China has become a major sourcing hub, supplying businesses from all corners of the world with products in practically all types of industries. If you’re in the planning stage of setting up a new business, then you’re probably also considering sourcing your products from China. If that’s the case, it would certainly be a good idea for you to seriously consider hiring the services of a reliable China sourcing consultant.

Having the right sourcing consultant is one of the keys to ensuring that you get to maximize the benefit of sourcing your products from a low-cost country like China. If you’re still on the fence about sourcing products from China and hiring a consultant in the process, then you definitely should learn more about the sourcing process and why it is gaining popularity worldwide.

You may think you can handle the sourcing process on your own, but it’s really not as easy as you think. There are several good reasons why you should at least consider hiring a sourcing consultant to assist you in dealing with product suppliers from China. For one thing, a consultant is familiar with the laws and culture of the country. They can help you ensure that your transactions with Chinese suppliers are all above-board and they can also help expedite your transactions.

Sourcing consultants with ample experience have also established relationships with a good number of suppliers. They have likely worked with suppliers in your industry a few times before. This means they will have a good idea which suppliers are the most reliable when it comes to serving needs similar to yours. They also have the capability to help you negotiate terms with your suppliers, since they have likely done business with the supplier before and may have gained the supplier’s trust.

Of course, you can’t just hire the first consultant you come across. It is advisable to hire a consulting company with years of experience dealing with suppliers in China.

If you really want to benefit from a business solution, you can’t just apply the best practices. You should also do your best to avoid common mistakes that can cause significant damage. Where sourcing products from China-based manufacturers is concerned, these are the top 5 mistakes you need to avoid:

1. Do not take sourcing processes for granted.

If you do an online search about sourcing products from China, you are likely to find countless articles on finding the right suppliers and going through the sourcing process on your own. This has led many business owners to thinking it is easy enough to source products from overseas. But that’s not necessarily true. In fact, you can get into a great deal of trouble if you engage in China sourcing without seeking help from a consultant.

Remember that there are laws involved that may not be the same as the ones that apply in your own country. There is also the matter of choosing suppliers from halfway across the globe. And if your business deals in a variety of products, then you’d most probably need several suppliers. The services of a consultant who is based in China and at least has years of experience in dealing with China manufacturers are indeed valuable.

2. Avoid communicating important matters with your consultant via chat.

Sure, practically everything is now done online, from correspondence to trade and commerce. But when you’re sourcing products from a different country, especially one where the language is completely different from your own, you have to make sure the people you’re dealing with completely understand what you expect from them. In the same way, you need to make sure you understand everything they expect from you.

For this reason, it is not advised for you to communicate with your sourcing consultant for important matters via chat. You can still communicate daily issues with them online, but for important matters, it would be preferable to send an email after the chat. In an email, you can explain things in detail and ask your consultant to do the same.

Better yet, talk to them over the phone or via a video call. And don’t be content with an “okay” or “no problem” response. Chinese companies are fond of saying these things. Ask for concrete confirmation that they have understood what you’re trying to say perhaps by asking them to repeat the instructions to you or asking questions that could tell you whether they have indeed understood or not. If there is anything you don’t understand, ask them to explain further. Proper communication is the key to smooth transactions.

3. Don’t be afraid of sample costs.

One of the best ways to secure your orders from overseas is to confirm them with samples. In most cases, it is even advisable for you to send a prototype or at least a blueprint/formula with detailed specifications to your suppliers. The supplier will then give you the opportunity to re-confirm the order by sending a few samples of their work. In this case, you may be asked to take care of sample costs.

Do not be afraid of this extra expense. You may recover the cost of getting samples sent by negotiating payback if you reach a particular amount of order. Even if you aren’t successful in negotiating payback, the added cost could very well be worth it in the end. After all, ensuring the quality of your products is one of the best ways to make sure you get good returns on your investments.

You may have paid a good deal of money to send prototypes and get samples back, but if that results in getting high-quality products your target customers can appreciate, then the amount of revenue you get in return will most definitely be well worth the expense.

4. Do not ask for CIF prices at the outset.

The two most popular price terms in international trade are Cost Insurance and Freight (CIF) and Free on Board (FOB). With CIF, the seller (in this case, your supplier) pays for shipping the goods to your port. However, they no longer have any responsibility once the goods are loaded on the freighter. With FOB, your supplier will be responsible for loading the goods onto the ship and for clearing them for export. Cost and risk are divided between you and your supplier.

