How To Choose Your China Supplier And Sourcing Agent

All You Need To Know About Chinese Trading Companies, Sourcing Agent/Companies And Direct Manufacturers

As a young entrepreneur, China is your best option for sourcing your goods, then you can import back home, sell and make a lot of profit. Just like the popular saying, “To get rich, go east, young entrepreneur.”

China is a massive manufacturing nation, the manufacturing infrastructure is cheap, labor isn’t as expensive as western nations, and the economy is big enough to support their manufacturing industry. Predictions are going around that China will soon replace the United States as the biggest economy in the world, thanks to their manufacturing industry.

As an entrepreneur or a company that wants to source your products from China, naturally, you would be a novice on how it is done. Basically, there are three different routes to take when sourcing your goods from China.

You can employ the services of a trading company, sourcing company, or you can source your products directly from a manufacturing company, depends on the process that suits your agenda.

This article will tell you everything you need to know about sourcing your good from China.We will give you insights on the functions of trading companies, sourcing companies and direct manufacturers in the sourcing process.

We will also be telling you the difference between a trading company, sourcing company, and direct manufacturers, and also you will learn how to choose a supplier that is suitable for your business.

What are trading companies, sourcing companies, and direct manufacturers

In this section of the article, I will supply you with a basic introduction to the three different types of suppliers, the trading companies, sourcing companies, and direct manufacturers, to help you gain a broader understanding of the Chinese market.

1. Trading Companies:  Trading companies are like a factory’s foreign trading department. These trading companies collaborate mostly with some Chinese factories. If you want to get a not very large quantity of goods, and don’t want to stress over the complexities of importing from China, these trading companies are probably the best option.

They know small companies that are not equipped enough to handle the intricacies of international trading and are willing to produce little amount of products for you, and they will handle the whole exporting and payment process, taking the stress off you.

There are basically two types of trading companies, and you need to be aware of them.

A. The trading company that tells buyers they are not a real factory. There is a chance this type of trading company offers better services, and adds value to your business experience in China.

B. The trading company that tells buyers they are a real factory when they are not. These kind of trading companies are just middlemen, they buy and sell, profiting heavily from the information asymmetry, and their services are sometimes shady.

2. Sourcing companies:  A sourcing agent or company will help you with the whole sourcing process, from start to end. They will provide you a wide range of service that will make your supply process relatively easier.

They help with price negotiation, supplier identification, logistics, supply chain management, quality control management, and shipment. Sourcing agent/companies have three different ways they charge clients for the services provided.

A. Sourcing rates by time used. (Days, months, or years.)

B. Rate by items you want to purchase, and import.

C. Sourcing rates or commission based on contract amount.

D. Basic rates depending on the task performed.

3. Direct manufacturers: Once you can find direct suppliers/manufacturers through a different medium like trade shows, internet search or social media.

Then verify the manufacturers using different verification processes like visiting their factory, the information provided on their websites (which should also be fact-checked), or visit a local government agency to check the company’s registration, or go through their account statement to verify if they are financially capable to recover your loss if any dispute arises, and you demand your money back.

If you are assured the manufacturer is capable of handling your project, then you can deal with them directly, and source your goods yourself.

Pros and cons of trading companies, sourcing companies, and direct manufacturers

1. Direct manufacturers: It is often assumed that dealing directly with the manufacturer is the best way to source your products from China, as it saves you money. But it has its own disadvantages too. The pros and cons are;

Pros

1. Full control of the import process personally.
2. Full access to manufacturers, as you will be working directly with them.
3. You will get the products at cheaper prices.

Cons

1. Most companies are just into production, they overlook the aspect of services, especially customer service.
2. Your importation process will be slow due to some difficulties in communication, cultural differences, language barrier, and time differences.
3. The factories may require a minimum order quantity to manufacture your product, and if you don’t meet that order quantity they will not begin production.
4. You will invest a massive amount of time and effort overseeing the whole import process, negotiation process, and the supply management. And time is money.

2. Sourcing agent/companies:  Sourcing agent/companies offer you a stress-free sourcing experience, but as we all know, everything with advantages, has its own disadvantages.

Pros

1. It will allow you put your time towards other efforts that will make the sales of the product successful. You will have enough time for operations and marketing.
2. You will get fast delivery, efficient results, and impressive turnaround time.
3. The supply chain management will be handled by professionals, who will have full control of the whole process.
4. The sourcing agent/ companies will be able to negotiate lower prices for your order.
5. Sourcing agent/ companies will help verify the quality of products that are produced by the factory before shipping. This will eliminate any chance of getting counterfeited products.
6. The whole sourcing process is transparent, as sourcing agent/companies have a reputation to uphold.

3. Trading companies: Sourcing your goods from China using trading companies is great, especially when you are ordering a smaller quantity of products. But it has its own disadvantages.

