Buy Through from China Trade Company is Better than Factory?

Jun 09, 2022 Chapter 2. Supplier

Unlike exclusive distributors appointed by manufacturers in other parts of the world, manufacturers in China are open to everyone, but their terms and conditions are strict. China trade company give flexibility in terms of delivery, shipment, and easier methods.

I would say that at least 25-40% of buyers are willing to buy non-capital goods from China trading companies, but they won’t buy capital goods from traders due to warranty and after-sales issues.

So if you are thinking about establishing some sort of ties to China trade company, then this article is for you.

 

China trade company vs factory

 

What Is a China Trading Company?

The China trading company act as a source to provide a variety of goods to customers produce at different units. They are also known as intermediaries that function as a bridge to bring together the buyers and sellers. They pick the products from the companies and sell them to the customers under their name. The rate charged by the trading company is higher than the factory rate as they include various expenses they bear for acquiring the goods.

Trading companies have tremendous experience in the imports and exports field and thus well-cognizant about the laws and rules regarding imports and exports of goods.

They build a network with various manufacturing companies and deal with multiple manufacturers and suppliers to maximize the sale.

In order to be a successful trading company in China, they have to add hard-to-find products and factories in your product range. However, for all the hard work these companies do to find exclusive products for you, they charge the clients charges higher than the actual company rates.

What Is a China Trading Company

 

 

 

How to Identify a Trading Company or a Factory?

Suppose you intend to do business in China. In that case, you must be aware of the type of company you are dealing with. To identify between the manufacturing factory and trading company; the most simple way is to ask them directly. (e.g. A supplier’s profile on Alibaba says they are a trading company.)

What is Alibaba trading company

The Checklist: How to Audit a Qualify Trading Company in China?

 

Finding New Chinese Suppliers In some cases, it is reasonable for importers to work with trading companies and rely on them to manage development and production properly.

Since China trading companies are supposed to follow up on production and all communication goes through them, it is crucial to ensure they are well organized. As I’ve written before, the difference between a well-organized trader and a chaotically-organized trader is huge. Below are two common situations.

 

  • Disorganized buyer + Disorganized trader + Disorganized manufacturer = A Huge Mess.

 

  • Disorganized buyer + very organized trader/agent + Disorganized manufacturer = Few Problems.

 

 

Unfortunately, it is difficult for the buyer to estimate the degree of organization of a China trading company. Several clients have asked us to do this on their behalf. Since some China trading companies have no production process, we wondered what should be checked?

In fact, a checklist mainly based on the ISO 9001 standard is a very good start. Our review checklist consists of four parts. I’ve pasted some checkpoints below as an example.

1. Quality Management System
  • Is there an overall picture of procurement-related processes and quality-related processes?
  • Are there standard procedures for company employees to follow? If so: Are these programs easily accessible to employees?
2. Management Responsibilities
  • Does the company measure customer satisfaction? (eg: surveys, repeat rates…)
  • Does the company write a job description for each position?
  • Does the job description include the skills, education and experience required for each position?
3. Provide resources
  • Does the company have a formal training program and can produce records? If not, is it a good way to give the necessary competencies to the right employees?
  • Does the company have a formal employee evaluation program? Can you show the record?
  • Are samples adequately identified, stored and protected?
  • Is there test/measurement equipment in the office? Are they sufficient for the product?
4. Product Realization
  • Does the China trading company prepare/have perfect pre-production samples for each product?
  • If the customer’s requirements are changed, is there a clear record (on the identification of the sample, on the version of the specification sheet…)?
  • At the end of the pre-production development phase, does the China trade company have a document that includes criteria for accepting mass production (eg: a spec sheet with expected results and tolerances)?
  • In the case of duplicate orders, does the company require customer approval if a part of a process is modified in the new batch? (Ask for an email representing this situation).
  • If a batch of products does not meet customer requirements, does the company notify the customer and ask what to do next? (Ask for an email representing this situation).

 

 

 

8 Types of China Trade Company

There are eight different types of export trading company in China, including;

Sourcing company

The most common China trade company. Sourcing trading company acts as a bridge between the end customers and manufacturers. The company source, supervise, inspect and ship the products to the destination. The mixed global trade company in China intermediary company eases the purchase of the products by arranging the high-quality products on the clients’ behalf.

