I highly recommend you go to Canton. It’s just a lot of fun and it’s just such a cool experience. But ours is a little different in that we’re just really preparing you to have a business that is that is scalable and preparing you to be able to really when you get to Canton understand how to negotiate and understand how to communicate with suppliers and have that comfort level that you might not have otherwise.
Meghla: Okay. I want to join. Take me with you. That was really fascinating. I’m going to read out some of the questions. Somebody asks, What’s the best way to have these conversations? I’ve been doing this over Alibaba messenger, but expect that there are better ways when face to face is not possible. I think Steven, you address this earlier, we chat and specifically WeChat video, that would be the best.
Steven: It is the best way first of all, WeChat is absolutely your business in China. It is everywhere. It’s used not just for communication, but also payments and so on. The other thing is Alibaba’s nice, but it’s also a bicycle with training wheels. There are lots of suppliers and factories that are not on Alibaba. There are factories and suppliers you’re going to be meeting at global sources that are not on Alibaba. if you’re sticking to Alibaba messenger, you’re taking a great wide variety of suppliers and you’re saying I’m only going to work with these. WeChat is across the board. And by getting used to WeChat, you are then able to have conversations with suppliers that may not be on Alibaba. And that’s a good thing for people are saying Why? I don’t know if I could keep a record of WeChat? I like that. If you install WeChat on your computer, there are ways of archiving all of your tech conversations. they’re always there and they can be referenced.
So yeah, absolutely. Yeah, Alibaba is a nice way to start, as I said, so in many ways, it is a bicycle with training wheels.
And certainly, when you come out to Hong Kong to global sources, you’re going to be meeting suppliers with exciting things are not on Alibaba, and you certainly want to talk to them.
Meghla: Exactly. I think, you know, at the global sources’ fairs, one of the things that you’ll find is that a lot of the products are very unique and innovative. At the fairs, global sources try to curate a lot of the products. And we’re actually in-house teams that communicate with suppliers on a regular basis and try to identify new and unique innovative products that are on the market. I think that’s one difference that you’ll find between global sources and Canton Fair. Global sources fairs are smaller than Canton Fair, but you’ll tend to find more unique and creative products over there. Okay, so let’s see, we’ve got another question.
Can you address the different elements of a contract we should have with a supplier once you’re ready to place an order?
Steven: Alright, so I get to do a shameless plug here. One of the things that that we give our participants is a book called the Canton Fair workbook. It has a list of questions that you want to go over with suppliers when you meet them at the Canton Fair or at global sources, two pages of those (questions) and it also has sections for factory visits where there’s four pages of things you want to look for in the factory of questions you want to ask of the factories you want to review. And on the last page of that are all the questions that you want to make sure has been decided and discussed before you start entering into an agreement. When you do a manufacturing agreement, or a purchase order, these are the elements that need to be included. And there’s a list there.
So now I said its part of going to the Canton Fair experience, but it’s also available on Amazon for cheap. You can get one yourself just look up my name, Steven Selikoff, and Canton fair workbook. And you can get one there yourself, and it has the whole list. And each time you have a conversation with a supplier and you’re trying to nail out all your details, just turn to that last page of the factory business section. You’ve got one, fill it all out, you’re done. Turn to the next one. Now you’re getting fill in the blanks when waiting when have your next conversation, you can fill that out, you’re done. And just make sure it’s all typed out. But in a spreadsheet or in an email so that the agreements in writing.
The last line on that is when you do enter an agreement, you want their signature remember in China, the company does not sign a company has a seal. You expect that the company will always agree to things with a company seal, not with somebody just signing it, or it’s not enforceable.
Meghla: Someone had asked about how you dress when you meet with factories. And I’ve seen success coming from people who are dressed and just t shirts and so on like that. But everything about you everything that you do everything you see how you sit, and of course how you dress that does give a message. if you want to establish credibility and build your own confidence, yeah dress a little bit better in at the Canton Fair and Hong Kong, it’s going to be very, very hot. So be aware of that. But how you dress does help establish credibility. And for many, many years just to give it an example the BBC required their announcers to wear tuxedos, even though they were on radio.
Steven: I’m so glad I’m wearing a jacket today.
Meghla: What tips do you have for how people should dress?
Steven: Does not have to be business casual, but I wouldn’t wear a T shirt that says I love Budweiser beer. Or I drank too much last night or anything like that. It’s something that’s self-deprecating. That’s not a good idea. But if you can still come across professionally wearing shorts, go ahead. It is a traditional country so be aware of that.
Amy: Rahul mentioned that you should have a bilingual agreement? Steven, do we want to talk about the importance of the format of an agreement, not necessarily the details because we’re not legal experts.
Steven: An agreement that in America often people talk about NDA. An NDA is a non-disclosure agreement. That means that if I have one signed with the two of you and I talked about my new anti-gravity sneakers, you’re not allowed to tell anyone about the anti-gravity sneakers. However, the moment I post them on Amazon, it becomes public knowledge. Go ahead and talk. You know, you’re no longer bound by the NDA, because I’ve got them posted on Amazon. an NDA is only effective up to that point that you’re ready to sell some.
So even an American NDA is really not what you want to do to protect yourself from the factory who’s continuing to produce stuff while you’re selling it on Amazon. Because the cats out of the bag in China they have a more effective document called an NNN stands for non-disclosure, there’s your NDA, non-disclosure, non-compete, so that they’re not going to compete against you and sell a product and non-circumvent which basic terms means their cousin down the street is not going to sell the product against you as well.
