Sourcing in China: Factory vs. Trading Company?

- Carson Block, China Primer

When sourcing from China, many buyers debate whether to buy direct from factories, or to buy through a trading company. The primary attraction of buying from a factory is that you may be able to negotiate better prices without having a middleman. However, this is not always the case – some trading companies can save money if they do significant volume with a given factory.

Buyers should consider issues other than cost when deciding whether to deal with a trading company or a factory. Trading companies are often in a better position to perform quality control than buyers are. When there are problems, trading companies may spend their own money to ensure that the customers are satisfied. Moreover, they can help quickly switch suppliers when there are problems.

Take note that the above refers to GOOD trading companies. Bad trading companies are the worst of all worlds. There tend to be more bad Chinese-owned trading companies than Western owned (the capital requirements for Chinese-owned are lower than those for foreign-owned). If you are considering a particular trading company, you should visit its office. If it looks poorly run, it is. Also, you should request a copy of its business license in order to see how much “registered capital” it has. The more it has, the greater its likely financial strength.

For more on how to deal with trading companies, see Doing Business in China for Dummies, Chapter 12.

 

Related Articles:
Types of Sourcing in China
Sourcing from the factory vs. using a trading company
China Sourcing: Common Pitfalls

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