Trading companies and factories are two basic types of suppliers one may find while looking for global sourcing partners. But which supplier could be more beneficial for you, a trading company or a factory?

Trading Companies Vs. Factory

Whether you are a newbie to global sourcing or an experienced sourcing agent, this article will clear the technical differences between these two suppliers. And ultimately, it enables you to choose the best supplier to boost your business.

What is Factory?

The definition of a factory remains the same, whether you’re looking for a factory in China or any other country. A factory is a company that has some machinery and technically skilled labor to produce a specific item.

Trading Companies Vs. Factory

Factories can offer you lower prices and more specific customization. Direct communication with factories enables you to get your perfect customized orders in minimal time and at a pretty lower cost. Factories have higher MOQ as compared to trading companies. You have to clear the bar of the minimum order quantity (MOQ) to work with factories.

What is a trading company?

Trading companies neither have any machinery nor produce any products. Instead, trading companies have relations with multiple factories and, they used to source products for their clients.

Trading companies set a specific markup on each order they source for their clients. The value of markup varies from client to client and different scenarios.

Trading Companies Vs. Factory

There are pros and cons to working with trading companies. Keep reading to clear the conceptual differences and benefits of working with trading companies or factories.

Best Supplier | A Factory or Trading company

We have listed down a few key points to consider that may clear the enigma of the best supplier choice.

• Size of your Order – Factories have a higher minimum order quantity (MOQ), making it impossible for small importers to work with them. If you have to import a small number of products, factories will not take your order, and you have to find a trading company for that. Trading companies have several clients for the same product. They also have exceptional relations with factories. That enables them to meet the MOQ bar.
• Product cost –Product cost is another vital factor you may be looking for as an importer. Trading companies are considered costly to work because of higher markups. But that’s not true in all scenarios. A perfect trading company can offer lower prices as compared to factories. Trading companies have exceptional relations with factories, and they manage to get lower costs per unit because of regular high-volume orders.
• Experience level as an importer –Experience of importers matters. If you are new to the Chinese market as an Importer, it would be better to work with trading companies as it’s not easy to establish a relationship with factories, especially as a small importer. Trading companies already have a unique relationship with factories, and you may use their experiences to save your time & money.
• Communication and Customer service – While working with Chinese suppliers, language could be a barrier for you. In case you don’t know the Mandarin language. Then you may go for a trading company instead of a factory. Because trading companies usually have staff that could speak better English. Customer service is another plus you can enjoy working with trading companies. Trading companies don’t have to manufacture products. So, their core focus is on customer service to satisfy customers and multiply revenues. That makes it too easy to communicate with trading companies than factories.
• Product Type – The type of product you want to import from China or any other country can impact your decision to work with a trading company or a factory. For example, if you are looking for a textile supplier from China, you may find several factories and trading companies. But in case you are looking for a lithium batteries supplier, it could be tough to find a trusted factory with years of track record. So, you may go for a trading company to import a complex product as it’s easy to find a trusted trading company than a factory in China in such an exceptional case.

How to recognize a Factory or Trading Company

Several trading companies on giant e-commerce marketplaces like Alibaba, & Global sources, etc., doge their clients by portraying their companies as factories to attract buyers. To clear the picture, you may ask a direct & simple question to their representative, whether you’re a trading company or a factory?

Trading Companies Vs. Factory

If you get an answer as ‘Trading company,’ the situation is pretty clear now you can continue with them if you’re looking for a trading company. But you may need to do a little more verification if you get an answer as ‘factory.’

To ensure that you’re in touch with a factory representative, you can ask for their factory registration number and what components or product they made. Besides that, you can also make a random video call and ask for a virtual factory tour to verify the fact.

Final Words

Trading companies may be costly in your case because of their markups. But trading companies add additional value to your product to make a worthful deal for their buyers. Now, you have to dig deep to look at what kind of values a trading company is adding to your product for charging extra markups.

When a specific trading company is offering services like a quality check, custom clearance, and lower shipment charges, etc., then signing a deal with a trading company can be more beneficial irrespective of cost differences.

A factory could be your best choice while looking for a customized product imported from China. Direct communication with the factory representative makes it easier to convey customized demands and ask for changes in case of any issue. Meanwhile, factories can offer you lower prices for bulk orders than trading companies.

So, we can say that importers may not stick to their decision to work with factories or traders. They should make decisions according to the above-discussed scenarios like product type, MOQ, & additional value, etc.

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