There are certain aspects to the agreement, particularly if the Westerner and Chinese. If it’s bilingual, you have to note which language will be the enforceable language. And traditionally, that should be Chinese. if there’s any disputes between the difference in interpretations or translation, it is the Chinese that’s accepted. The name of the supplier should be the same as the name on their business list. I said I have a factory this name is a Disney character. That’s not the factory name. That’s just a friendly name for us. In fact, when you meet Joe and Peter and Cindy in China or in Hong Kong, that’s not the name their parents gave them either not the name on their national ID. You just probably won’t be able to pronounce their name, the factory name on the business license on their registration and on the paperwork. And what’s registered their seal see if it makes sure it’s written in Chinese.
Where is it going to use the jurisdiction? You have to remember the jurisdiction in there as well. because of all of this, we always advise to, you can certainly use a downloadable NNN for discussion, reference, but we advise that you actually talk to an attorney before you actually have one drawn up and signed. And then we’ll bring this back full circle what tonight’s discussions is about which is negotiation, and the elements within an NNN for negotiation. Well, it might be the elements of who would can or cannot be disclosed to what the penalties are, perhaps they think $100,000 too much. They only want to have 50,000. So of course, this also becomes negotiation, but that’s an NNN and that’s some of the elements that need to be filled out in an enforceable and then you certainly do want to do take it seriously.
Amy: Yeah, we actually had a pretty strong NNN with the factory that we visited on our last trip, and they refused to sign it. They said this is way too firm and we’re not going to sign this. And granted, we had spent the whole day with them building a relationship. We got there at 945 in the morning. And we stayed until 6pm. And we didn’t even talk business until 5:00 PM around there. In fact, we were running to the train station to try to get there on time. But, we had built that relationship so well a factory may have been offended if we had such a firm NNN but we just told them, no problem at all. We can make those small changes and we’ll get it back to you.
That’s why we have a Chinese attorney because you want someone in China that understands the law. And when you have a Chinese attorney draw up your NNN, they take it very seriously. They know that it is a very serious document in China, because it is written in their legal terms versus I’ve seen a lot of people use a NDA. And, of course, the factories happy to sign that because they know that it’s not as enforceable. They’re going to take an NNN in their legal language a lot more seriously than an NDA in English that they’re saying something they don’t even really understand. Right? That isn’t really enforceable in their country.
Meghla: What is the one word that will allow you to get lower prices from your supplier?
Steven: Wholesale is the answer, I need to give them context around it and how you use it. Okay, so that’s the answer wholesale. Let’s explain about this. You’ll see it again and again, in China, hopefully less at in Hong Kong at Global Sources but what happens a lot at the Canton Fair, people will walk in and the college student or even the owner or the sales rep will ask them, where do you sell? They say I sell on Amazon. And immediately they get a target on their back. Their prices are higher. Amy and I have seen people walk into booth where we’re sitting there negotiating prices. Someone says they come in and is where are you selling, I sell on Amazon, they get a price three times higher. It’s incredible. It happens a lot. It’s unfortunate. But since the audience we’re talking to our Amazon sellers, be aware that there is a hierarchy of sales.
The person who sells to a customer that is a retailer, that’s legal term, that’s the SEC term. You are retailer you sell to customers, and as traditional if you double your product between what you pay for it and what you charge customers whether it’s in the store or theoretically an Amazon, you know on Amazon or better there are stronger price pressures and drivers are lowering your price that’s unfortunate. That’s a retailer, below that is a wholesaler. The wholesaler sells to the retailer and the retailer sells to customer. They’re also distributors the distributors can sell to the retailer and the retailer sells to the customer. Where did the distributors play are their products are from the wholesaler.
The wholesaler is at the bottom level of this pyramid. And they have the broadest audience but the highest price constraints because they have to come in at the lowest price of law. When you’re talking to a factory or supplier and they ask you where you sell. If you sell you say you sell on Amazon, you are not only a retailer, but now they know if you can accept and have smaller margins the most retailers do. They even put you up here, they know that they have all this space in between, to kind of jack up the price a little bit. And lots of times they’ll do that. You’re setting a target on your price and your back right away.
So now that we know you’re going to you’re going to identify yourself as a wholesaler. They’re going to start the discussion. He said, Oh, where do you sell? What’s it like what’s happening? This is a second trick to go along with that word wholesale. That is walk out your front door, walk down the street, hop in your car, go to a gift store, go to a souvenir store, go to a convenience store, go to any store that might sell products that you’re selling. Just walk up to the owner to the manager and say, Hey, I’m selling this. Would you carry it? Won’t you pay for it? You think your customers would walk in? Maybe they’ll say yes, maybe they’ll say no, you might actually get a retailer buying from you which is wonderful. Who doesn’t want another revenue stream? But you’re going to learn all about the wholesale business just by their questions. So now you’re prepared.
When that supplier asks you, where do you sell, you can say, I sell to sell wholesale. I have a bunch of retailers, some may sell online, some may sell in stores, you can be vague about that. But now you know you are wholesale. You may not have made the sale. But you certainly have the experience as a wholesaler talking to a retailer, you now live in this tier, and that’s where you want your prices. Someone just comes in and says Amazon, they are setting themselves up for higher prices. Someone comes in and says wholesale and you can talk about it.
They’re setting themselves up lower prices, right there is a one word, where are you selling, I sell wholesale, wholesale to a number of people. You’d be vague about it. That’s perfectly okay. they’ll accept that but now they know there is a price ceiling. That is a lot lower the price ceiling, they can get away with Amazon.