It may be tempting to buy CIF because of the convenience it offers. After all, you will no longer have to deal with shipping details, as it is all taken care of by the supplier. Note, however, that with this arrangement, the supplier chooses the forwarder and could mark up shipping costs to increase their profit. This means you’ll be paying more than you should and you can’t even be sure how reliable the forwarder is, since you’re not the one making the choice.

It is advisable for you to buy FOB instead, so you’ll have better control of who ships your goods and how much you spend on shipping. Being the one to communicate directly with the forwarder also helps ensure that you get assistance and information whenever you need it. And because you’re the one dealing directly with them, you can be sure the forwarder will have your interests, rather than your suppliers’ interests, in mind.

5. Do not make decisions as regards suppliers without personally visiting their factory.

China may be halfway across the globe from where you’re based, but if you really want to make sure the sourcing process goes well for you, then you will have to visit the country at least once. Take the time and make the effort to visit about five factories before deciding which particular manufacturer to do business with. Do this for every product you need to source from the country.

As a general rule, it is advisable to get a list of prospective suppliers from your sourcing consultant and then visit the factories of the suppliers on the list. It would be preferable if you conduct the visits together with your consultant, since the consultant is the one with the local experience and cultural expertise. He can assist with the negotiations (perhaps carry out translations to avoid misunderstanding between you and the supplier) and advise you on which supplier best suits your needs and preferences.

How To Import From China

Elksourcing：3 Common Risks of Sourcing from China

Apr 10, 2021 dropshipping from China, Elksourcing by 露露

Sourcing From China can be a great way for you to make money, as long as you know how to play it safe and avoid the common risks associated with this practice. Before you dive right into looking for suppliers from China, you have to fully understand the process of product sourcing and why sourcing from China can be more lucrative than sourcing locally.

By partnering with one of these Chinese suppliers, you can significantly increase your bottom line by paying less for product sourcing. It may sound like an obvious decision to make to benefit your business, but there is a lot of planning and work that must be done before you can start enjoying a beneficial business relationship with a Chinese supplier.

This article will take a look at some of the most common risks related to the business of sourcing from China and how you can be proactive about avoiding them.

Risk #1 – Working with a shady supplier

Every industry has reputable companies and companies that should be avoided at all costs. There is no exception to this when it comes to Chinese suppliers. You will find a lot of honest and reputable companies, but if you aren’t careful, you might also find some suppliers who want to take advantage of you and benefit their own pocket instead.

What you can do about it – In order to make sure that you are entering into a contract with a trustworthy supplier, you must do plenty of research beforehand. Don’t worry; you don’t have to do it alone. Product sourcing from China has become such a popular business, there are professional companies that will research Chinese suppliers for you and help you expose any negative information that can signal a red flag for you.

Let’s face it, unless you decide to move to China to be closer to your manufacturer, you will lack a lot of oversight and will have to rely on the eyes and ears of your Chinese business associate to ensure that everything at the factory is running smoothly and efficiently. For this reason, you want to choose a supplier that is professional and has a lot of experience in exporting goods from China for the purpose of reselling somewhere else. Don’t be afraid to ask for hard evidence of experience either. Anybody can tell you what you want to hear in order to land the deal. You need to see with your own eyes that your potential supplier has a long resume boasting a lot of success in the exporting industry.

Risk #2 – Less protection under the law

When you decide to get involved in product sourcing from China, you have to be prepared for less protection under the law. It’s just part of the importing/exporting business, and while it might not seem fair, it is simply the nature of the beast. If something goes wrong with your supplier, you can try to seek justice through legal means, but you may not always be successful. The Chinese legal system does not necessarily recognize injustices in business partnerships in the same way the U.S. court system does.

Even if you try to sue a Chinese supplier in the U.S., chances are Chinese courts will not uphold any type of decision.

