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As a small business owner, one has to manage a seesaw-like tension between delivering a quality product and maintaining a healthy profit margin.
Here are strategies to ensure business owners’ international suppliers provide well-made products and services at prices the business can afford.
A little skepticism can save a lot of money. Falling for promises of deep discounts and rock-bottom pricing can leave international business owners with a substandard product — if they receive a product at all.
“Don’t believe vendors who claim they can offer cheap prices because they have access to gray market, smuggled or stolen merchandise,” says Michael Lee, director of global marketing at Alibaba.com, an international business-to-business platform headquartered in Hangzhou, China, that connects vendors and suppliers with small businesses. In order to recognize abnormal quotes, business owners should learn about the average retail and wholesale prices of all products and services, which are typically available on the brand owner’s official website. “If something looks too good to be true, it probably is,” he says.
In negotiating, he who has the most knowledge and patience wins. The tough part is learning about all the factors that contribute to the final price of a manufactured good. One tactic for gaining a deeper understanding of pricing is to ask vendors for an itemized quote of all products and services.
Brittany Keller, co-owner of Atlanta-based ParacordPromos, a purveyor of paracord wristbands, says she uses this approach fairly early on in the vendor search process to arm herself with as much knowledge as possible. She requests the itemized quote after obtaining an original total quote that addresses all the specifications in the request for quotation (RFQ). Keller suggests asking for the price of individual items in the business’s overall product — the backing of a pillow, for example — to obtain apples-to-apples price comparisons among different international suppliers.
“I put it all in there and ask for them to give me a broken down quote of each piece,” she says. “You don’t know where all the pricing is coming from, but piece-by-piece you can get a better idea.” Keller usually asks for the quote in U.S. currency, but often finds that vendors provide pricing in both currencies. “Withour products, there are several components: the paracord, plastic latch, metal dog tag and labor,” she says. “So while the first quote I receive may be for $1.99/piece total, if the vendor seems reliable I would then ask for a breakdown, where the price of each component is listed separately.”
When international business owners are equipped with the right information, they are better able to find suppliers that offer competitive prices — without sacrificing quality.
Giving the bulk of work to one vendor and a smaller portion to the other can sometimes result in reduced prices from both vendors, says John Krech, CEO and president of Minneapolis’ RightOn Inventory. “Do 90 percent volume with the one and 10 percent with the other to keep the relationship,” he says. “Usually suppliers are pretty savvy, so if they can, they are going to drop their prices to be pretty competitive. It can also be a negotiating tactic, as well.”
Often times, vendors will want to receive international payments in their domestic currency. By using a trusted online foreign exchange service that offers guidance and helpful resources, businesses can position themselves as more desirable partners for local vendors. This can help businesses obtain better pricing and even discounts on their international payments as part of their contract negotiations.
“Many suppliers have to pay a fee to convert international payments to their local currency to pay their expenses and manage their books, plus they are also subject to exchange rates,” Krech says. “Taking out this cost of doing business, plus taking out the hedge they are making in the direction in currency conversion rates, can frequently be a bargaining chip to reduce price. It eliminates work and risk.”
Obtaining lower prices from vendors starts with choosing vendors who provide reliable and quality products and services in the first place. From there, business owners can do their homework to understand factors that contribute to pricing, as well as alternatives to their current vendors.
Example: 1USD = xx INR
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