30 August 2021 • 16 min read
China Suppliers require Minimum Order Quantity
Minimum order quantity ensures that suppliers make a profit on sales while buyers get the right products for the right price. However, buyers can still negotiate a lower MOQ in China. We’ll tell you how.
When you import goods from China, minimum order quantity or MOQ is a term you frequently hear in conversations, and ought to familiarise yourself with. Very few manufacturers/suppliers in China will accept a purchase order unless the buyer agrees on the MOQ. Given how significant MOQ is to doing business in China, this article aims to equip you – the buyer – with everything you need to know about it, including:
- What is MOQ and why do suppliers in China insist on it?
- What are the factors that influence China MOQs?
- Can you negotiate a China MOQ? And if so, how?
Click here if you’d like to read our guide to importing from China
What is MOQ?
Minimum order quantity, as the name suggests, is the minimum number of products the buyer needs to purchase from the seller at a time. To put it another way, it is the minimum number of products the manufacturer/supplier is willing to produce and sell at one time. If the supplier sets their MOQ at 1,000 pieces, then that is the lowest number the buyer must buy in one transaction. Suppliers can set their MOQ by product, order, colour, and material. In the case of fabrics, the MOQ might be in meters.
Why is MOQ important to China suppliers?
Chinese manufacturers and suppliers work with low profit margins. This is true even for China’s Fortune 500 companies, which in 2020 averaged a profit margin of just 4.5 percent compared to their counterparts in Canada (9.1 percent), the United States (8.9 percent), and Britain (5.9 percent). To make up for the narrow profit margins, Chinese suppliers produce and sell goods in bulk. This also allows them to cover their production costs and maintain positive cash flow.
Before discussing a purchase order with a supplier in China, the importer must remember to inquire about the MOQ. Besides asking the supplier directly, the importer can get a fair idea of their China supplier’s MOQ from their website or from their profile in online business-to-business (B2B) platforms like Alibaba.
Also read about the importance of getting marine cargo insurance for your China shipments.
What are the factors that influence China MOQs?
Profit aside, a China supplier decides on an MOQ after considering multiple factors. These are the main factors influencing minimum order quantity in China:
- Product type and quality: Goods that are simple and inexpensive to produce (pens, buttons) have a high MOQ while those with a high production cost (electronics, glassware) have a low MOQ. Similarly, producers of high quality items will quote a high MOQ.
- Customisation: With its highly efficient production processes and modern machinery, China is a hub for custom manufacturing. However, importers buying customised goods from China will have to work with a higher MOQ. The more customisation your product requires, the higher the MOQ.
- Raw material: In China, manufacturers depend on subcontractors for raw materials and inputs. Hence, their MOQs reflect the MOQs of their subcontractors. Say, for example, you wish to place an order with a lock factory in China for 1,000 lock and key sets. A vital component in each of these locks is a small spring, which is made by another factory. That factory has an MOQ of 10,000 springs. Therefore, your order of 1,000 lock and key units will likely fall short of the lock factory’s MOQ.
- Factory size: Bigger and more established manufacturers in China tend to quote higher MOQs. They deal with larger order numbers and multiple customers, and have higher production costs and more staff on the rolls. Comparatively, smaller factories with fewer clients and lower order numbers have lower MOQs as well.
- Tooling: The manufacture of goods requires machinery and equipment. For example, a large section of mass-produced plastic goods in China (containers, PET bottles, etc) are made by a process called plastic injection moulding, which requires special moulds to shape the plastic products. These moulds are custom tools that must be made for the plastic products to be manufactured. For products with complex shapes and dimensions, the cost of making these moulds can be quite high. The manufacturer must, therefore, factor in tooling expenses when setting their MOQ.
How to negotiate a lower China MOQ
A high MOQ is a hard wall to scale, especially for small businesses. But importers should not be disheartened. Suppliers in China are said to be more flexible about MOQs than their counterparts in other countries. Here’s what you can do to try and negotiate a lower MOQ with your China supplier:
- Offer a higher price: Your China supplier might agree to lower the MOQ in exchange for a higher per-unit price as this will help them cover their production costs despite the smaller order. However, this option will only work for buyers who can afford to pay more.
- Buy from smaller factories: It is often seen that smaller factories in China are more flexible when it comes to MOQs. In comparison, larger manufacturers have dedicated clients, deal with larger orders and might not need your business as much.
- Make a long-term commitment: Your China supplier might be willing to lower the MOQ if you convince them that you plan to become a regular customer. Discuss your business plans with them and show them you’ve done enough research to prove that your goods have a growing market. Engage with them personally to develop a relationship. Most suppliers will not say no to a long-term business relationship as it is more mutually beneficial.
- Be part of joint orders: One way of accepting a supplier’s MOQ while not paying a higher unit price is to participate in joint orders with other importers who deal in the same goods. Sometimes, your China supplier might even invite you to be part of a joint order and offer you a low MOQ and price.
- Make use of existing inputs: As we mentioned earlier, a supplier’s MOQ is tied to their subcontractors’ MOQs. Check with your China supplier if they have raw material and inputs in stock that can be used to produce your goods. If they use material they already have and don’t have to place a fresh order with their subcontractors, they might be agreeable to lowering their MOQ.
- Buy Ex Works:Ex Works is an Incoterm or trade term that does not require the seller to ship the goods. When the buyer agrees to buy goods under Ex Works, they are responsible for picking up the goods from the seller’s factory/warehouse and transporting them onwards at their expense. By offering to take care of the shipping, the buyer might succeed in negotiating a lower MOQ with the supplier. However, remember that Ex Works means added responsibility, risk and cost for the buyer. It might not be the best solution to their MOQ problem in the long run.
- Pay in installments: Under this option, the buyer pays the supplier for the goods in parts. However, most suppliers might not agree to such an arrangement, especially if it affects their cash flow.
- Avoid excessive customisation: If your custom product can be designed with a standard component rather than a custom-built component, the supplier might be willing to lower the MOQ.
Beware of low MOQ offers, and other risks
If the China minimum order quantity you are being offered is very low, be wary of the supplier. A low MOQ will almost certainly mean that the products will be of a substandard quality and have poor safety standards. It might also translate to poor customer service.
Here are a few other useful tips on working around MOQ in China:
- Don’t buy from China suppliers who don’t have an MOQ requirement. They are almost always not manufacturers but wholesalers who sell goods for the domestic market. These goods will not adhere to the safety and quality standards and labelling compliances required of goods meant for import and export.
- While Chinese suppliers are usually open to negotiations, it’s a bad idea and a waste of time to try to lower the MOQ and unit price at the same time.
- Avoid the Lunar New Year (February) and Golden Week (October) high seasons, when factories are shut and workers take time off work for a week if not longer. During the high season, manufacturers are under great pressure to meet production deadlines. They might, therefore, be less open to negotiate MOQs. Besides, shipping costs can go up in the high season due to the suppliers’ rush to deliver orders before breaking for the holidays.
- Instead of waiting for your China supplier to quote an MOQ, present your MOQ bid to them first. This way, the supplier knows your intention right away and both sides can save themselves the time and trouble of going back and forth negotiating.
Shipping from China is easier with a local freight forwarder. Read our guide to finding one here
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