What you can do about it – In order to try to give yourself added legal protection, you need to make sure that the contract you enter into with your Chinese supplier is airtight. This document should, of course, lay out reasonable terms that are agreed upon between you and your supplier, but it should also consist of terms that can be upheld in either a U.S. court or a Chinese court. This contract is going to serve as the foundation for your entire product sourcing endeavor. It is in your best interest to hire a lawyer that specializes in exporting, especially product sourcing from China, who can assist you in drawing up terms that are reasonable yet provide you with protection in the event of a problem.

Risk #3 – Stolen intellectual property and illegal redistribution

One of the biggest reasons business owners avoid product sourcing from China is because of the major risk of having their product idea stolen without their knowledge. This all goes back to finding a reputable supplier. If you are product sourcing from a factory owner in China who seems like he has a hidden agenda, chances are he does have an alternative plan in mind for your product. Countless horror stories have been reported by business owners who explored the option of product sourcing from China to save money and ended up with nothing but problems after their product was being reproduced and sold in a different market without their knowledge or permission.

What you can do about it – One of the easiest ways you can try to minimize the illegal poaching of your product design is to place an identifying marker on your product mold. This way, if a product is returned to you for being defective and it does not have the mark, you know right away that it is not being produced and sold according to the terms of your contract. Unauthorized forms of your product circulating in the market can come back to haunt you. Another way you can keep tabs on the activity in your supplier’s factory is to make frequent visits. If you make your presence known often, your supplier will get the idea that you are diligent about watching over the production of your goods, and he might be less likely to go behind your back. If it is not feasible for you to make trips to oversee production, there are independent inspection companies for hire in China that will go to your factory and report back to you about everything they see.

By staying smart and aware, you can avoid these common risks and make product sourcing from China work well for your business.

How To Import From China

Elksourcing：How to Locate a Good Chinese Manufacturer?

Apr 10, 2021 Chinese manufacturer, Elksourcing by 露露

Many importers find it’s difficult to locate a good Chinese manufacturer, for below four reasons:

1) Language and Cultural Barriers

It is an obvious reason, but it bears mentioning: There are huge language and cultural barriers that separate western businessmen from Chinese manufacturers. While English proficiency is rapidly growing in China, there are still many small and mid-sized factories that have no employees who can speak fluent English. Beyond this, you also have to deal with other, more difficult to define, cultural barriers.

2) Many Chinese Factories Do Not Market Themselves Well

In the grand scheme of things, China as a global manufacturer power is still a relatively new phenomenon. Many Chinese manufacturing companies are still in their early days. These mid-sized and small Chinese firms, which offer manufacturing services that are well-suited for many western companies, do not yet know how to efficiently market themselves to westerners. Indeed, there is no comprehensive ‘database’ that you can search on Google to find the right Chinese firms. When working with Chinese companies, you still need to have strong connections on the ground.

3) Your Products are Unusual, Specialized or Customized

It is not equally difficult to find the right Chinese manufacturer for all types of products. This is true for many different reasons. If you are importing products that are made frequently in China, such as t-shirts, you will have many more manufacturing options to choose from than if you are seeking to get a specialized product produced. Notably, many of China’s largest manufacturing firms focus solely on producing common consumer products, meaning that smaller manufacturing firms handle more specialized or unique products. Of course, these smaller firms are inherently difficult to find.

4) You Do Not Know Whom to Trust

Finally, for those who do not have connections in China, there is a huge trust issue to manage. it is hard to know which Chinese companies are truly reliable and can make quality products for your business. This inherent lack of trust and difficulty in researching firms creates friction in the trade process. This is an area where an experienced China sourcing agent can prove to be extraordinarily valuable.

Then, what do you need to look at when locate a good Chinese manufacturer? Below are my findings after many years of sourcing work.

Industry Experience:

When working with a Chinese manufacturer, it is best to work with a firm that has extensive experience within your industry. Regardless of your products, from clothing to tools, it is imperative that you seek a firm with relevant industry experience.

Experience with Similar Products:

Additionally, you should also work with a company that has experience making products that are highly similar to the specific product that you are seeking to manufacture.

Quality Control:

Unfortunately, there are many low-quality manufacturers in China. These companies will accept all orders, and they will simply pump out cheap products as fast as possible. You need to avoid working with firms that have insufficient quality control.

Overall Suitability:

Beyond relevant experience and quality control, you should also consider other general suitability issues. For example, if you have a particularly large order, you should be sure to work with a sufficiently large Chinese manufacturing firm so that major delays can be avoided.

