When planning to source products from China, a western company has two product procurement and production options: a factory or a China trading company. This guide will help you determine which suppliers are best for your business.

The Type Of Factory That’s Best For Your Business

When deciding on the type of factory, you will first need a list of potential factories that you want to research, as well as determining the characteristics of the companies that are appropriate to your requirements. Begin with this guide to finding a supplier in China.

What Is A Factory?

The best factories in China, as you would expect, conform to traditional western ideas of factories. However, the overall quality of the factory varies greatly, as does the pricing structure.

What Is A Trading Company?

When determining what is a trading company we need to recognize the essential difference between factories and trading companies: factories manufacture goods and trading companies sell goods on.

What Is A Trading Company In Relation To Its Customers?

A large number of buyers from a China trading company are westerners. So when deciding on what is a trading company in relation to its customers, recognize that trading companies are likely to be more Western-friendly because they routinely sell directly outside China.

Find A China Manufacturer: Pros And Cons

When attempting to find a China manufacturer, we must initially establish the advantages and disadvantages of Chinese factories.

When buying from the production source, prices are lower when you order direct from a factory rather than a trading company. Expect to pay 5% to 20% less than trading company prices.

You can supervise production, which is impossible when the products are pre-created by a trading company because you will be buying completed items.

If there is any degree of complexity in the product creation process, then a factory will be your best choice. The best additional option, in this case, is to find a sourcing agent in China.

Need help choosing a type of supplier that suits you?

Product Variety Varies Depending On The Type Of Factory

Factories usually specialize in one product area, such as steel or electronics. If you want a product catalog of a hundred wide-ranging different products, for example, you will need to find a lot of factories to fulfill your company’s needs. While this depends somewhat on the type of factory you approach, most factories specialize.

Higher Minimum Orders

Depending on the products you require, a factory will need to set up a production process that could be technical and time-consuming for them. With these factories, expect a high minimum order quantity.

Quality is less predictable, as the factory will have its own initial quality control, which should additionally be subject to your own quality control procedures.

There is rarely a Chinese factory that produces all components of a product. They will make some but not all components in the product.

Even the most well-known companies who source products from China rely on external component deliveries to the factories that work on their products.

Because of that, you should determine the components they make and those they outsource. Later down the line, you will need to determine minimum order quantity pricing.

Your choice of factory will depend on your budget and product requirements; it’s not as simple as opting for the tier one quality because you will also pay more for the products although low-cost country sourcing is always essential.

Tier One Factories

Top-quality factories generally charge the most. Their setups are similar to the factories you find in the west. This is usually a workshop, a room near an office, or a warehouse. Procedures, systems. and standard of cleanliness will be first-rate, but the prices are higher than average.

Advantageously, the end product quality usually means that the production process requires less supervision than in a lower-priced factory.

Tier Two Factories

These factories have reasonable standards but are less professional than tier-one factories. Unless your products require great attention to detail, a tier two factory could be the right choice for you.

Tier Three Factories

This will be a basic room or a workhouse. Complex systems will not be in place, but for simple production, they can be suitable for western companies. You will need your own high-quality control system in place. 

You will develop intuition over time about the most suitable factories for your product. 

To ensure the professional monitoring of the procurement and production process from end to end, we recommend a sourcing agent in China.

Advantages And Disadvantages Of A China Trading Company

A China trading company is generally more expensive than a factory but larger trading companies may have better buying leverage than you might be able to achieve when buying from a factory. In these instances, it can make more sense for you to buy from a trading agent.

Getting Bespoke Products From A China Trading Company

If you are getting bespoke products from a China trading company, this adds extra layers of complexity and communication to the process because a middle man is involved.

Differences Blur Between Factories And Trading Companies

There is often a thin line between factories and trading companies.

A factory may buy a product from another factory and finish the products themselves. For example, if a customer wants t-shirts with designs on them, the factory may buy the t-shirts and print the designs onto the t-shirts in-house.

This system is far more complex as some products require multiple components, such as cellphones.

How To Determine The Type Of Suppliers

Many companies in China describe themselves as factories when they are trading companies; this is all too common practice, and it is essential that you determine the type of suppliers, as this will impact your decision and product pricing structure.

To complicate matters further, if a factory is busy, they often outsource work to a third party.

So how do you determine whether your potential suppliers are factories or trading companies?

Talk To The Company

The obvious first step is to ask them to determine the type of suppliers. It is unlikely that a trading company will describe itself as a factory. If a company describes itself as a factory, ask them which components in the product you intend to have created they will be manufacturing themselves.

What’s In A Name?

A trading company is likely to have a more commercial-sounding name than a factory, the kind of name that they have put some thought into. Trading companies are usually Western buyer-friendly.

Conversely, manufacturers name their company after their area location. For example, a name like Ningbo Electronics Company is unlikely to attract buyers, because it’s unclear what they are selling or manufacturing. It’s highly uncommon that a factory will have a commerce-friendly name.

How To Find A China Manufacturer Or Trading Company

To find a China manufacturer or trading company, run a Google Maps search to see exactly where a company is situated. Company location often provides more clues about your potential suppliers. A small building in the middle of a sprawling urban area such as Shanghai or Shenzhen is unlikely to be a manufacturing unit. You should also bear in mind that they may have a factory at a separate location. A phone call to the company inquiring about their setup should help clarify matters.

Check Out Their Website To Determine The Type Of Suppliers

Is the company website stylish and professional? Is the site in English? If so, it’s highly likely that you are looking at a trading company website. Exceptions to the rule are highly successful manufacturing companies.

The vast majority of manufacturers have simplistic, poorly designed websites. They don’t expect to gain customers from their websites, so don’t see the point of putting a lot of effort into site design and content.

Investigating Their Business License And Registration Details

If, after conducting research as described, you are still uncertain whether you are planning to deal with overseas suppliers in China that are factories or trading companies, the final method is to ask the company directly for their business license. The business license will show you what type of business the company conducts because it lists all the products and services that the company can legally offer.

Do you want to keep your research secret from the company? Or do you have concerns about the legitimacy of the company business license?. The alternative is to see the company registration record. The Industrial And Commercial Administration Bureau has made these documents available online since 2006 for every Chinese province.

In order to find the company, go to and first find the province in which the company is registered. Then search via the relevant province with the registered Chinese company name.

Once you have found the company record, compare it with the information on their business license. Alternatively, check these overseas suppliers via company category to determine whether they are factories or trading companies.

The drawback is that your search must be in Chinese; you may need additional assistance with this method.


There is a solution to avoiding the pitfalls that inexperienced westerners fall victim to — hire a reputable sourcing agent to do the heavy lifting for you. At Easy Imex, we believe our service and experience make us the best Chinese sourcing company. We handle all aspects of the sourcing process, including negotiation, payment options, and shipping.

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