Key Differences Between Trading Companies and Manufacturers

Key Differences Between Trading Companies and Manufacturers

If you’re thinking of importing from China you might have already been searching online or attending trade fairs looking for suppliers. What you may not be aware of is that many of the websites you have been visiting and the exhibition booths you’ve stopped at do not actually belong to manufacturers at all, but to trading companies. In this article we will explain what a trading company is, how they differ from manufacturers, and why the difference is important.

What is the Difference Between Manufacturers and Trading Companies?

A manufacturer is a business that produces goods. In contrast, trading companies do not make goods, store them or own them. They purchase goods from manufacturers and resell them. The easiest way to tell a trading company from a manufacturer is to look at their product catalogue. If it includes everything from electrical goods to rugs and clothing, then they are a trading company. If there are only a few items that could have all been made on a similar production line, then they are most likely a manufacturer.

Advantages of Working with a Trading Company

Customer Service

The key advantage of working with a trading company is that it bridges the communication gap. Many foreign factory owners and their employees do not speak English, or those that do may not have the ability to interpret complicated information for their colleagues.

The factory is also located in another country, while you, the importer, are half a world away. That means, unless you have the time and resources to travel there frequently, your communication will be limited to hundreds of emails and long telephone conversations in pidgin English.

This is where the trading company has the advantage. Their business is built on service and, in a highly competitive marketplace, they offer the importer a complete solution from manufacture to shipping. If this is more important to you than getting the best price, then a trading company may be a better option for you in the long run.

Trading companies respond quickly to enquiries, are professional in their dealings and usually speak your language; but this is what you are paying for through the commissions they charge.

Minimum Order Quantities

Often manufacturers will insist on a minimum order quantities before accepting an order. If they do accept a small order, they may take longer to deliver and be less responsive to you than to clients placing more significant orders. This is not hostility, you’re just not very high on their priority list! Trading companies can sometimes use their long-standing relationship with the factory to negotiate away this minimum order requirement. This relationship also helps to keep the manufacturer accommodating and responsive.

Disadvantages of Working with a Trading Company

Pricing

The biggest disadvantage of working with trading companies is the cost. When you work directly with a manufacturer, you get the best possible price, as there is no middleman. When you go through a trading company, you have to pay them a commission on top of what you are already paying the manufacturer. This means your overall costs will be significantly higher.

Lack of customization

Another disadvantage of working with a trading company is that trading companies specialize in selling products. They do not necessarily have expertise in connecting businesses with the best factory for their needs. This is fine if you need a generic product, but if you need a unique product or one with very precise specifications, you may be better off working directly with a manufacturer.

The Third Option: Import Agents

If you want the best possible price, but don’t want the hassle of trying to deal directly with the factory, there is another option available. This is to use an import agent based in the country you wish to import from.

Import agents (also known as sourcing companies or sourcing agencies) act as buyer’s representatives in the foreign market. Import agents have deep knowledge of local markets and can help you find the right factory for your product. These agents also have people ‘on the ground’ who can verify factory credentials and assist with negotiations, contracts, ongoing quality control and troubleshooting when production problems arise.

Import agents tend to be a lot cheaper than trading companies. While the trading company is adding the highest markup that they can get away with to the factory’s products, import agents negotiate the lowest price possible from the chinese manufacturer.

Should you Choose a Trading Company, Manufacturer or Import Agent?

Whether you should work with a trading company, manufacturer or import agent depends on the specific needs of your business. However, based on our years of experience working with businesses, we can make some educated guesses. If you will be placing small orders of commonly sold goods, a trading company may be the best option for you.

If you will be placing large orders or your product has very precise specifications, you may be better off working directly with the manufacturer, or working with an import agent. The choice will depend on how much help and support you need with the procurement process.

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