Negotiating With China
Top U.S. growers are turning to China for manufacturers that can help them control costs.
August 23, 2010
Everyone knows China is the number one supplier of goods to countries around the world. The United States continues to be one of China’s main importers, and this is unlikely to change in the next decade. Many large growers have sourced manufacturers to supply them with some of their needs in order to have a good product at a reasonable price.
Over the last 30 years, China has used its number one resource – people with low incomes – to produce products that can be exported to Hong Kong, Singapore, Japan, Europe, Australia and the U.S. Here in the U.S., we have enjoyed low-priced products, and probably 99.9 percent have satisfied consumers.
This, however, does not take away the fact that some quality control procedures have surfaced, such as the powdered milk problem, tires, toothpaste and wall board. I am sure we have also seen, at the same time, our own U.S.-manufactured products taken off shelves.
What Are We Sourcing?
Many of the Top 100 Growers continue to purchase significant quantities of product from China to keep or reduce the cost of plant products delivered to their retail customers. We now have a couple of decades behind us in which low-priced product is expected – and required – for growers to survive. These products generally fit three categories:
1. Greenhouses, greenhouse equipment, greenhouse carts, wet-pads, shade systems, shade systems, shade fabric, reverse osmosis Systems, greenhouse fans, horizontal air flow fans and other types of greenhouse supplies.
2. Containers, ceramic pots, injection molded pots, plug trays, blow-molded decorative pots, water-soluble fertilizer, decorative stone mulch, custom-molded containers, marketing materials and other production supplies; and
3. Tissue culture plants, rooted and unrooted cuttings, older high-end plants requiring extended growing time such as Phalaenopsis plants, Lucky Bamboo and other forms of plant material.
China has had several changes in its economy over the last five years, reducing the price difference we saw 10 years ago. Over the last five years the U.S.-China currency exchange has changed about 21 percent, and it is starting to change even more.
In the last five years, China has had inflation pressure – even during the current global economic crisis. Over the last five years, Chinese inflation has increased 15 to 30 percent, depending on whether you rely on the official data or the real situation, with everything from prices at the gas pump, housing costs, food costs or going out to eat at a restaurant.
The cost of shipping from China to the U.S. has also doubled. Now, there is pressure on the minimum wage system, with 14 of the most important manufacturing provinces increasing their minimum wage to double-digit levels.
Advice For Growers
Now, with all these cost increases, how can growers be at an advantage purchasing from China? Well, China still has room to produce at a lower price, but you have to use your purchasing power to get the right price.
China’s wages are still much lower and its management overhead and management system carry a much lower cost. University graduates are still in an oversupply situation, with many graduates earning higher degrees because the job market is now absorbing the annual number of graduating students.
The bottom line is China has the ability to produce at a lower cost, but you have to meet China face to face and negotiate to get the best price. An agreement with a Chinese manufacturer is somewhat different from a typical agreement in the U.S. Growers must focus on the smallest details: describe what you expect in terms of quality, in detail, and lay out guidelines for failure to deliver on time.
Never pay in full in advance, but work out a method that is fair for both parties. Avoid “letters of credit,” as they have loopholes that can result in non-payment. Use a third party friend to introduce you to the Chinese company, and your relationship will be on a fast tract.
Some of the Top 100 Growers and some of the greenhouse manufacturers in the U.S. source from China to offer the best value possible. If you are not considering purchasing from China, it is not too late to investigate.
Berl Thomas, Berl Thomas and Associates (BTA), has 20 years business experience between China and the United States. He has insight to the changing trends between China and the U.S. BTA serves as a bridge between Chinese and U.S. companies and can help direct growers to China sources. E-mail Thomas at firstname.lastname@example.org.