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Trading Company or Manufacturer?

In China, there are essentially two types of suppliers: trading companies and factories.

Trading companies are liaisons between factories and foreign companies. A lot of Chinese companies wouldn’t know where to begin with when working with foreign companies, so trading companies help them in this regard (also, back when China’s economy was closed, Hong Kong trading companies were one of the only ways to import Chinese products). Trading companies are middle men.

Trading companies generally work in a particular product niche, in my case, boating, and work with several factories.  Being middle men, they add on one more cost to the equation.  Many people refuse to work with trading companies for this reason, preferring rather to work directly with factors. I’m of a different mindset for a few reasons.

– A trading company can find factories you would never even know exist unless you’re very familiar with China.

–  They can negotiate lower prices with factories than you may be able to. So even though the trading company may add on their 10-20% markup, if they can negotiate 30% lower costs with the factory, you’re still better off (although you’ll never know the true cost they are getting from the factory).

– They’re experienced working with foreigners and understand the needs of Western companies better. They may provide better product packaging, better overall shipment packing, and they communicate better.

– They theoretically should ensure product quality. Like many Chinese companies, quality isn’t always at the forefront, but the likelihood of receiving a product with a catastrophic defect is lower.

– They may have lower minimum orders. Factories need to produce minimum quantities of something. If the factory needs to manufacture at least 75 widgets of something at a time, the trading company may be able to find 3 separate buyers to buy 25 widgets each.

I work with both trading companies and factories directly. Some factories, especially the larger ones, are just as good as trading companies. However, they’re more difficult to find, and on your first order or two, I definitely recommend working with a trading company to begin with.

Note: Many Chinese companies will try to hide the fact they are indeed a trading company and claim to have a partial ownership in a factory or something along those lines. This is a combination of pride and fear that Western companies won’t want to work with a trading company.

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