Integrated case: supplying overseas businesses

The email arrives on a Tuesday. A procurement team describing itself as the buyer for a German hotel chain wants twenty thousand guest-room wall lights, custom colour temperature and mounting holes, delivery in forty-five days, three shipments, a quote including freight and duties, and ninety-day terms. The owner of the Zhongshan factory is excited, and should be worried. This is a teaching case: the company, the buyer and every number are fictional. What is real is the sequence of questions a competent supplier asks before saying yes.

The first question is whether this is B2B at all. The textbook defines B2B as a transaction between businesses, such as a manufacturer and a wholesaler, rather than between a company and an individual consumer. It adds three symptoms: larger quantities, greater specifications and longer lead times, plus possible recurring supply. The inquiry meets four: twenty thousand units, custom specifications, forty-five days and three shipments. The fifth test is not in the email. A claim to be a hotel-chain procurement team is not verification; the domain, the registration, the audit invitation and the payment history are. Verify the party before discussing price.

The textbook's comparison is compact. In B2C the end users are individuals buying for personal use; in B2B they are companies buying for the company. Large purchases generally need approval from those who head the company, which makes business purchasing power more complex than a consumer's. Prices are not necessarily the same in B2B: businesses negotiate prices and payment terms, while B2C consumers often pay the same price for the same product. Three practical questions follow: who signs, who pays and who inspects. Each answer adds a person and a week, and none can be short-circuited by a limited-time discount.

Map the process onto the funnel in §3.4.1. Inquiry is awareness and interest; the audit and samples are consideration and evaluation; the quotation and contract are intent; production and delivery are purchase; the repeat order is repurchase. In B2B the narrowest point is usually the sample. A sample proves the factory can hit the specification, and it screens the buyer: a buyer who will not pay for samples or share an inspection standard is often not a buyer. That is why evidence belongs in the acquisition budget. In the case, one audit costs about US$1,200 and five sample sets US$425, small against a US$360,000 order, not small against a year of unanswered inquiries.

A B2B quotation is not a price. It has five columns: landed cost, lead time, minimum order quantity, payment terms and risk allocation. Landed cost covers goods, packaging, domestic transport, export clearance, freight, insurance, duty and after-sales; the Incoterm decides which the seller bears and where risk transfers. Lead time must state its starting point, because forty-five days from the order and forty-five days from sample approval are different promises. MOQ is set by tooling, materials and line setup, and is negotiable in structure rather than number. Payment terms are a price in disguise. Risk covers inspection standards, late delivery, claims, exchange rates and freight surcharges. A quotation is not a contract.

Now compare three ways to quote the same order. Under DDP the seller delivers duty paid at US$18.00; landed cost is US$15.30, so contribution is US$2.70, or 15.0%. Under CIF at US$16.80 the buyer pays duty of about US$1.00, the seller's cost is US$14.30 and contribution US$2.50, or 14.9%. Under FOB at US$15.60 the buyer pays freight, insurance and duty, the seller's cost is US$12.70 and contribution is US$2.90, or 18.6%. The ranking inverts with whose numbers you use. The seller earns most under FOB, yet the buyer's landed cost is highest at about US$18.20, against US$18.00 under DDP and US$17.80 under CIF. A buyer comparing total cost pushes toward CIF; a seller comparing contribution prefers FOB. The negotiation is about who bears which cost and risk.

Then count the cash, because margin is not cash. Under DDP the order is worth US$360,000 at a landed cost of US$306,000, leaving US$54,000 of contribution. A 30% deposit brings in US$108,000, so the seller must fund about US$198,000 until the balance arrives after ninety days. A factory with US$200,000 of working capital can run one such order at a time; its annual profit is capped by cash, not margin. Under FOB the deposit is US$93,600 against a cost of US$254,000, so about US$160,400 is tied up, and the balance is collected before shipment. A discount for early payment is often cheaper than a bank loan.

The platform adds a cost that is easy to forget because it is annual. Alibaba.com, the textbook notes, collects commission that can be as high as RMB 150,000 a year, varying by category, and also earns from advertising. At roughly 7.1 that is about US$21,000. Allocated to this 20,000-unit order it is US$1.05 per unit, cutting DDP contribution from US$2.70 to US$1.65; across 60,000 units a year it is US$0.35. The allocation is a management decision, not an accounting truth, and it changes whether the order is worth taking. The platform also owns the relationship: an inquiry answered inside a marketplace is rented demand until it becomes a direct contact.

The remaining costs are the ones buyers notice last. Audit and samples cost about US$1,625 per won order, lowering contribution to roughly US$52,375. The warranty reserve is US$0.30 per unit, or US$6,000 across the order. If 3% of units fail and each replacement costs US$9 including air freight, claims are US$5,400, so the reserve holds, but only just; a batch defect would not. After-sales responsibility therefore belongs in the terms: the claim window, who pays return freight, whether spare parts ship with the batch, and what happens if the buyer installs the fittings incorrectly. The standard must be written before production, not argued after it.

That is why the deliverable is not a verdict. Accept or reject is the wrong question; the question is under which conditions the order is worth taking. A defensible answer: accept at FOB US$15.60 if the buyer agrees to forty-five days counted from sample approval, a 30% deposit with the balance before shipment, a freight surcharge clause above a 5% move, a pre-shipment inspection standard with an agreed sampling plan, and a warranty limited to the driver and fittings with a 2% spare-parts allowance. Change one condition and the recommendation changes. Marketing language is not evidence, and a buyer's brand name is not a credit rating. Writing conditions, rather than enthusiasm, separates a supplier from a hopeful exporter.