Although importing from China is a very common thing, SourcingArts finds that it is difficult to distinguish Chinese trading companies and manufacturers even for most foreign buyers who often purchase from China. Not to mention for those novices who have never sourced from China.
Even many novice buyers do not know how to define Chinese manufacturers and trading suppliers. So let’s first understand what manufacturers and traders are.
A manufacturer or factory is a company that makes a product from scratch and sells it to wholesalers or retailers. According to the production process involved in the factory, manufacturers can be divided into many types. In this blog, we define all suppliers involved in any of the following production steps (except product design and packaging) as manufacturers.
Usually the production steps of a product are roughly as follows:
The operation and management of a factory is more complicated than that of a trading company, because the production of products involves many links, and each link needs to be completed by humans.
Know that dealing with people is the most difficult. A small factory usually consists of business department, engineering department (design department), production department, quality inspection department, merchandising department, and purchasing department. It seems to be much more complicated than a trading company.
The domestic trade department is responsible for China’s domestic trade, and the foreign trade department is responsible for overseas trade. All overseas buyers contacted in Aibaba are salespersons of the factory’s foreign trade department. We mentioned in How can foreigners buy from 1688.com? that the suppliers that overseas buyers find through 1688 are the salepersons of the factory’s domestic trade department. member. Not all Chinese factories have a foreign trade department.
After the factory receives an order, the merchandiser is responsible for coordinating the operation of the entire order. The main purpose is to issue raw material purchase orders to the purchasing department, issue production notices to the workshop, follow up the production process, and ensure that the order is normal.
Therefore, the role of a merchandiser is very important. A bad merchandiser may cause delays in order delivery, product inconsistency with customer requirements, and other issues.
But not every factory has a dedicated merchandiser, and some factory merchandisers and salesmen are the same person. It is also that the orders received by the salesperson himself must be arranged and followed up by the order.
Buyers in factories are usually responsible for purchasing raw materials and packaging materials from suppliers, while buyers in trading companies purchase finished products directly from the factory. In this way, the buyer of the trading company has undertaken the work of the factory merchandiser.
In addition to the internal structure of the factory and the trading company are different, another difference is the working space.
The factory needs to set production workshop to produce products, it needs to store raw materials and finished products in its warehouse, and it needs an office for employees to work. However, a trading company only needs a office.
It is conceivable that the requirements for working space in factories are much higher than those in trading companies. In fact, this is the fundamental reason why most factories are in remote suburbs, while trading companies are in the bustling urban areas.
Through the above process, we can see that the operation process of the factory is very complicated, and there are more people involved, so the management and operation cost of the factory is much higher than that of the trading company.
The factory will allocate expensive management and operation costs to each product. When the buyer’s order quantity is too small, the management cost allocated for each product will be higher.
Therefore, factories tend to have higher MOQs. However, in recent years, due to strong market competition and the development of cross-border e-commerce platforms, factories have had to adjust their order requirements more flexibly in order to survive.
A trading company or wholesaler can also be called a middleman. They buy from the manufacturer or even the manufacturer’s customers at a lower price and then sell it to foreign customers at a higher price, earning the difference.
The operating model of most trading companies in China is as follows:
Trading companies usually have a cooperative relationship with many manufacturers. They can easily obtain product picture and other details from the manufacturer or download directly from the Internet, and then display these on their own website for sale.
When a customer makes an inquiry to a wholesaler, they will immediately buy samples from the manufacturer for negotiation and display with the buyer. Professional salespersons often know the products well, and buyers will never find that they are traders.
If you have purchased customized products from China, you may find that many traders offer very slow quotations. Whenever you modify a small detail, it takes another day or even two days to give you a detailed quotation.
This is because the trading company needs to contact the manufacturer for quotation after receiving the customer’s inquiry instead of quoting it by itself.
Moreover, salespersons often cannot contact the manufacturer directly. They need to apply for a quotation to the boss or purchasing manager first, and then the boss or purchasing manager will negotiate with the manufacturer. After the purchasing manager gets the final quotation, he will feed it back to the salesperson, and then the salesperson can feed back the price to the buyer.
This complicated process leads to a detailed quotation that often takes 2 or even 3 days to get.
Note: For the products that some trading companies often sell, their quotations may be fast. Therefore, the speed of quotation cannot be used as the only criterion to distinguish between manufacturers and trading companies.
After the buyer places an order, the buyer of the trading company will place another purchase order for the manufacturer. After the manufacturer has finished producing the product, the trading company can arrange for a driver to pick up the goods at the manufacturer’s factory.
It is worth mentioning that most trading companies pay more attention to developing customers and ignore the follow-up of purchase orders. Buyers are likely to receive poor quality products or be notified of delayed shipments because trading companies do not pay attention to production. Trading companies are usually better at selling and not knowing about production.
The composition of a trading company is relatively simple, usually consisting of a business department, a purchasing department, and a warehouse.
Chinese trading companies are generally small in scale, usually no more than 20 people. Therefore, the operating costs of trading companies are relatively low.
