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Chinese Suppliers – Trading Companies and Manufacturers Explained
There are three main supplier categories to take into consideration when importing from China – Manufacturers, Trading Companies and Manufacturing & Trading Companies. While the type of company will not be the most important factor when selecting your suppliers, different types of suppliers will require a different approach during the sourcing process and have a major impact on the future of your import business.
Therefore it’s important to know what type of supplier you should look for when sourcing in China. Let’s begin with an introduction to the three major supplier types in China.
Supplier type #1: Manufacturers
Most importers assume that it’s always preferable to “go straight to the source” and purchase directly from manufacturers while cutting out middlemen. I tend to agree with this statement and usually it certainly makes sense to buy directly from the manufacturer when importing from China. However, doing this is not always an option for small businesses and stores looking for a wide selection of products in fairly small quantities.
1.) Gives the importer more options when ordering custom made or branded products (OEM / ODM)
2.) The importer works directly with the original manufacturer and is more aware of the pricing structure, the different capabilities and limitations of the manufacturer – thus making current and future product development more efficient
3.) The elimination of intermediaries can result in lower prices
4.) In case of a dispute you will be negotiation and demanding compensation directly from the manufacturer instead of relying on an intermediary to handle the negotiations. You can never be sure that the intermediary consider you to be more important than the manufacturer.
5.) Manufacturing companies are often larger than trading companies and may have more resources to compensate or remake a failed order
1.) May result in a higher Minimum Order Quantity (MOQ) requirement since the manufacturer has to produce a certain amount of units in order to be profitable and to purchase a certain quantity of material and components from the material and component suppliers – who also have MOQ requirements
2.) Many manufacturers do not have an export license that is required to export products from China.
3.) Some manufacturers are lacking product knowledge possessed by agents and trading companies
4.) A large manufacturing enterprise may consider a small buyer as irrelevant which will put the buyer in a weaker negotiating position
5.) Manufacturers specialize in their industry and can only offer a limited product selection