Choosing the right Chinese supplier for your products is a crucial step to ensure business success. In this article, we will introduce four main types of Chinese suppliers, some common misunderstandings and suggestions. We hope this article will be helpful for importers who are interested in purchasing products in China.
There are four primary types of Chinese suppliers: manufacturer, trading company, wholesaler and agent.
First, let’s talk about the Chinese Manufacturer. It is the one most people think of when ordering products.
Manufacturer refers to companies that produce products and sell directly to the customer. Manufacturers operate their own production workshops, employ a certain number of workers, have their own or rent production equipment and purchase raw materials to make finished products. Their profit is determined by the total product factory sales minus all factory rent, raw material costs, worker wages and equipment wear and tear.
The advantages of using manufacturers in China are:
- Products are made for a specific industry, and the manufacturer’s niche scope is relatively concentrated. They understand every detail of the niche;
- The lowest purchase price for products;
- Manufacturers in the same industry often work closely together, and the owners have close relationships. If one manufacturer is close to a deadline, they have help from others;
- Experienced factories are familiar with the rules and standards of the industry and know the relevant laws of various countries;
- They have flexibility over products and in most cases, can customize products and packaging according to customer needs.
Many importers, when they started purchasing products in China, would get goods directly from the factory and reduce middle men costs. In theory, this can reduce procurement costs and raise profit margin. However, in practice, there are many difficulties in purchasing directly from the factory:
- Wheat and rice are mixed together and difficult to distinguish between the two;
To cater to this mentality, B2B sites such as Alibaba, and the vast majority of suppliers will claim to be factories. This is far from the real situation. These B2B sites are actually just middlemen that want to appear as genuine factoriesto attract buyer orders. It is difficult for small and medium-sized importers to distinguish between true and false factories from across half the globe.
- Many factories do not have import and export rights;
In the U.S. and Western countries, including Europe, a ‘license’ is not required to purchase general merchandise. In China, companies are required to have the right to import and export when exporting products. Not all factories have this authorization or can hold it.
- Lack of marketing and language skills;
Many factories focus on producing products. These factories are not very good at marketing, and they are not willing to deal with complex documents and procedures. Most Chinese factories are more willing to do business with domestic trading companies. They prefer to settle directly in RMB, communicate in Chinese and hand over all complex documents and procedures to trading companies. This makes it difficult for non-Chinese customers trying to buy products from China.
- Business instability;
Many factories communicate with foreign buyers through one or two salespeople. In China, due to the unbalanced industrial distribution, most foreign trade factories are located in coastal areas, but the salespeople are likely to come from inland areas. After a few years on the coast, salespeople may leave the original factory and return to their hometown. At this time, the link between the importer and the factory breaks. Sometimes, a salesperson will jump from one company to another. Although the connection is still there, the factory the salesperson uses is no longer the original one. Production materials and processes will change.
In the actual import and export trade, the most active are trading companies. Their characteristics are as follows:
1. Although not involved in direct production, trade companies are familiar with all business processes in import and export trade;
2. Are familiar with industry standards, laws and regulations of importing countries;
3. Have good language communication ability and marketing ability, can build a communication bridge between importers and production enterprises;
4. Purchase from the factory at a lower price and then sell it to overseas importers at a higher price;
5. They generally do not deliberately prepare inventory themselves;
6. The business scope is relatively wide, and the product variety is often not limited to a certain niche product (but there are some foreign trade companies focusing on a specific niche range);
7. They can customize products according to customer requirements.
Based on the above characteristics, trading companies are often active in major trade shows and B2B platforms. The difference between the purchase price and the sales price is their source of profit. Sometimes, they also provide liquidated stock. These products have no quality problems, but the prices are very low, but these products are not sustainable. Thesesell out quickly and are not restocked at the same low price.
The characteristics of the wholesaler are as follows:
1. They usually have to prepare inventory by themselves, so delivery time can be short;
2. They buy in large quantities from the factory, and the purchase price for the customer is relatively low;
3. Their sales targets are distributors at all levels, which have certain restrictions on the number of products and sales regions;
4.They usually do not accept custom products and private label products.
The Agent here refers to the Agent who plays the role of Sales Representatives, not the Sourcing Agent.
Their characteristics are as follows:
1. They earn commissions based on sales performance (there is also the same as the trading company, which earns the bid-ask spread);
2. They have little influence on the product itself, and are rarely able to customize products according to customer needs;
3. Their target customers are mainly end consumers, mainly retail;
4.Their active platforms are Amazon, eBay, AliExpress and other e-commerce platforms;
5. They generally do not prepare their own inventory.
The above are the four most common suppliers in import and export trade. For small and medium importers (especially FBA sellers)
For example, Manufacturer and Trading Company are the most common choices under the traditional model. However, there are many difficulties for overseas importers to deal directly with these companies. Let us choose the two most important ones:
1. Identifying Bad Suppliers
If you sell a product that has received many negative reviews, increased return rates, reduced orders, and customers continue to complain, then you are likely to encounter a Bad Supplier. Bad Supplier has many common features as follows:
1. They are always in an anxious state of busy surving;
2. Focus on short-term profits;
3. Quick & Large orders are urgently needed;
4. They don’t care where the customers come from, they don’t care too much about the customer relationship, they don’t pay attention to the quality details of the products
5. The organization of their factory is chaotic and lacks systematic management;
6. Lack of integrity, harm others and self-interest, and make good use of it;
7. Always find an excuse to increase prices for the pursuit of profits;
8. Make excuses for sophistry after the trick is discovered.
At Sourcing Nova, identifying and staying away from Bad Suppliers is our number one priority, no matter how low their offer is.