The trading company usually cooperates with many factories, and the trading company is more flexible for the minimum order quantity of the order. But don’t forget that trading companies make money by earning the price difference between the factory and the buyer, so the supplier’s price for the product is naturally higher.
By now, you should have understood what a manufacturer and trading company are.
It is still very difficult for foreign buyers to judge manufacturers and traders. Suppliers hide behind the Internet, and buyers see what they want buyers to see. Overseas buyers cannot see the true face of these suppliers.
Cultural differences, language differences, geographical distance and time differences are all factors that prevent foreign buyers from getting to know suppliers.
On top of that, trading companies are getting better at faking it. Even if the customer comes to China to inspect the factory, those trading companies don’t worry at all, because they have already reached a cooperative relationship with the factory. Few overseas clients can spot these tricks.
Basically, every Chinese supplier claims to be a manufacturer. Because if they tell their customers that they are a trading company, they are likely to lose the order. While teaming up with a trading company is not without benefits, it is clearly the cheapest option to cooperate with manufacturers. Customers come to China to buy goods to save money.
But I’m sorry to tell you that according to our experience and investigation, most suppliers of the B2B platforms are trading companies, and only about 20% of the suppliers are real factories.
Many of China’s real factories are focused on making products, but not marketing. Some factories don’t even have foreign trade sales departments. This makes it difficult for overseas buyers to find genuine manufacturers of goods and manufacturers can only work with trading companies. This is why B2B platforms are flooded with traders.
So if you want to find a real factory, you must master some skills, otherwise you will have a hard time finding the real manufacturer.
You may have seen a lot of methods for verifying trading companies and manufacturers on the Internet, but please note that not all methods are effective now.
Some blogs mention checking the registered capital of a supplier to verify that it is a factory. If the registered capital is large, it is a factory, otherwise it is a trading company.
That’s totally wrong. If your supplier is a small factory, it may have less registered capital than a trading company. The registered capital of a large trading company may be very large, exceeding 10 million CNY. This is not surprising.
Whether you are a registered company or a factory in China, if your registered capital is 500,000 CNY, it does not mean that you must have 500,000 CNY at that time. It only costs 2,000 CNY to register a company in China with a registered capital of 500,000 CNY. Then, as long as you have 500,000 CNY in your account any day for 10 years /20 years or even 50 years, it’s legal. Then you can transfer the money, which is a very simple matter.
So registered capital doesn’t mean anything.
Alibaba said that the business type of the verified supplier has been verified by a third party, but this is not reliable. If this is the case, you will find that 99% of suppliers on Alibaba are manufacturers.
Because for Alibaba, it does not matter to them whether the supplier is a factory or a trader. Anyway, the suppliers are their customers, they charge the suppliers. And buyers use Alibaba for free, so it doesn’t have to guarantee you anything. Alibaba supplier types.
How to obtain the address of the B2B platform supplier?
Let’s take Alibaba as an example: First, you need to enter the supplier’s homepage, and then click the blue triangle symbol in the upper left corner, you can see the company’s basic information, including the business license. The business license is in Chinese, please translate.
The same is true for other platforms, you only need to enter the supplier’s homepage to easily find the supplier’s address.
① 90% of companies whose business license address is room***,…community or…building are trading companies.
The actual factory address is usually in the suburbs, and the address is usually an industrial park without a house number.
How a factory in a certain room of the building?
In addition, being able to understand the urban and suburban areas of each city allows you to make more accurate judgments. For example, Shenzhen factories are generally located in remote suburbs, such as Baoan District, Longgang District, Guangming District, Pingshan District, etc. Trading company addresses are generally in urban areas, such as Futian District, Luohu District, Nanshan District, etc.
Because the factory rents in the suburbs are cheaper than those in the urban areas, the office and production locations are generally together. Conversely, if the office address and the production address are not together, it is mostly a trading company.
You can even use Google Maps to view the real environment around the supplier, whether it is a city or a suburb, at a glance. You only need to enter the Chinese address of the supplier to navigate to its location.
② Is the address on the business license consistent with the contact address?
If not, trading company! If you see several different addresses on one website, so do trading companies. Check the factory video and pictures on the website, whether the factory name on the video or picture is the same as the name on the business license, if not, it is a trading company. But don’t completely trust factory pictures and videos, they are easy to copy.
③ Each product has a corresponding industrial cluster in China.
This industrial cluster brings together all the advantages of producing this product, such as abundant raw materials, skilled workers, and cheap parts. For example, China’s toy industry is most concentrated in Chenghai City, Guangdong Province; Xiantao City, Hubei Province, where China’s mask industry is the most developed; and China’s wig industry is most concentrated in Xuchang City, Henan Province.
If you find a supplier selling electronic products on Alibaba, and the supplier is located in Shanghai, it is almost certain that it is a trading company. They either buy a certain product from elsewhere to complete their catalog (95%), because the most developed area for electronic products is Shenzhen in Guangdong Province.
