China Trade Company vs Factory: How to Choose, 2021

May 23, 2021 Chapter 2. Supplier

With their positive business culture and a wide variety of products, Chinese markets offer businesses a great place to start their work. There are two types of suppliers you might found in a Chinese market, including:

 

  • Trading companies
  • Factories

 

If you are thinking about doing business in China, then you must have a handful of knowledge about the Chinese markets. This article will discuss the China trade company in their business structure, how you can interact with the existing trading companies, or open your personal trading company in China.

 

I know many courses or experts tell you to stay away from China trade company because they will make your product profit lower. However, starting from 2021, I found that another major problem with imported goods from China is the instability of the supply chain. Many customers who purchase more than $1 million per year contact us and say that we will help them communicate with the factory even if they have found their own suppliers. So, sometimes even if you find a low-cost and high-quality supplier, you have to be prepared that you will encounter many problems in communication.

 

So if you are thinking about establishing some sort of ties to China trade company, then this article is for you. Of course, we hope you all go well

 

China trade company vs factory

 

What Is A Trading Company?

A 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, you 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.

 

 

Types of China Trade Company

There are eight different types of China trade company, including;

 

Sourcing company

Sourcing trading company acts as a bridge between the end customers and manufacturers. The company source, supervise, inspect and ship the products t the destination. The 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.

 

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.

 

 

 

The Difference between Factories & Trading Companies in China

Factories and China trade companies are poles apart, and here are the characteristics that make them different. The significant difference lies in the functionality and founding component of both business setups.

 

A factory works on the production of a single product. Take the example of a textile company that manufactures shirts and will only produce shirts. Although the factory outsources its raw material like fabric, thread, etc., from other factories.

 

While on the contrary, China trade company do not get into the production process; instead, they outsource the final product and deliver it to the customer.

 

 

 

Why Buy From The Trading Companies Working In China?

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 Identify a Trading Company and 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.

If the supplier you are dealing with is a trading company, then there is no need for further digging. But if the supplier is a manufacturer, then you have to investigate further what kind of product they form and whether they are your ideal choice or not.

Complete List: 50 Best Sourcing Agent in China

 

 

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

 

China trade company

 

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 would be an ideal choice.

 

 

China Trade Company Clash of interests:

Trading companies working in China often avoid working with foreigners due to the following reasons.

The conflict of interest usually arise because China trade company tend to choose low-grade factories:

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.

 

 

 

Advantages of Opening a Trading Company in China

You might be looking for some promising benefits to open a China trade company, so we have enlisted some of the advantages for you.

 

  • Customer-focused:

Trading companies gain their financial goals through selling products. So, they have to be fully aware of the market trends and customer-oriented to understand the needs and demands of a market. Without demand, you can never sell a product and thus may lag behind in terms of financial goals.

 

  • Trust:

Trading companies work in close ties with the factories to get high-quality products and thus pass on the trust to the clients with superior quality products and service. To build a long-lasting relationship with clients, most trading companies go far and beyond to ensure product quality and service.

 

  • Providers:

Trading companies, as mentioned, cannot afford to lose their clients; thus, they are more willing to fulfill special requirements and demands.

 

  • Competitive rate:

Trading companies need competitive pricing to survive the competition, so they tend to work with small-scale manufacturers who cannot afford to deal with foreign clients. These factories being small, offers competitive pricing and thus allows the trading companies to charge competitive rates without losing their profit margin.

 

  • Less mark-up:

The trading companies need no proper business facility to operate and thus have minimal overhead costs, making their prices more competitive.

 

  • Any company size:

Most of the manufacturing units apply the minimum quantity rule to the buyers, so the end customer often cannot buy products directly. By having trading companies in between, clients can have access to the minimum quantity of products as well. The trading company buys the products from the factory in bulk and provides the customer in a small amount.

 

  • Variety:

Trading companies deal in multiple products from various manufacturing units, all based on market demand. They often send free samples to the influencers and customers for marketing purposes.

 

 

 

How Foreigners Open A Trading Company In China?

The entry of foreign business in China as a trading company gets simple after China enters the world trade organization in the year 2001. One of the ideal platforms for establishing a business in China is the whole or wholly foreign-owned enterprise. But you can also opt for representative office pr joint venture etc., if the foreign company is looking to invest in the Chinese market, it can opt for the trading of goods. The China trade company thus establish under the whole setup will be known as fice or foreign-invested commercial enterprise.

Mentioned below are some of the activities performed by fice, including:

 

Retailing:

It refers to a business structure that involves selling the products from any fixed venue, including mail order: television, telephone, vending machines, internet, or many more.

 

Wholesaling:

Such a business structure involves buying the goods from the factories in bulk and then selling them to industrial and commercial retailers.

 

Franchising:

Getting into a contract to authorize the use of trade name and trademark to sell the products.

