An unusually low factory quote can be difficult to resist, particularly when several Chinese manufacturers are competing aggressively for the same order.
However, the quoted price is only part of the supplier relationship.
A factory may accept a low-margin order because it needs to keep its workers busy, maintain the appearance of a healthy operation, or generate immediate cash. That does not necessarily mean it intends, or is able, to manufacture the product at that price over the long term.
Once production begins, the missing margin may reappear through an unexpected price increase. Alternatively, the price may stay the same while the supplier quietly changes the materials, components, dimensions, production processes, staffing, maintenance, or level of quality control.
In more serious cases, financial pressure can affect the supplier’s relationships with component and material providers. And when a factory is close to failure, buyers may face a much larger problem: recovering deposits, inventory, specialised equipment, or tooling after the doors have closed.
In this episode of China Manufacturing Decoded, Adrian and Renaud explain why some Chinese factories are offering extremely aggressive prices, what financially stressed suppliers may be doing behind the scenes, and which warning signs buyers should take seriously.
Listen here
Listen to the episode or watch on YouTube
Podcast sections
- 00:00 – Introduction
- 00:31 – Why Chinese factories are competing so aggressively
- 02:14 – Profit losses, cash shortages, and fixed factory costs
- 07:01 – What financial decline looks like inside a factory
- 09:39 – How cash pressure damages the upstream supply chain
- 12:04 – Can buyers assess a supplier’s financial health?
- 13:23 – Warning signs during factory visits
- 16:39 – What a low-margin supplier may do to your order
- 20:28 – Price increases and hidden substitutions
- 22:17 – How quality fade develops
- 25:26 – Rushed production, weak QC, and poor maintenance
- 28:13 – Factory closure and the risk to deposits and tooling
- 30:33 – How buyers create risk by forcing prices too low
- 32:46 – Final warnings and practical takeaways
- 33:47 – Paul Midler and Poorly Made in China
- 34:29 – Wrapping up
Further content
-
- Reuters: China’s factories snap years-long deflation spell on Iran war price shock
- Why Quality Fade Is A Danger We May Not See Coming
- Some Chinese Factories Are Going Bankrupt: How To Know Which Ones
- China Supplier Vetting Part 9: In-Depth Due Diligence
- Combined supplier due diligence checks from Sofeast
- Tooling Custody & Management (In China)
- Transfer Manufacturing From One Chinese Factory To Another With Fewer Risks
- Download How To Switch To A New Chinese Manufacturer And/Or Develop A Backup Supplier
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