Hong Kong trading companies

Hong Kong is once known as the hub of manufacturing units, but in the late ’80s, most of the manufacturing process shifted to the mainland. Even though the manufacturing units have been shifted, the trading companies have their offices in Hong Kong. Most of these companies have formed large joint manufacturing ventures that operated from Malaysia, Cambodia, Vietnam, and China and importing from China for foreign trade companies. 

Factory group trading companies:

Comparison of multiple manufacturing units that produce various types of products, the factory groups trading companies offer quality and variety. Different Chinese companies join together to form a single large manufacturing unit to simplify the invoicing and export procedure in this form of business setup.

Combined manufacturer and trading company:

In this trading setup, the company undertakes the production control and produces the goods, and then supplies them to the end customer. The trading company utilizes its own resources to produce the goods and handle the trading.

A certain-filed trading company

Trading companies do offer competitive prices as compared to manufacturing units. In the certain-filed trading company set up, the company prefers a specific niche and focuses its entire efforts there. The company chose a team of trained, professional, and experienced individuals and offered competitive pricing to the clients.

Grocery-type trading company

A typical setup of a trading company where the company relies on the manufacturing unit entirely for the products is known as a grocery-type trading company. Here the company deals in all kind of products that manufacture near it and upload them on the website for selling purpose.

Hot-selling type trading company

As the name indicates, such a trading company has a keen interest in products that are hot-sellers in the market. The company first identifies the products by in-depth market and trend study and then arranges the manufacturing unit. They make quick cash by selling the products with greater demand in the market as they promptly shift to another product as the demand declines.

Soho China trade company

It is an abbreviation of a small office or small home, where a trading company initiates the business practice with a minimum number of people. For starting a Soho company, you need first to register your company and make an account at Alibaba and voila.

 

 

 

 

Why Buy Through a China Trading Company or Agent?

 

Finding New Suppliers, I have mentioned in several articles that China trading companies are sometimes the best option for small importers. And two people recently asked me to confirm/explain this.

I think it depends on several factors like:

 

  • Do you have time to track development and production? Can you spend, say, 10 hours a week researching every product and every supplier?
  • Can you come to China, visit the factory, and get to know the people you work with?
  • Do you have the basic technical understanding to make informed judgments about your product and your market requirements?
  • Are you operating in a risky legal environment (eg children’s products sold in Europe)? Do you need to demonstrate that you understand your supply chain and have taken all necessary steps to reduce risk?
  • Have you found a manufacturer who understands what you mean, has an English-speaking salesperson and is interested in your business?

 

The more “no” you answer, the more your relationship with the trading company will improve.

The fifth issue (finding interested manufacturers) is often a major hurdle for small importers. Large factories are reluctant to spend time working on very small quantities. Trading companies can often find small factories that are interested in your small orders…and these small factories cannot deal directly with export customers.

 

Of course, you must qualify the trading company: knowledge of your industry, reference clients, etc. And I always recommend treating them as service providers (certain procedures to follow, certain notifications to send…) rather than product suppliers.

 

There are multiple advantages associated with buying products from the trading companies operating in China. Here we have enlisted the few.

  • Suitable products:

Compared to factories, trading companies are more aware of the customer’s demands and latest market trends and thus provide more suitable products to the clients. While on the other hand, factories mainly specialize only in a single product and cannot entertain multiple customer demands.

  • Market awareness:

As the trading companies rely on customers for their existence, hence they tend to establish their market by having reliable customer care services. The more they connect with the clients, the better will be their survival chances.

  • Wide product range:

The trading company usually offers products from small-scale manufacturers who do not have enough resources to sell their products to multiple markets. Thus a trading company identifies the need and resources for the products to be delivered to the clients. Also, some of the companies make products to be purchased in bulk which is not suitable for small-scale buyers; thus, they depend on trading companies to buy the product in bulk and then buy from them.

  • Marketing:

Marketing is the most crucial factor involve while establishing a trading company. As the company needs sales to achieve the business goals, they have to build a strong marketing network to promote the products.

 

 

 

How to Choose Between the China Trade Company and a Factory supplier?

 

Supplier Advantage  Disadvantages
Factory
  • Lower Price
  • More Control
  • Less Variety of Products
  • Higher MOQ
China trade Company
  • More Variety of Products
  • Lower MOQ
  • Good communication
  • Higher Price(not all)

 

There is no hard and fast rule for choosing between a factory and a China trade company. Although many people prefer factory over the trading company to our experience both business structure works fine.

Suppose you are working with a good China trade company. In that case, it will definitely add value to the products before reselling them like a quality check, sourcing, customer service, etc. Still, mostly the trading companies prefer to buy products and resell them without any value addition. Plus, the products from these companies are expensive than the factory rates.