 

Commission agency activities:

  • Act as a broker or sales agent to sell the goods according to the contract.
  • You can only establish fice in the form of a joint venture or wholly foreign-owned enterprise.
  • Whereas the wfoe can be further categorized into retail and wholesale. If you are operating as fice, then you have the freedom to import foreign goods in China and export Chinese products into the international market.
  • If you are a foreign investor and want to invest in the Chinese business market, wfoe or fice is the most ideal option. The fice structure is the most common business structure established by a foreign entity. Fice is established in the Chinese market to perform the following activities.
  • Expand the sources and keep an eye on the quality control and logistics.
  • To act as an intermediary between the Chinese manufacturers and foreign buyers, they just buy the finished or semi-finish products and sell them to them.
  • Act as an importer and import the goods for selling them in the Chinese market.
  • Structuring of operational sales and after-sales platform

If you do not have excessive capital, then fice would be your ideal choice, while in the case of wfoe, you require a complete manufacturing setup. Although fice offers a highly convenient, reliable, and functional business setup, people also like a representative office. For establishing the fice setup, you require a variety of organizational and technical knowledge.

 

 

4 Steps to Open Trading Company in China

Suppose you are thinking about establishing a trading company in China. In that case, you might be referring to a commercial business setup that deals with selling, purchasing, and other business activities performed by a corporation.

For establishing a trading business in China, you must be aware of the rules and regulations for opening a trading company. For getting approval to run a business in China, you need to fulfill two conditions.

 

Document preparation:

Documentation is an integral ingredient in establishing a new business in China, and if you have completed all the documentation requirements, then you can initiate your business whenever you want.

A trading company can have approvals regarding domestic trading, international trading, and particular post-sale services.

 

Condition one:

For the registration purpose, the following information is required by the authorities, including

Corporate structure:

For a corporate setup, you have to mention the shareholders, supervisors, and legal representatives. The supervisors and legal representatives must be individuals, while the shareholders could either be individuals or registered companies residing in other countries.

Business registration information:

A newly formed trading company also needs to provide information regarding shareholders, registered capital, equity, business activities, official address, accountant, and secretary.

 

Condition two:

For the verification purpose, you might require the following documents, including:

  • Providing the authentic identity documents and submitting the same information at the industrial and commercial administration bureau
  • To verify identity, the authorities require documents including notarized files for supervisors, legal representatives, and shareholders.
  • Once you submit the legal documents for identification and verification of authenticity, further processes can be start off easily.

 

Process of Opening a Chinese Trade Company

There is a slight difference between establishing a trading enterprise and services industries. Along with applying for conducting international transactions, you also need approval for the qualification of foreign trade license.

We have enlisted the four-step, through which you can establish a trading company in China.

 

Step 1. Business registration application

  • Approval for the name of a trading company in English and Chinese
  • Identification of required documents
  • Applying for the business license and stamps
  • Getting the certificate of registration of a foreign corporation

 

Step 2. Opening of bank account

  • Identifying the authenticity and legitimacy of a corporation along with submission of forms
  • Check the authenticity of the licensed files and legal representatives
  • Obtain the bank details of the corporation

 

Step 3. Tax registration and vat

  • Registration of the corporate taxpayer
  • Publishing the tax system and vat invoices
  • Obtain the general qualification for the taxpayer

 

Step 4. Customs registration

  • Certificate of registration issued by the customs
  • Obtaining the business certificate for international trading
  • License and permits of import and export
  • Electronic port ic cards and system

 

 

16 Best Mainland China Trading Companies

No. Company Name Service Categories Location
1 Supplyia Sourcing All products and inspection services China
2 Zhejiang Willing Foreign Trading Co. Ltd General except for machines China
3 Chinabrands All products and services needed China
4 Nexfar Trading company Pharmaceutical products China
5 Soto Imports Consumer goods, electronics, cleaning supplies China
6 Cheung’s Trading Company Nutritional supplements China
7 Tai Yick Trading Company Porcelain and ceramic items China
8 Nanjing Maxfit Trading Company Ltd All kinds of products China
9 Yiwu Trading Company Consumer goods China
10 Beijing Chaopi Trading Company All products and services needed China
11 Young &Young Trading Company Consumer goods China
12 EL-Hashem Trading Group Co. Ltd Chemicals, agricultural products, motor parts China
13 Xiamen ITG Group General, real estate and Financial services China
14 Orient International Enterprise Ltd Textiles, IT products and product inspection China
15 MrSourcing Machine parts, Kitchen parts, bathroom parts China
16 China-Sourcing All kinds of products, quality control, inspection China

 

 

 

 

 

 

 

Conclusion

The customers often prefer China trade company as they offer various products compared to factories and offer multiple other benefits. Purchasing products through a China trade company will give you competitive prices, efficient customer service steam, and high-quality products.

 

China is producing every kind of product, and for the people in the other countries, there are only two options to either buy it through trading companies or through factories. Although both the trading company and factory serve the same purpose but being an importer, it is prudent to know how to use each resource.

 

To whom do you prefer, a China trade company or a factory? Share your preferences and onions with us in the comment section below. For further queries regarding factories and trading companies, do post your comment below.

 

 

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