How to Negotiate with an Overseas Manufacturer

Picture this:

You’ve got a great idea for a product and you’re ready to make this thing real. Exciting, right?

Getting your product concept to the point where you’ve found factories that have proven that they can manufacture your finished goods is half the battle. Now, you’ve got to negotiate the finer details.  Negotiating with an overseas manufacturer is hard, and a lot of businesses stumble when they reach this step.. People get eager, rush things, or use the wrong tactics, which can ruin your relationship with a manufacturer and the future of your awesome product.

There is some good news, though.

By simply being aware of what to avoid, and where to lean-in when negotiating with a manufacturer, you increase your likelihood for success. Some of the techniques we will be recommending below may seem counterintuitive, but they are rooted in decades of experience in working with hundreds of brands and manufacturing millions of product units.

We’ve outlined the exact process we use to negotiate with overseas manufacturers. We discuss how to:

1. Understand Your Product Specs Before You Begin Negotiations
2. Search for the Best Value, Not the Cheapest Price
3. Do a Deep Dive into What’s Driving Cost
4. Look for Red Flags During Negotiations
5. Build a Partnership with an Overseas Manufacturer

In addition, you’ll find eight insights that will signal that  you’ve found a good manufacturer. Follow our guidance, and you’ll find the best overseas manufacturer for you and your business.

But before you begin the negotiation process with any manufacturers, you need to understand the ins and outs of your product.

Understand Your Product Specs Before You Begin Negotiations

First things first — get super clear on exactly what you need produced. Get the details of your product nailed down before you begin negotiations. You’ll need detailed design files, like 3D CAD drawings, spec sheets, or product samples. This will give manufacturers the information they need to provide an accurate estimate. It also makes sure you're on the same page about how the product needs to be made.

For physical products, you’ll usually rely on:

• 3D CAD Files: These are 3D Computer Aided Design files. These are the digital blueprint for your product that shows its details. They offer an in-depth visual representation of your product. They capture intricate product dimensions, materials, and finishes.
• STEP Files: STEP stands for Standard for the Exchange of Product model data. This is the standard format for sharing 3D CAD files with a factory.
• 2D Files: These are typically produced by CAD software like Solidworks and exported as PDFs. These 2D files capture everything a manufacturer needs to know to make the product. They contain comprehensive specs, measurements, tolerances, materials, production methods, and quality standards.
• Tech Packs: Used for apparel, these are detailed blueprints for each item. They include instructions on design, fabrics, stitching, care instructions, and any other relevant manufacturing info.

Sending a prototype or a top-notch sample to a manufacturer is an option, but keep in mind, it can be quite pricey. Also, most companies only have a couple of these to send out at first, limiting the number of quotes they can pull in. If you're sending out prototypes to factories, it may mean waiting a bit longer for an estimate. This can push back your whole production schedule. There’s a pretty good chance you might not even get your prototypes or samples back. So, if you’re thinking of going this route, it’s wise to trim down your list of manufacturers to cut down on costs.

Having those detailed design specs ready to go helps get more spot-on cost estimates. It also smooths out conversations about materials, manufacturing techniques, timelines, and all the other production details.

Having the specs for your product is an important part of negotiating with overseas manufacturers. It helps you understand the true value of the price you’re being quoted so that you can properly assess what each factory has to offer.

Search for the Best Value, Not the Cheapest Price

Once you've got your design specs or product sample set, reach out to a few manufacturers to get a variety of quotes. Aim for at least three, but you can go up to 15 if your product is more complicated.

Diving into overseas product manufacturing can get a bit tricky when it comes to pricing. If you’re launching a new product, you’ll see a range of prices at first. But as you get more quotes, you’ll start to notice a pattern. Most prices will be around the same ballpark. You will get some high and some low estimates, but don’t brush off the ones that stick out. Instead, take that as a chance to learn more about why their offers differ from the rest.

Sometimes, you might get a quote that’s surprisingly low, and it very well could be a hidden gem: Every factory is different, with its own equipment, tech, and way of doing things. This may allow a factory to offer a cheaper price and better value than its competitors.

For example, when we were looking for a water bottle supplier, we got loads of quotes, about 15 to be exact. Most were around the same price, but one was much cheaper. We checked them out, asked about how they kept costs down and even visited their facility and asked…“How are you able to do this when all the other manufacturers are quoting us for at least $2 more?”  Turns out, they had everything from raw materials forming to packaging under one roof, which cut down extra costs.

Even though the cheapest was the best value in this case – don't just jump at the lowest price.

For example, say you’re focused on cutting costs on that water bottle. There are many opportunities to cut corners and lower costs. Maybe you didn't specify how thick the walls should be. A manufacturer may lower the thickness to reduce costs. This reduces the quality of your final product.  It’s tempting to go for the initial low cost, but remember to think about the bigger picture. Lower costs could reflect lower quality.

Going for the manufacturer with the lowest initial cost might come with unexpected challenges and wind up being costly down the road. This is why it's important to think about the long term.

Remember things like the quality of the materials, how well the product is made, and if they’ll deliver on time. All these factors will play major roles in the overall pricing of your product. The key to making the best decision is balancing upfront costs with long-term reliability.

Understand What’s Driving Costs

Finding the right manufacturing partner isn’t just about getting the cheapest price. It's also about understanding what makes up those costs. We’ve talked before about the importance of doing a detailed check on factories to make sure the partnership is good for both sides, taking into account what equipment they have on-site and what they outsource. (We’ve also covered how to choose the right factory for your product in a previous blog.)

Imagine you’ve got two factories that can do the job at similar prices. You can use this as leverage to gain deeper understanding into their pricing and negotiate a better price for yourself. But be careful – pushing too hard for a lower price can sometimes come back to bite you. Also keep in mind, a factory might say yes to a low price only to raise it once they’ve started making your product. And you could end up paying more in the end.

