When only negotiating, it frees space that otherwise would be used for workshops, since production of armies costs a lot of supplies.
I have been only negotiating since i started playing. It was actually the reason why i started playing this game; That it was possible
I started with 9 T1 factories, but slowly got down to 7. I also have 7 of T2 and T3. I only have 6 workshops. 2 armories is needed to get orc's for research and negotiating. But that's after the Orc's chapter ;-)
I'm always around 1 chapter behind on upgrading the factories to max, because it just cost to much in pop for what it gives in production. I know i have 5 magic residences, they give a good deal of pop more, but with the Phoenix Cult, in Elementals, giving 4.400 pop, they would not be needed. But i have them and that's nice
I produce 4x3 hours and 1x9 hour during night. I always make 10 provinces, 5 rounds in every tournament, which should tell you that i produce enough goods with my setup
If you wanna see my setup, i'm on Arendyll
Ohh, and i have always only produced boosted goods and traded to get the other ones. To me it's the only way, unless you like the look of your city having all the types of factories there is.