What are trading companies in China?

Generally, trading companies take your order and then employ local factories to produce your goods. They do not produce anything and seldom hold stock (like a wholesaler).

Let’s look at how foreign buyers can benefit from working with traders rather than buying directly from the manufacturer, or at least a wholesaler.

Why choose to work with a trader?

This kind of ‘middleman’ may benefit you if:

  • You lack time to manage the China sourcing and production process
  • You can’t get to China (also likely for time reasons)
  • You do not have specialist knowledge about the products you’re trying to import
  • Your supplier doesn’t speak English and communicating with them effectively is hard

A trading company insulates you from the inconvenience of having to handle the sourcing and supply chain process in China. If you find a good one, you will benefit from greater convenience knowing that they can handle your requirements with less input needed from yourself.

By the way, if you are in this situation, you might want to consider engaging Sofeast. We have a different business model, but the same value proposition. Our Value-Added Procurement Office in China solution is very suitable for you in this case.

Positives of trading companies

Following on from the convenience mentioned, below is a list of potential benefits that trading companies provide that may give importers better peace of mind:

  • Local knowledge and may already know the ‘best’ suppliers for your needs
  • Can speak good English with you, the client
  • Can communicate effectively with suppliers in Chinese (no language barrier)
  • Manufacturers may listen to them more as they speak the same language and they’re being paid by the trader
  • They may understand your market better than a Chinese manufacturer and so can suggest important changes
  • A trading company can take care of all the export paperwork, whereas some  manufacturers might not have export licenses at all
  • Traders can react to issues with the manufacturer faster, as they’re already based in China
  • They often start a project without requiring upfront payment and get paid once an order has gone through, whereas suppliers will generally need some kind of advance payment before starting production
  • The trading company has responsibility for keeping the project running smoothly and solving any problems that may occur, such as quality issues

For more information about the advantages of trading companies, please read this post: Advantages of buying from a trader in China

Negatives of trading companies

  • You do not know how much margin the trader is adding – you may be paying far more than if you were to deal directly with the manufacturer yourself
  • You do not have visibility over your supply chain, however, you as the importer are held responsible for the products you bring in. What happens if your trading company doesn’t inform you about any quality or compliance issues because they want the project to be completed and to get paid sooner?
  • They may work with poorer quality factories as they will make more margin that way. These factories may also be unable to communicate in English, and therefore cannot deal directly with the trader’s foreign clients, locking you into dealing only with them
  • They may choose to work with friends’ or family’s factories due to wanting to give them the business, even if they are not the best option for your job
  • Traders could be unwilling to let you know who produces your goods for fear that you will ‘go direct,’ but this also means that you lack visibility about your supply chain. Is it ethical? Is it safe? Do products comply?
  • Certifications and product compliance could be a problem unless the trading company gets your products tested themselves. What if they provide the supplier’s testing certificates that don’t match with their company name on your invoices? Your products could be non-compliant.

Read more about potential drawbacks of trading companies in this post: Chinese trading companies and their dirty little secrets and also Why First-Time Buyers Fall for Trading Companies in China

 

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