Pros

1. Good Chinese trading companies provide amazing terms for cooperation, great service terms, like terms for payment. Some even handle the orders with their own cash flow, and this will effectively reduce your risk.
2. Trading companies usually have a lot of product range to source for clients, anything you need, they have a way of getting it to you.
3. Trading companies mostly provide great customer service, fast and effective communication, and be sure to always get timely feedback from their sales representatives.
4. Trading companies will help you source orders that are low in quantity and did not meet most manufacturers MOQ.

Cons

1. You might not always get the best possible deals
2. Longer periods f wait in case of dispute on quality delivery.

Specialization, knowledge, and interests of trading companies, sourcing agent/companies, and direct manufacturers

Direct manufacturers, trading companies, and sourcing agent/companies all have different specialization, interests, and knowledge. I will be highlighting them in this chapter.

Specialization

Most sourcing agent/companies are into different businesses and will source any product you want, although some try to specialize in a particular industry (like in highly technical industry like the automotive industry), but sourcing agent/companies mostly do anything they lay their hands on.

Trading companies are different, they specialize in a particular industry and specific products. Manufacturers, on the other hand, have specialized products they manufacture in their factories. But some tend to manufacture different things, but it depends on how big the company is, and if they have the infrastructures to produce different types of products.

Knowledge

Sourcing agent/companies have a wider range of knowledge about different industries and products, and they are well versed with all the processes involved in the supply chain management, like logistics, testing, quality control and import management.

Trading companies have in-depth knowledge about their own industry, or product. They are considered experts in their fields.

Manufacturing companies are basically experts in whatever they produce.

Also, sourcing agent/companies have no product catalogs, while trading companies normally would promote their products by having catalogs and even price lists.

Interests

A sourcing agent/company will represent the client’s interest, making sure the clients instructions are followed, and at the same time making sure the transactions go on without any hitch. When it comes to dispute resolutions the sourcing companies are also expected to represent the client’s interests.

Sourcing agent/companies are also expected to pressurize manufacturers of they are not meeting up to their client’s expectations, or deadline.

Trading companies try to acts as a judge when it comes to putting either party interest first. But often they put manufacturers interest first because that particular manufacturer is who they procure most of their products from.

When it comes to dispute resolution between clients and manufacturers, trading companies will take sides with the manufacturers most times, because they have vested interests in these factories.

Direct manufacturers are only interested in their own company, that is where their interests lie, and during dispute management, they tend to be on their own side, which is normal.

In terms of strategic objectives, sourcing agent/companies will manage costs, quality and risks for their clients by utilizing their knowledge, experience, and available resources to make sure the client enjoys a smooth supply experience.

The strategic objective of a manufacturing company is to increase the sales of their products, and thereby getting quantity advantages when buying from their factories. This will help them increase their earning.

Manufacturing companies, on the other hand, have a strategic objective of improving the company capacity, improving product quality, and making a profit.

In terms of having a network of supporting industries, sourcing agent/companies have a network of industries they meet for immediate sourcing of goods.

Trading companies, on the other hand, have a stronger network for sourcing products they deal in.

How to choose a supplier that is both reliable and suitable

One of the best decisions you can make in your international business adventure into China is by choosing the supplier that is most suitable for your business needs. Choosing between a sourcing agent/ company, a trading company, and a direct manufacturer can sometimes be difficult.

You have to take a good, hard read on the pros and cons listed above, and choose the process that is most suitable for you.

The metrics to check while deciding on a supplier to use for your China outsourcing are:

• Reliability:  You have to vet any company to have put your business needs upon to be sure they are reliable enough to handle your project.

You should go to their websites and check them out, check out customer feedback on their social media if they have any, or you can ask a friend or business partner who has sourced products from China, which method they used.

• Price: One of the major reason you are thinking of sourcing products from China in the first place is the price of goods manufactured there.

That’s why when dealing with a supplier, sourcing agent/company, trading company, or directly with the manufacturer, you should consider the price it takes for the whole process, and do your best to beat the price down.

• Quality: When dealing with a sourcing agent/ company, be sure they can deliver quality products to you. Some companies will sign contracts, get paid, and at the end, they deliver substandard products.

Top sourcing agent/ companies make sure they do quality checks and testing for clients, but you should still follow up with the sourcing process to be sure they will deliver top quality.

• Turnaround time: Before choosing a suitable company for your sourcing needs, be sure they have an impressive turnaround time. Put it in the terms of payment, to make sure they deliver before deadline.

Sourcing from China is a good business idea. Knowing a good supplier to help you ensure a hitch-free process will make you enjoy the process. Since products from China are basically less expensive than anywhere else, and they are of top quality, even large corporations have their factories in that region.