Who to Import From? Sourcing Companies or Asian Factories
Whether you’re an entrepreneur or you are a member of a large organization looking to expand your supply, you’ll likely have to choose between two options when sourcing products: a specialized sourcing company or a factory.
The decision isn’t always simple, and many factors contribute to what route you should go down, so let’s look at the key differences between these two options so you can make an informed choice.
First, let’s take a look at how they compare in terms of features.
A Factory in Asia
In China, a factory is precisely what you’d expect it to be: a factory that makes different types of products. Most products are manufactured using specific machines, although the complexity of that technology varies greatly.
Consider a textile machines manufacturer compared to a computer parts factory, which has considerably more complex and expensive technology as their principal machinery. The textile factory could not produce microchips since the technology and skillset required for each sort of product are fundamentally different.
Because you have direct contact with the manufacturer in charge of creating your items, you are able to gain cheaper costs and better control over your products.
Manufacturers, on the other hand, provide a significantly restricted selection of items and need far larger minimum orders (MOQ).
One thing to remember about factories is that virtually all of them source some of their parts and components from other manufacturers.
For example, consider the operations of a factory that makes clothing. The yarn and fabric for the clothing are probably purchased from another manufacturer and sewn together by that company.
Many factories may be involved in the production of a single product, especially if there are many types of complicated components involved, such as in technical devices like smartphones and computers.
During peak times, many manufacturers subcontract or outsource their work to other companies. When dealing with a factory, it’s important to know exactly what product components they make. Unfortunately, in most cases, factories do not have that administrative power or the will to inspect and certify everything.
A Sourcing Company
Trading companies used to be the sole option of importing from China before China’s opening up, but this has all changed in recent years. Unlike a manufacturing firm, a trading company does not really make any products of its own.
Instead, they purchase a wide range of goods from one or many manufacturers and sometimes even work directly with the factories. Although they aren’t exactly like what we think of as a distributor or wholesaler in the West, they’re quite close in the way they operate.
Sourcing companies may conduct audits, product certifications, and testing under your country’s requirements. They may consolidate shipments if you need products from many producers.
They also serve as your eyes and ears in China, providing a range of services beyond manufacturing, including translations, legal advice, and other consulting.
The ability to provide a broad range of items is one of their major advantages. To be a competent trader, you need to be able to discover hard-to-find items from hard-to-find manufacturers. They should also undertake some kind of quality control if they’re doing their job properly.
In most cases, a sourcing company may be slightly more expensive than a factory, but a good procurement company adds value through excellent sourcing (multiple sources), prompt customer service, quality inspection experts, and other benefits. However, it is recommended to avoid commercial companies that simply purchase and resell products without adding commercial value.
When to Choose a Sourcing Company?
Importers sometimes claim that they will only work with manufacturers, despite the reality that neither factories nor trade organizations are fundamentally good or bad.
In most cases, a trading company is slightly more costly than a factory, but a good trading firm should provide value via excellent sourcing, timely customer service, expert quality inspection, and other benefits. It is, however, recommended to avoid trading companies that just acquire and resell products adding no value to the products.
One thing to remember about factories is that practically all of them get some of their parts and components from other manufacturers.
For example, think of the operations of a factory that manufactures clothes. The thread and fabric for the attire are likely to be purchased from another manufacturer and sewn together by this firm.
Many factories may be involved in the production of a single product, especially when there are many kinds of complicated components, for instance, tech gadgets such as smartphones and computers.
During busy periods, many manufacturers would contract out or outsource their work to other firms. When dealing with a factory, it’s critical to know exactly what the factory produces in terms of product components.
If you want to know if a supplier is a factory or a trading company, all you have to do is ask them. It’s that simple. To answer your query, you need to know that the supplier is a trading firm. When a company claims to be a factory, you must dig a little further to find out exactly what parts they manufacture.
When to Choose an Asian Factory?
- If you are looking for new suppliers or want to expand your range.
- You need interlocutors who know the direction of the service and respond quickly.
- You do not want to commit to too large quantities.
- If time is of the essence in your industry (which it almost always is), you’ll probably want to use a trading company as your primary supplier. Another advantage is that you have access to a wider variety of products and services.
A sourcing company acts as an intermediary between your brand and factories in China and other parts of Asia, allowing you to source cheap standard products and deliver them directly to your company without having to import anything yourself.
When to Choose a Factory?
- If you want to master the manufacturing process of your product and distribute it on a large scale.
- You have enough time to build a relationship on a larger timeline.
- You have Chinese speaking engineers or product managers on your team.
- You can make payments in China and have legal representation in the event of a dispute.
- You want to take care of importing your products yourself.
- Many companies that manufacture a single product choose to use sourcing companies in the beginning, and then use factories later as their business develops. A direct contact with a manufacturer for a fixed and well controlled product is therefore an advantage.
However, if you are dealing with an established sourcing company, they will already have good relationships with manufacturers. It is more likely to be able to get a better price than what a manufacturer has already quoted you.
Some additional things to consider:
- Does your product need to be manufactured or have intellectual property protection?
- Do you have the ability to visit production facilities frequently?
- Are raw materials available where your product will be manufactured?
If you answer “yes” to all these questions, you can consider a factory, taking into account the aspects mentioned above.
For example, apparel is usually manufactured by commercial companies, while electronic components can be manufactured by either. If there is no right answer to one or the other, you should consider the option that best meets your production goals and budgetary constraints.
Choosing a factory or sourcing company is one of your first major decisions as an importer. The choice will determine how you communicate with your Chinese supplier, whether there are any fees associated with ordering, and what to expect during shipping.
Keep in mind that manufacturers do not have set pricing; they vary according to volume. To get cheap pricing, producers must have a large volume.
By choosing a sourcing company that speaks your language and, thanks to its annual global order volume, has access to raw materials that are often cheaper than those of the factories. You will have access to the lowest production costs while benefiting from permanent advice that will give you a significant advantage over your competitors.
Whichever option you choose, keep in mind that communication is key to reaching an agreement that everyone is happy with and working well together, moving forward!
A reliable sourcing company such as Equalize LTD is a good option to consider. Equalize has worked in the Chinese market for over 20 years and partners with leading factories in China to provide top global brands products to international buyers. The best sourcing companies are focused on bridging the gap between importers and hidden gem manufacturers.