|
Articles
& Cases - Cases
Confusing
Chinese Prices
Mr.
Smith, purchasing director for ABC company flied to Shanghai to visit Automechanika
Shanghai in November 2006. ABC company is a leading European company
dealing in auto electronics. Mr. Smith planned to buy some horns from
China.
On
his first day at the show, he found that there were many horn factories at
the show maybe 20 more. He got a lot of catalogues and in the evening he
studied the catalogues and decided to discuss further with 5 more
suppliers. On the second day, he talked to the suppliers he picked one by
one. The first supplier quoted FOB USD1.50 per piece. He was happy with
that price as he expected 30% cost savings. Then the second supplier
quoted FOB USD1.20 per piece. He was excited at the lower price. Then the
third supplier quoted FOB USD1.00 per piece. He began to doubt if the
price the supplier quoted was correct or not as there was 50% price
difference between this price and the highest price. The fourth supplier
totally confused him as this supplier quoted a FOB price of USD1.50 per
pair i.e. USD0.75 per piece. The fifth supplier gave a similar price as
the fourth supplier. Mr. Smith was totally confused by the prices
and he did not understand why there was such a big price difference. He
tried to find out what was the reason but the Chinese suppliers could not
give him reasons.
As
he could not find the reasons for the price difference. He had to give up
the idea to buy horns from China and the trip to China ended up with only
confusions.
Analysis:
Mr.
Smith made a right decision based on the information he got. If he wanted
to find out which prices were the suitable prices, he needed to do a lot
of works - he would need material specifications, performance
specifications, samples and etc. ; he would need to ask Chinese suppliers
to provide more background information such as export market, production
facility, quality system, and etc. He may need to visit Chinese
suppliers on site. Unfortunately, Mr. Smith did not think that the horns
were worth his more time. So he stopped further efforts.
Price
is complex. It is impossible for a foreigner to find the suitable Chinese
prices just in a visit of a show. It requires knowledge, experience and a
lot of efforts. One important rule in sourcing products from China
is look for best suppliers instead of best prices.
|
