Sourcing and trading companies are two different types of resources that help make the import process easier. However, many people don’t understand what they are or how they work.
This blog post will explain these differences so you can better understand which one is right for your business.
What is a sourcing company? How they work?
Sourcing company helps foreign buyers find the right suppliers in China, they are also agents who negotiate with Chinese suppliers on behalf of foreign buyers.
They can help with sourcing, pricing, and shipping, also solving language and cultural differences.
Sourcing companies act as a middleman between Chinese factories and foreign buyers. They have contacted many factories in China, but do not own them.
All orders are placed through the sourcing company, and they process all orders on behalf of the buyers.
Sourcing company finds reliable suppliers for their clients, get the lowest prices, reduce shipping costs and check the quality of the goods.
What is a trading company? How they work?
Trading Company is a business that specializes in exporting goods from China. They are able to provide access to any business or individual who needs goods made in China.
With their help, you will be able to get the goods you need without having to travel all the way to China and then bring them back yourself.
1) The first thing a Chinese trading company does is to verify that the buyer is allowed to trade in China and in their home market.
2) The second thing they do is get the buyer familiar with all the rules and regulations and tax laws that pertain to overseas trade.
3) Finally, they will provide the buyer with the necessary information about the production capacity and show them samples of their products.
The trading company provides buyers with inventory by obtaining it from the Chinese factories that produce the goods. They also provide product development, prototyping, and market research.
What are the differences between sourcing and trading companies?
Many people think that sourcing and trading companies are the same things. There is a good reason why this line is blurred, as sourcing and trading companies often enter each other’s domain.
I hope I can address some of the key differences between sourcing and trading companies in this article.
1) Process Specialization Vs Industry Expertise
Chinese sourcing companies are often specialists in systems and processes related to quality control, international trade, and supply chain management.
These processes and systems can be inserted into most industries and products. While trading companies tend to specialize in specific products or industries.
2) Breadth of Knowledge Vs Depth of Knowledge
Chinese sourcing companies tend to have a broader knowledge of various industries and supporting industries such as logistics, quality control (QC), testing, etc.
And how all of these can be combined to form an efficient and effective supply chain. While trading companies may have a broader knowledge of their own products or industries.
3) Sourcing companies do not carry catalogs
Sourcing companies usually do not carry their own catalogs and price lists. While trading companies will actively carry and promote their own catalogs.
The sourcing company will “source” each product according to the buyer’s requirements, and the trading company usually uses existing factory relationships to find new products.
4) Protect the customer’s interests
The sourcing company acts as the buyer’s on-site representative and strictly implements the customer’s instructions, making sure everything is in place to ensure that transactions run smoothly.
These include quality control, risk management, and logistics handling, depending on the range of the sourcing company’s services.
Trading companies usually strike a good balance between the manufacturer and the customer and put the manufacturer’s interests first.
They have established manufacturers from whom they purchase and supply to multiple customers, therefore having a volume advantage.
If the standards are not met, the sourcing company can put more pressure on the supplier or change suppliers more easily.
Since they have nothing to gain from protecting the manufacturer, the sourcing company’s interest is mainly in dealing with problems with the supplier, ensuring smooth shipments, and retaining their customers.
5) Dispute management
In case of disputes, such as failure of pre-shipment inspection of goods or payment disputes with suppliers.
The sourcing company will resolve the dispute on behalf of the customer and resolve the issue or obtain compensation by various means (negotiation, contract execution, etc.).
While working with a trading company, the trader is actually the supplier, so the buyer will deal directly with the trader to resolve the dispute.
6) Strategic objectives
In most cases, a sourcing company’s strategic objective is to manage costs, risks, and control quality for its customers by using its established systems.
And processes, experience and knowledge of its field of operation, and field resources available for implementation for this purpose.
The strategic objective of a trading company is to maximize sales of its product lines in order to gain an advantage of scale in sourcing from factories, thereby increasing revenues by expanding profits.
7) Value added services
Sourcing companies can provide value-added services to their customers.
Depending on the relationship with the customer, they often add customized services and act almost as a branch of the customer’s company in China.
This may include market research work and product recommendations from other industries where profitable opportunities exist.
As well as services to build a large supplier base for existing products, and strategic advice and consulting.
While trading companies often provide additional services in the form of product recommendations related to existing products or industries, or customization of current products.
Yansourcing’s advice: Almost every point mentioned above for a sourcing company can be applied to a trading company, and vice versa. This is where the blurring of the lines of difference often leads to confusion.
Why should you use a sourcing company?
1) Save time
Sourcing companies can help you save time when purchasing from China. The sourcing agent will use the Chinese language to make your order smoother.
If you do this job yourself, you will spend at least twice as much time as the sourcing agent due to language barriers and time differences.
2) Save the cost
Find the best factories from various industrial bases in China, source different products, and get the lowest price from each supplier.
With the sourcing company, you will save at least 200% of your costs.
Shipping costs will also be saved and the sourcing company will help integrate all packages from different places and since their warehouse is free, you can ship together after the whole goods are collected.
3) Quality assurance
Sourcing company has many good suppliers able to provide quality guaranteed products.
Besides, the sourcing agent will check the goods before shipping and let you understand the product quality through video or photos.
4) Explores the market
Sourcing companies can help customers explore the market and verify the feasibility before confirming the factory.
This type of work can be quite time-consuming as they need to visit many workshops and factories and then find a factory suitable for customers.
How to find the best sourcing company?
There are many ways to find a sourcing company in China. However, it is a complex market for beginners. Here are 3 ways to find a reliable sourcing company.
1) Current suppliers
Some suppliers initially sell only their own products. However, they will continue to help source other products for good relationship customers. So, some suppliers may offer sourcing services to their customers.
This may be more applicable if you work with a trading company, although there are some advantages and disadvantages.
For example, the trading company may charge you more. Anyway, as long as the supplier is trustworthy, this way can be considered.
2) Online search
You can find everything on the Internet, including potential sourcing companies.
For example, you can use the Google search, just enter keywords such as “Chinese sourcing company” or similar, and then view the search results. Read their online reviews carefully before making a decision.
Note: This way may be limited at this time due to the effects of the Covid 19 global pandemic.
The fairs are usually attended by a number of large companies or groups of agents, so it’s worth coming here if you have the opportunity. You can talk to them face to face and get what you need straight away.
- China Import and Export Fair
- Hong Kong Trade Fair
- Yiwu International Commodities Fair
It’s no secret that China is a manufacturing powerhouse. In fact, it produces nearly 50% of the world’s products and services!
However, sourcing from China can be complicated if you don’t have an experienced partner on your team to help you with all the intricacies of importing goods.
Yansourcing is ready to help you, we are a first-class team of agents, professional in our service, efficient in our work, and want to be your best partner in sourcing from China!