Our client’s recent interaction with a manufacturer is a great example:

They needed a manufacturer for a home goods item made of plywood. They received a quote of $10 per unit from one supplier. That sounds great. But, most other factories gave quotes between $30 and $35 per unit. This raised the question, "Why such a big difference in costs?"

We asked for a breakdown of costs. This revealed the cost of the material alone was pretty high. So, if all the factories were using the same material, what was causing the difference in costs?

In situations like this, it’s helpful to ask for a 'Cutlist’. This is a detailed list outlining all the parts needed to be cut or shaped from raw materials for a specific project. It helps ensure that both parties understand and agree to what’s needed for the product.

After receiving the cutlist, the design of the product revealed two and a half units could be made from each sheet of plywood. Considering the cost of the specified plywood was around $60 a board, the actual material cost was around $28 per unit...well above the $10 per complete unit the first factory was quoting.

Our client learned that the higher-priced factories weren’t trying to take advantage of them with their pricing. The design and materials specified in their product design were driving up the price. If our client hadn’t been open to using different, more affordable materials in their product, they’d have been stuck with the higher costs. Worse, if they’d gone with the original, low-cost supplier, they might’ve been surprised by a price increase after their first order. .

Given what we discovered about the cost of plywood, our initial factory’s quote of $10 per unit was unsustainable. This was a red flag that this supplier would eventually raise their prices, kill our margins, or even be shifty in other ways.  The supplier would have increased the price later after this first order. This would've killed our client’s margins,  put their business at risk, and forced them to break promises to retail partners.

TIP: When you’re talking to manufacturers, it’s important to ask for a breakdown of how they get to their pricing. Ask for a detailed quote that breaks out the Bill of Materials (BOM). This outlines the main factors driving cost. Those may be labor, materials, overhead, or how complicated the assembly is. If the BOM shows that less than half the cost comes from materials, it means labor is your principle cost. Knowing this can help when you’re talking to manufacturers.

If labor costs seem high, it might be because the supplier isn’t familiar with how to make your product. Providing better specs and instructions could lower costs.  Or, perhaps there are design methods common in one country, but not in another, making assembly more expensive. These are the details you can figure out to help you negotiate better value and quality on your product.  

Using what you know in your own business negotiations can help you get the best deal. This will make your product and business better, too. Understanding what’s behind different line items, and what manufacturers can do to save you money, can make you a better negotiator.

Look for Red Flags During Negotiations

Not every manufacturer will be a good fit as a production partner. Sometimes factories try to take advantage of producers who seem like they don’t know what they’re doing, or that don’t fully understand the manufacturing process. Or, they may not fully understand your product but still try to win your business. We’ve identified common patterns during negotiations that can help you uncover whether or not a manufacturer is the right fit. Here are common red flags you can watch for.

Red Flags to Look for in a Negotiation

Watch for these red flags when negotiating with a manufacturer:

• Are they pushing you to send a sample before reviewing your design? This might signal they don't grasp the project scope.
• Do their questions show a lack of understanding of important product details? That could show inexperience with similar products..
• Does the sample they send back not match your specifications? This might point to quality control issues.
• Are they vague about how they calculated their quote or unwilling to provide cost breakdowns? The lack of transparency should be concerning.
• Do they seem more sales-focused than interested in your product’s needs and success? You want a partner, not just a vendor.

If any of these issues come up during your conversations, then it’s a good sign they won't be able to meet your standards. But don’t stress! Continue looking for one who shares your vision and wants to work together for success.

Build a Partnership

Great manufacturing partnerships are not easy to find, and when you do, hold on tight! Sourcing overseas is tough in general – both to get a commitment from a factory on prices as well as have them stick with them until the end of a project.

Look not just for a simple buy-and-sell relationship with a factory. Look for a manufacturing partner.That means open communication, mutual respect, and shared product goals.

One mistake businesses sometimes make is choosing a manufacturing partner too quickly. Rushing into a supplier decision is hard to roll back and can cause much bigger problems later on. It’s worth your time and due diligence to go beyond first impressions.

Look for true partners who understand your product and its core functions. Such as experienced manufacturing partners who can help you identify efficiencies, lower costs without cutting quality, and improve either your design or process to better serve your project.

8 Signs You’ve Found a Good Partner in a Manufacturer

Finding the right manufacturing partner to make your custom product is essential for the success of your product. Recognizing the signs of a quality factory relationship can both ease the process, as well as set a solid foundation for effective collaboration.

Here are eight signs that you've found a great manufacturing partner:

1. They take the time to understand your design, specs, and product vision
2. They demonstrate manufacturing expertise and capabilities.
3. They suggest ways to improve your design for production efficiency.
4. They are open about costs and help you understand price breakdowns.
5. They welcome questions and give thoughtful and detailed answers.
6. They meet deadlines for quotes, samples, and production milestones.
7. They communicate issues if they come up (and they will).
8. They stand behind the quality of their work.

Trusting your instincts is key. If a partnership doesn’t feel right, keep searching. It's worth it. The right collaboration can turn your product vision into a successful reality.

Master Overseas Negotiations with Expert Guidance

Negotiating overseas manufacturing deals can feel daunting. That's exactly why Product EVO is here. Our experienced product development firm can guide you through the process.

We can help you:

• Vet and shortlist qualified manufacturers for your specific product.
• Get quotes that reflect true costs.
• Review quotes in-depth and negotiate optimal pricing.
• Manage communication and collaboration for clear expectations.
• Oversee prototyping and production milestones.
• Ensure quality control adherence at each stage.
• Handle logistics like shipping and duties.