Trustworthiness and Reliability:

Integrity is incredibly important. Not only must you look for a manufacturer that is reliable and can meet all important deadlines, but also you need to work with a trustworthy firm that will not steal your product designs and ideas.

Cost:

Finally, as with any business decision, overall cost cannot be overlooked. You need to find a firm that gives you a fair price point for the manufacturing services that you desire.

Shopify Tutorial

Elksourcing：Tips about Selecting an Overseas Supplier

Apr 10, 2021 Elksourcing, supplier by 露露

When selecting an overseas supplier, you need to get the right price and quality, while making sure the supplier can be relied upon to meet high standards and delivery dates consistently.

The reliability of your supplier is crucial. While a competitive price is also important, make sure that low prices don’t come with unacceptable compromises on quality or on the level of service you will receive.

Selecting a supplier

The main stages in the supplier-selection process are:

Drawing up a shortlist of potential suppliers

Comparing the shortlisted suppliers on the basis of value for money, reliability and creditworthiness

Visiting the suppliers, if possible, to see their operations

Deciding which of the suppliers to work with

Value for money from suppliers

Make sure that you’re happy with the price, quality and terms the supplier is offering. Get a written quotation. Any quotation should clearly state the terms of sale – i.e. how the shipping, insurance and associated transportation costs and duty are to be allocated between you and the supplier.

Ask for a sample based on your specification to make sure the supplier is capable of producing what you need.

Supplier reliability

It’s important to research supplier reliability. If possible, visit the supplier. Look at their work and their production system.

Find out as much as you can about the supplier. Talk to:

Any western references the supplier can give you

Importers with experience in the market

Trade associations and other importers in your sector

You should also check the reliability of any sub-contractors to which your supplier may be outsourcing work.

Supplier creditworthiness

Financial checks of overseas suppliers can be difficult due to a lack of accessible financial information. See if your bank’s international trade team can carry out a status query – a query into the company’s financial standing on your behalf.

Be cautious. Avoid advance payment or long-term contracts until you trust the supplier.

Build solid relationships with overseas suppliers

Trust is a crucial element of any supplier relationship. While it can take time and planning to build a solid relationship with overseas suppliers, doing so makes it more likely that you will increase business with them. It may even enable you to negotiate more favorable terms.

Build trust gradually with suppliers

The key is to build the trading relationship slowly. Initially you should leave nothing to chance. Draw up written contracts that are clear and unambiguous. See overseas supplier contracts.

Typically, your initial contracts with a new supplier will be on a project-by-project or shipment-by-shipment basis. As the relationship develops you may move to longer contract periods and potentially be able to negotiate better terms.

An important part of building trust is learning how things work in your supplier’s country. Are there important cultural and social differences, or differences in the way business is done? See entering overseas markets.

Supplier communication

Communication is an obvious potential obstacle when dealing with overseas suppliers. Even simple actions such as language barriers, routine telephone calls can be complicated by factors such as time differences and low-quality phone connections.

Face-to-face meetings are likely to be infrequent, but they can be vital to the trust-building process – so plan them carefully.

In addition, there are potential language barriers. Which language will you use with your supplier? Do you have enough foreign-language speakers in your workforce? Do these employees have the skills they’ll need to deal with your suppliers? Would it help to use local interpreters, especially for key meetings, to avoid misunderstandings?

Monitor, review and adapt your supplier relationship

Make sure you monitor key aspects of the new supplier relationship. This will make it easy to identify areas for possible improvement.

Schedule progress reviews with the supplier. If there have been any problems, decide together how to resolve them. If everything has been working smoothly and profitably, you may want to extend the level of business you’re doing together.

Shopify Tutorial

Elksourcing：Ten Tips about Successful Exporting Your Products

Apr 10, 2021 Elksourcing by 露露

Here are ten tips to help you export your products successfully.

1. Research your market

Does your prospective foreign customer need what you are selling at the price that will yield you a profit? What is the competition and how will they react?

2. Implement an export strategy and review your capabilities

Ask yourself: what would my business gain from exporting?

3. Construct an export plan

Define how you will enter the foreign market. Finalize human resources and marketing strategy and allocate an adequate budget to cover export start-up costs.

