Buying Through A Trading Company Or A Factory?

If your are the importer, which one would you choose, trading company or factory. If buying from factory directly can lower the cost, then why there're so many trading companies in China?

Table of Contents

When you start your sourcing in China, you definitely will encounter two basic types of suppliers— the trading company and the factory.

So which one should you choose? After you read this article, you may get a clear idea of the supplier you want to cooperate with according to your situation.

1. Overview

1.1 Factory

A factory produces various tangible products, it involves the creation of turning plastic, metal, or other raw materials into finished goods. Machines and skilled workers are basic parts. A factory normally specializes in one type of product or material. It has several production lines and many workers. Almost all workers don’t know English (normally the boss doesn’t know English either), their job is simply manufacturing parts of products.

1.2 Trading company

A trading company doesn’t actually produce tangible goods as a factory does. It’s often called “middleman”, it delivers finished goods from factories and professional service to global purchasers. It often works with several factories and can offer a wider variety of products than a single factory.

2. What’s the difference between them?

  • Trading company works as an agent connecting factories and buyers. It doesn’t own or manufacture the products.
  • Trading company can offer several lines of products that may require totally different manufacturing process.
  • Trading company is more consumer-friendly with the aim to attract customers from overseas.
  • Trading company usually locates in densely-populated metropolitan areas, such as Hong Kong, Shanghai, Shenzhen,etc.
  • Trading company usually has an appealing English website.
  • On the opposite, factory normally focuses on one product type. Because cost of machinery is usually high, and different manufacturing process requires different kinds of skilled workers, which also lead to high cost.
  • Factory usually focuses on marketing products instead of attracting clients.
  • Factory usually locates in suburbs or rural areas, with inconvenient transportation.
  • Most factories don’t have a website, some have very basic ones.

3. Key considerations about which type to work with

Nowadays, it’s easy to find factory suppliers online through B2B platforms, some importers insist on working only with factories due to lower costs, then why there’re still so many trading companies out there?

3.1 Price

You may assume that a trading company will normally be more expensive than a factory. That is not always the case, especially for small or medium-sized importers. If a trading company has a long-term relationship with factories, it may give you the same or even better prices and payment terms.

3.2 Communication

  • One advantage of working directly with a factory is that you may have a direct communication. Especially when you try to customize your product, it will be easier to tell the factory to do some modification directly.
  • Normally speaking, it is easier to communicate with a trading company than with a factory, since the former staff are more educated. What’s more, trading company is not involved in manufacturing, so it will be more customer-focused.

3.3 Service

Regarding the whole process of importing, it’s easier to work with a trading company. Importing goods is not just manufacturing products, it involves transportation, customs clearance, freight forwarder. The trading company will settle these issues for you, but some factories maybe not good at it. Professional import&export service is the reason trading company exists.

3.4 Quality Control

A good trading company should add additional value through sourcing, quality inspection, customer service, and so on. These are the advantages a trading company differs over a factory. QC is the most important part of manufacturing, visiting the factory to do a product inspection is part of the work of a trading company. If you let the factory do this, it may cause you some trouble, otherwise, you bring a 3rd party QC yourself.

3.5 MOQ

If your want to place a single product order in large volumes, you may have an advantage when negotiating prices with the factory. Otherwise, a trading company may be a better choice. It may offer you a lower MOQ, with a wider variety of products.

4. Consider your own situation before choosing

Trading companies and factories both serve importers, each importer should consider own situation before deciding which way to go. If you want to choose a trading company, you need to consider what value the trading company is offering. Next time you think about switching to buying from a factory directly, consider the benefits your trading company is currently offering you, you can make a comparison and determine which to order from in the long run.

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