In contrast, a factory offers you a more controlled and customized product experience. With the direct communication feature, you can figure out the problems and can alter the products according to market trends. Also, the rates offered by factories are far less than the trading companies and thus offer you financial benefits as well.

If you are planning on buying the products in large quantities or want to customize a product, then working with a factory is the best available solution. But if you’re going to purchase multiple goods but on a small scale, then the trading company in China would be an ideal choice.

Can a company be a manufacturer and China trading company at the same time? Yes, many factories do a certain degree of trading.

 

Good example for China trading company, As Brad Pritts

We have achieved overall (but not 100%) good results using trading companies with Chinese employees. As suggested, the local presence of the trading company could provide a more continuous follow-up, and I think there is a deeper connection to the factory. I also want trading companies to earn commissions, and that’s what good trading companies do. I hope they bring awareness and comfort to Western business practices. Good companies also provide technical supervision. As the saying goes, “You can eliminate the middleman, but you can’t eliminate his function”.

While recognizing that a trading company is a different business, for the most part, we treat people in a trading company as if they were the sales department of a factory; we respect their relationship and keep prices private discussions, but all other issues are Fair game discussion with the factory.

 

Negative example for China trade company, Michelle:

Hi, I am from China and worked in both trading company and factory(trading) before, the service quality between the trading company is really different, a lot of trading companies are pretending to be a factory and have little control over the factory (quality) unless you are a big buyer. I am now working for a brand in the U.S., I never thought how incompetent a lot of trading companies are(mostly in sec-level cities): not professional, avoiding direct problems from a customer, and especially for the small trading company is not able to take full responsibility on the quality problem because of little money they have. And the pure factory (for my industry) requires big volume quantity, it is very hard for small/independent brands to enter.

Friendly reminder:
1. Don’t place an order before the prototype, if you have problems in the prototype the chances are the quality will be bad in bulk.
2. Alibaba lists are misleading a lot of time, companies are posting fake pictures and videos

 

 

 

The Big Trouble in Little China Trade Company

They are also come cons when you choose to cooperate with a trading company in China.

China Trade Company Clash of interests:

China trade company work in a pretty delicate situation where they have to sell the products at competitive rates without losing their margin. So, they use to work with manufacturing units that are working on a small scale and do not have enough resources to reach international clients. Also, these factories also face the language barrier, which became an advantage for trading companies. The small manufacturing units need proper coaching to handle the quality and delivery expectations of the international clients.

 

Trading companies hide the quality issues:

Most of the China trade company in China work with importers and thus need to deliver products across the globe. So, if there is a quality or service issue, these companies mostly tend to keep their mouth shut to avoid losing their customers.

 But by hiding the quality issues, they will end up losing customer’s trust. So most of the companies offer the importers to check the quality of the products by themselves, and they will only communicate, purchase and ship the products.

 

China Trade company has no control over factory products:

China Trade company work with factories on a goodwill basis, there is no contract involved, and if something goes wrong, then they have zero control over the factories. There is a minute proportion of trading companies that have a stake in the factories and thus use their power to influence the quality.

The little to no control over factories often leads to various financial strains to a trading company as they prefer to lose some money over customer loss. Factories also prefer to do business with foreign clients who cannot frequently replace suppliers. While in the case of a trading company as it is residing in China, there are more chances of switching to other suppliers.

As mentioned earlier, factories do prefer foreign businesses on local traders, so they invest their efforts accordingly.

 

 

 

 

Conclusion

So, how to choose between trade company and manufacturer, It depends on two factors, one is the importer’s business volume and the other is their knowledge sourcing in China.

If the importer has a small business volume, they usually choose a trading company instead of a manufacturing company due to the limitation of the MOQ, and their orders with the factory are not enough to negotiate, and a trading company is a good choice.

Another factor is knowledge of Chinese, Chinese business rules, etc. Compared with most factories, trading companies know more about foreign trade business, but more and more manufacturers realize this problem and they start to supply goods directly to overseas customers.

So large and medium-sized importers may choose a manufacturer instead of a trading company for profit margin reasons. For small importers, the difference is not much, they are more willing to deal with trading companies, and communication is faster and easier.

Again, you must qualify the China trade company: knowledge of your industry, reference clients, etc. And I always recommend treating them as service providers (certain procedures to follow, certain notifications to send…) rather than product suppliers.

 

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