Of course, there are some actual manufacturers, but even so, Shanghai suppliers are not recommended. Because the cost of producing electronic products in Shanghai is definitely higher than in Shenzhen, there is no price advantage in purchasing electronic products from Shanghai.
Most of the professional buyers we have contacted have one thing in common, that is, they have a good understanding of China’s industrial clusters. Cooperating with suppliers located in industrial clusters can avoid some middlemen. Moreover, even traders, traders located in industrial clusters, both in price and delivery, will have a competitive advantage over traders in other regions.
Check the product catagories on the supplier’s website or supplier’s catalog if it’s not a B2B suppliers.
If the category spans a large range (such as a supplier sell both phone cases and beauty lights), the supplier must be a middlemen.
Most manufacturers only focus on one type of product. There are a lot of categories, which is unprofessional. Factories usually only make their own professional products, and the product category is also single.
Among the thousands of factories SourcingArts have contacted, no company can produce multiple categories of products at the same time, even a large factory with hundreds of employees.
The main difference between a large factory and a small factory is actually the steps involved. As we said earlier, small factories usually purchase raw materials and packaging materials from outside, and they are only responsible for assembly. Large companies may produce some simple raw materials and packaging materials themselves, and are responsible for assembly.
You can also find this information on the supplier’s business license.
The information displayed on the business license is: the Chinese name of the company, registered capital, date of establishment, address, legal person, amount of capital, scope of business, mode of operation, term of operation, etc
In addition to looking at the address on the business license, it is also useful to check the scope of the supplier’s business. The business scope of a real factory should include the words “manufacturer” “manufacture” “produce” “production”. All you need to do is use a tool to check if these four words are in the vendor’s scope of business.
If not, it must be a trading company.
Not all field-proven suppliers are factories. I mentioned at the beginning of the blog that even if customers come to China for factory inspection, those trading companies are not worried about it, because they have already reached a cooperative relationship with the factory.
Few overseas customers are able to identify these scams, so there are many techniques for verifying suppliers on the spot.
① Many trading companies cooperate with factories, uploading factory pictures, videos, and certifications to their website.
Please see the below pics: the company name on the video shown on the website is: 深圳神创高科技有限公司, but the company name on the business license is: 深圳前海百盛科技有限公司.
This is an obvious trading company that cooperates with the manufacturer, Uploading factory pictures and videos to disguise as a real factory. Factories are also happy to cooperate because then they can spend more time on manufacturing in this way, there will be a regular gross profit of 30-50% for trading companies and 80% of trading companies are of this type.
② The other type is that it may have been a trader before, but as the customer inquiries increases and the demand for customers like factory inspections increases. These suppliers began to invest in the cheapest factories, such as the leather factory, only need about 40,000 CNY to operate it.
However, there may be more than 100 kinds of products are for sale on their website, and these products are far beyond the production range of the factory. Various certification materials of the factory do exist, and the factory does exist. But more than 90% of the products sold are outsourced, in fact, they are also traders.
10% of cases are of this type.
Look at the product category of this factory, UV sterilizer / USB flash drive / Bluetooth speaker / Wireless charger/ Power bank / Mini USB fan / USB Gadgets / LED clocks / LED light, the category too complicated and unrelated.
In fact, it’s a small factory that produces U disk shells, with only 1-2 machines and 5 workers, the operation cost is less than 10,000 CNY, and the monthly expenditure is less than 5,000 CNY.
He said he was a factory, yes, he didn’t lie to you, he really had his own factory. But most products are not produced in their own factories.
Raise technical issues during factory inspection
Ask appropriate technical questions about the product (what is the closest processing limit you can hold? What type of device do you use to measure this capability? What is the charging time and battery life of this charger? )
In the process of factory inspection, if your contact person does not reply immediately, but nervously asks others, it means that the factory is probably not his, but the factory that he cooperated with.
Check if the factory is located with the office
Usually, the real manufacturer’s workshop and office are in a building or industrial park. Of course, there are a small number of powerful manufacturers whose offices and workshops are not together.
In this case, you need to pay extra attention, because it is more likely to be a trading company. Usually only the manufacturers with strong economic strength will arrange their offices in the city and their workshops in the suburbs.
This is to attract more young talent, who are now more willing to work in cities. But this raises the cost of rent and management for suppliers. But this can not be used as the basis for judging trading companies and factories, which can only refer to.
Check the name of the factory
When you go to a workshop away from the office, you may have the name of the factory at the door. You can check that they are the same as the names you see on the business license. However, this is not infallible. It is not difficult to change the company name at the factory gate.
A more intelligent way to check the document posted on the workshop notice board. The factory will usually post the company’s schedule, holiday notices, safety warnings and so on on the notice board, and the company’s name will be on the document.
The above described methods for verifying supplier types in both online and on-site situations. All of these methods are very simple and practical。If you find that the above method is still invalid for you, you leave a message at the bottom of the blog
In addition, when distinguishing between manufacturers and trading companies, what you need to do is to understand which type of supplier is the most suitable for you. Don’t one-sidedly think that “factory is good” or “wholesaler is good”. What you need is a reason to choose them.