If you are looking for a supplier in China, you may stumble upon two major types of suppliers – manufacturers themselves and trading companies. The two are very much different in terms of business structure. In simpler terms, trading companies are often dubbed as “middlemen” for direct manufacturers.
Trading companies often get bad raps from many importers. Likewise, many so-called experts advise first-time importers not to deal with trading companies. For one, it is a fact that trading companies offer higher product costs than direct manufacturers. But iso it’s part of a business – it is necessary for trading companies to add additional cost to the products they source from direct manufacturers.
This article will serve as your guide in knowing the difference between the two business structure and how trading companies can help your business.
Trading vs. manufacturing companies
As mentioned, there are distinguishing factors between a trading company and direct manufacturing. On one hand, a trading company possesses the following characteristics:
• Relies on direct manufacturers where they source their products from (usually more than one manufacturing company)
• Also known as “wholesalers” or “distributors”
• Can sell as many products as they can, given that they can deal with multiple factories simultaneously)
• Can accept lower MOQ (minimum order quantity)
• Can do product sourcing and quality inspections for clients
On the other hand, a manufacturing company has these following traits:
• Owns a factory where products are directly made
• Offers lower product costs unlike trading companies
• Has more control over their products
• Requires higher MOQ
• Offer limited products (mostly only what they manufacture)
Back then, trading companies are the only way to import products from China. But nowadays, clients can directly deal with manufacturers depending on their business requirements.
However, it is more important to deal with an honest and reliable company than an established and popular one. There is this common practice in China wherein some trading companies pose as manufacturers to entice customers. Many customers have a notion that manufacturing companies offer lower prices, hence the deceit on the side of the company.
But this should not be the case. For one thing, such companies should be avoided as much as possible. If these trading companies have managed to lie to you about their business nature, then it may most likely happen again in the future. That said, a trustworthy trading company should let their potential customers know their true business nature the first time around.
How trading companies can help your business
Trading companies face stiff competition from direct manufacturers. One major factor that puts the latter into an advantage is the low production costs. While the latter offers more attractive costs, it still depends on the importer’s order quantity and the specific products it intends to import.
On the other hand, trading companies can help many businesses. But choosing a reliable trading company may be easier said than done. That is why it is important to do extensive research about a specific trading company. In finding a reliable trading company, you should consider the following:
1. They should strictly follow timeline/lead times.
A dependable trading company should practice what it preaches. When your contact says the items will be delivered on a Friday afternoon, it should be delivered on that exact day and time. Much better if earlier, but there should be advised nonetheless.
More than the product cost, a good trading company should have a better understanding of the entire business process. Likewise, it should give importance to product quality so you only get the best out of its price.
2. They understand their customers.
Unlike manufacturing companies, most trading companies focus on customer satisfaction. Since they do not directly manufacture the products they sell, they make up to it by providing utmost client service.
3. They are good at building relationships.
They are basically experts in relationship building. On one hand, they usually deal with multiple factories in sourcing their products from. On the other hand, they also build a good relationship with their clients and satisfy their business needs.
4. They are willing to go the extra mile.
Many trading companies can take the extra task of sourcing other products aside from their current inventory. If you need additional business requirements such as dedicated labeling, trading companies can do that for you.
5. They can actually offer lower product costs, too!
Most trading companies have a small office or warehouse spaces, unlike manufacturing companies. Hence, the former can only incur lower overhead costs than the latter. Also, building/space rental is cheap in China, so rental costs should not be a big deal for trading companies either.
6. They offer more product assortment and ideal for small businesses.
As mentioned earlier, trading companies accept smaller MOQs. Likewise, they can also offer a wide variety of products you can choose to sell.
Dealing with a trading company is not all bad. For example, if you do not always order in bulk as commonly required by manufacturers, then a trading company as a supplier is a good choice. Also, a trading company offers more choices, unless you want to deal with several manufacturers which can be stressful.
At the end of the day, choosing whether to deal with a direct manufacturer or a trading company depends on the nature of your business and your average order quantity. Nevertheless, it is still important to know the difference between the two so you can make the best decisions for your business.