Choose Reliable Trusted Suppliers
In contrast to Bad Suppliers, Reliable Trusted Suppliers have the following common features:
1. They can continue to provide products of stable quality;
2. If they ask for a price increase, they will generally provide a convincing reason, and they will not mind providing evidence for the buyer to verify;
3. They have good factory standards and their products actively participate in international certification;
4. They control the quality from the raw materials;
5. Employees have low mobility and can often get good training;
6. Familiar with the precautions of product packaging, labeling and transportation;
7. The communication channel is unobstructed, can reply customer inquiries within 24-48 hours, and can be easily reached.
In order to allow overseas importers to more effectively circumvent bad suppliers and find reliable suppliers, a very popular term has been widely known in recent years-Chinese Sourcing Agent. Sourcing Nova itself does not sell any products. Our mission is to act as an agent for overseas small and medium importers in China. We are fully responsible for daily tasks related to product manufacturing and transportation, supervising product quality and delivery, preparing relevant customs clearance documents and certificates, Ensure that high-quality products reach the designated location of overseas importers safely within the contract date. But we always believe that the core task is to find Reliable Trusted Suppliers for overseas buyers.
This kind of Reliable Trusted Suppliers is a golden partner for overseas importers, and it is generally not easy to find. If the importer is lucky enough to find it, it is best not to give up easily.
We believe that it is necessary to maintain a good long-term cooperative relationship with Reliable Trusted Suppliers for the following reasons:
1. You need some luck to find a reliable supplier. This good luck deserves your long-term care;
2. In the long run, having a reliable supplier can bring higher profits and customer satisfaction to importers;
3. Reliable suppliers care more about their reputation and word of mouth. They will not do a single one-time sale, but instead focus on maintaining long-term relationships.
4. Reliable suppliers are more proactive and will not stop at fulfilling order obligations. They will work more closely with importers and actively help importers to achieve progress and success. They can provide the industry’s latest product information, and sometimes they will work with you to analyze what competitors are doing now;
5. A reliable supplier is worth more than 10 ordinary suppliers, and the importer does not have to spend too much time looking for new suppliers;
6. If they want to increase the price, they will definitely provide a valid reason or stand with the importer to find a solution.
There are many industrial areas in China, and factories in the same industry often gather in one area, and business owners often know each other, and often even come together to eat and play. So we think it is necessary to maintain a good relationship with the factory. If the buyer does something immoral and hurts the interests of a factory, then it is likely that this story will spread quickly in this industry. The factory owners will unite and refuse to supply the unethical buyer.
To ensure the sustainability of our business, we need to carefully maintain relationships with quality suppliers.
Given the cultural differences between China and the West, we consider it necessary to emphasize the following facts:
1. If the buyer is more friendly to the supplier, the supplier will be better to the buyer, and the buyer’s order can be given priority. Maybe one day the buyer may ask the factory for help.
2. “Customer is God” is theoretically correct, but don’t take it too seriously. A high-quality factory often has many customers waiting in line to arrange production, and a high-quality factory does not lack customers.
3. The orders with higher profit are often given priority processing;
4. If overseas buyers are too rampant and try their best to squeeze the supplier’s last coin, such buyers will not be welcome in the future;
5. In some cases, the factory did not make any mistakes in arranging production. The buyer filed an unfair claim against the factory in order to pay less or was unwilling to pay. Whether successful or not, this buyer’s immoral story will surely be widely known and will likely be resisted by the industry as a whole;
6. If buyers want to keep their products competitive, they must be prepared to pay higher prices. Cheap price always come with poor quality and bad reviews.
7. In the West, Business is business. In China, Business and personal are often inextricably linked, and Guanxi is crucial.
We have many ways to screen for bad suppliers and high-quality suppliers. We also attach great importance to and maintain the relationship between high-quality suppliers, but this does not mean that we should blindly trust them. Some necessary control measures are also indispensable. The inspection process is indispensable. Some product reports and quality certificates have to be checked, and we cannot blindly accept their requirements for price increases.
As a China Sourcing Agent, Sourcing Nova is committed to providing valuable and profitable services to overseas buyers, helping you find more reliable Chinese suppliers and monitor order fulfillment. But we also want you to be a fair respectful and trusting people, because maintaining relationships with quality suppliers is just as important to us.
If you are such a respectful people and ready to source from China, please let us know.