Housekeeping items Introduction to Presentation and Speaker Pre-Negotiation Knowledge

1. Housekeeping items Introduction to Presentation and Speaker  Pre-Negotiation Knowledge Factory Direct vs. Middlemen Price Benchmarking (RFQ process) 4. General Face-to-Face Negotiations Tips 5. Critical Contractual Items Intellectual Property Price Quality Payment Terms 6. Q & A

2. www.PSSchina.com Supply Chains Serviced Our clients are direct suppliers to the following retailers and corporations:

3. CSIC is a not-for-profit organization that exists to help educate, develop, and advance the China sourcing professional. The following resources are available free of charge to the public: » China Sourcer e-Magazine » Video Tutorials » Ask-the-Experts Service » Buyer Blogs » White Papers » Endorsed Service Providers NEW: Supplier Blacklist Intro to the CSIC

4. How to Spot a Middleman • Assume all potential suppliers are middlemen until proven otherwise! • No “Code of Ethics” for Sourcing Agents • Spin of the US/European Middleman “leverage for your benefit” 99% of the time this is not true and is simply a slick sales message to make the buyer feel safe and keep you at arms length from the factory. • Spin of the Chinese middlemen “we own the factory” • excuses, excuses, excuses to keep you away. • “How to Spot a Trading Company Check List” availble via e-mail

5. Conducting a RFQ (comparing apples to apples) • In following slides we will explore: • How to define your ideal supplier • Making First Contact • Organizing an effective RFQ

6. How to define your ideal supplier The single most important factor in determining the success or failure of your sourcing program is…. Drum Roll Please… But Apples-to-apples comparisons at a national level can be daunting. Therefore Phase One is “Defining the Target”.

7. Phase Two “Measuring against Attributes”: At PassageMaker a typical supplier identification research project takes 30-45 working days assuming multiple components and production methods need to be explored at a national level. For those that wish to DIY, the process is follows:

8. 1. Initial research can generate 50-100 potential suppliers using web directories like www.GlobalSources.com, industry/trade show directories and existing Approved Vendor Lists (AVL) 2. Narrow down to top 20 candidates based on Non-Price Attributes Note: Haven’t asked for a price yet 3. Make “first contact” Send an e-mail, fax or make a phone call to ask for initial product-specific information (price, minimum order size, lead time). Thus begins the RFQ process

9. RFQ Goal- Apples to Apples • Often overlooked: • Set up- tooling cost hustlers • Payment Term (30-70 vs 100% vs LC) • Quality Requirements • BOM • Shipping/Duties/Tax (Resist the tendency to quote Door 2 Door) • Go from 20 down to 5 or less, and you are ready for negotiations.

10. GeneralNegotiation Tips for the Face to Face Meeting at the factory: • Orient yourself toward the decision maker • Have a Baijiu Back Door • Tips for using a translator (slow down, prep terms, bring your own) • Relax • Trick: Western Speaker of Chinese

11. While you are at the factory… • Factory Audit • Few 100 USD if using a 3rd party specialist like www.AsiaQualityFocus.com • Do they have a Quality Manual? • “PQM” template available at www.PSSchina.com • After you leave… • Consider verification & investigation by specialist like www.CBIconsulting.com.cn

12. Negotiation Tips for Protecting IP Definition of IPR Most people think Intellectual Property Rights (IPR) = Designs and Trademarks. But for the course of this program, expand IPR to include other sensitive buyer information such as export value, shipping destination, customer and end user identity, volume and market value of goods shipped. Culture Factor: Examples from a Dorm CEO’s, Eggs

13. Think IP property protection at two Phases • Phase 1) Supplier Identification Phase • Register First (FTM vs. FTR) • Bad News & Good News (play by rules, nice price to play) • Spread it around at component level • Avoid trading companies

14. Phase 2- Production • May offend some lawyers in the audience… • …”NDA/NC cant’ hurt but don’t rely solely on it” • The problem with doing IP the “American Way” • What happens to that 30 page NDA • Therefore: • MOU core concepts/bi-lingual/initials/ staple to PO • 3rd Party Assembly/Inspection (Black Box) • physical vs. legal approach

15. Physical rather than legal approach • Own the tooling outright (if custom made) • 30% Rule of Thumb • Build the relationship to be more than a PO # • Keep an eye on things (tool room) (warehouse room) (sample room)

16. Negotiating Price • Don’t rely on your negotiation skills • Do rely on your research skills

17. QC Related Stipulations • Under signature of factory as part of the PO or Agreement: • Define the Certificates of Conformance to Accompany Delivery (CoC) • Provide the Internal Data you desire • Explore costs of future batch testing (Ex RoHS = $100) Who pays? • Warranty (re-work, replacement, express air…) • Review QC Plan • “PQM” template at www.PSSchina.com

18. Lesson learned: PO’s and Payments “30-40-30” & Roadmap Financial Exposure is really Quality Exposure Traditional Risk (www.CBIconsulting.com.cn) State lead times & penalties in contract Tooling & set up ownership as leverage (if a custom made part) (don’t amortize) The LV experience: China as legal jurisdiction of contract enforcement. Why? Location of Defendant, Enforcement of Ruling, Cost of Battle Payment Terms are not Incoterms Beware of ExW! Quote FOB China port during RFQ

19. Shameless Book Plug www.ChinaSourcingInfo.org/book Includes templates for PO, Supplier Contract, Factory Audits, QC guidelines, RFQ and more $150 USD online or $100 Cash at booth at trade show while supplies last

20. CSIC is a not-for-profit organization. Buyer education resources are made available to the public free-of-charge thanks to the financial donations of our corporate sponsors. If you happen to need any support in China, know that your patronage of these reputable companies will also be helping to support the CSIC. Corporate Sponsors

21. PassageMaker Email: MikeB@PSSchina.com Company: www.PSSchina.com China Sourcing Information Center (A Not for Profit, Buyer Support Network/Endorsed Service Providers) www.ChinaSourcingInfo.org Blog: www.AnotherChinaBlog.com LinkedIn “Mike Bellamy China” • Booth #5A36 October 20-23 • Booth #7L44 October 27-30 If take away just two things… • Spend the time to find the right partners for both manufacturing and service providers • Inspection linked to a Payment Plan