4. Choose your sales presence

Establish whether you need a direct sales operation. Or is an agent or distributor more effective? How will you manage your overseas sales presence?

5. Promote your product

How are you going to market and sell your product? Customize marketing to the target country.

6. Get the Customs side right

Contact HM Revenue & Customs to clarify requirements. Make sure your reporting practices are watertight.

7. Get paid on time

Ensure your cash flow will remain at a safe level. Guarantee sufficient credit for your future sales. Take out insurance cover if necessary.

8. Choose your distribution methods

Consider the implications of selling over long distances and across national frontiers.

9. Transport goods effectively

Assess and choose the most effective transport method and make sure the goods are insured by you or the importer.

10. After-sales policy

Regularly liaise with customers, export agents and banks. Monitor political unrest or other adverse conditions in the country of destination. Manage regular servicing and warranty claims.

How To Import From China

Elksourcing：Six Tips on Importing from China

Apr 10, 2021 Elksourcing, importing by 露露

When importing there are a number of things you will have to consider. This may range from managing long-distance relationships to organizing international transport and customs clearance. If you are considering importing from China, read our top six tips to help you get started.

1) Plan your import objectives

Before you start importing, it’s a good idea to be clear about what you are trying to achieve. You might be looking at China to find a cheaper source of supplies, or to import products that aren’t yet available in your country to sell to your customers. At the same time importing should fit in with your overall business strategy.

2) Identify a good, legitimate and reliable supplier

Check the supplier is creditworthy and can meet your quality standards. You should assess product quality and check that the goods you buy are suitable. You need to know whether the supplier outsources any work to subcontractors.

You will also need to understand the culture of the Chinese market to establish a successful relationship with your suppliers. Mandarin is becoming an increasingly important language. It is spoken by over one billion people worldwide, outnumbering any other language. Making an effort to learn a few short phrases can help to establish mutual confidence.

3) Negotiate the right deal

Understanding your own strengths and weaknesses, and what your supplier’s priorities are, helps you negotiate the best deal. For example, if you have a healthy cash position, you could offer to pay more promptly in return for a good price.

The Chinese believe that prospective business partners should build a relationship and, if successful, commercial transactions will follow. The objective of developing close relationships is to build what the Chinese call “guanxi”, which are essentially social or business connections based on mutual interest and benefit.

4) Reduce risk by having a clear contract

It is important to have a clear contract setting out exactly what payment and delivery terms you have agreed. Using internationally agreed Incoterms (International Commercial Terms) helps reduce the risk of delivery problems or misunderstandings. The contract should also cover what payment is required, when and in what currency, and what payment method will be used.

5) Choose which method of transportation you are going to use

When making your choice as to how you are going to import, you will need to decide whether to handle logistics by yourself, or outsource the work to a freight forwarder.

When importing from China your main options are air and sea. If your business needs to transport large quantities but there is no pressure to deliver quickly, shipping by sea may be suitable. However, if you require your items quickly and with higher levels of security, shipping by air might be more appropriate.

6) Taxes and duties on imports

When trading with China, you will need to find the correct commodity code for your goods so you can fill out customs paperwork accurately. The code is a ten-digit number for imports from outside the EU. Once you know the commodity code, you can look up other important information such as duty rates and any import or export restrictions.

It is important that as a trader you know whether you have to pay import VAT and duty on your goods before they can be cleared for entry into the UK. Imports may be liable to import duty, depending on the classification of the goods and where they come from. VAT is charged on goods imported from outside the European Union at the same rate as if you bought the goods in the UK (currently 20%).

How To Import From China

Elksourcing：5 Common Mistakes for New Importers

Apr 10, 2021 Elksourcing by 露露

I regularly work with a lot of new importers, especially new e-commerce sellers selling through Amazon or eBay platforms. Most importers, when first starting out are very excited and charged up about the new venture, and want to get things moving as quickly as possible.

When first importing from China, there is a steep learning curve and it normally takes 2-3 shipments for an importer to understand the process flow and all the terminology involved in International trade.

With limited understanding of the import processes and that of the working style of Chinese factories, comes increased risk, especially quality risk as well as the increased likelihood of incurring losses on the first import from China due to getting the numbers wrong.

Here I look at 5 common mistakes, I often see with new importers first starting out of China.

1. The “Urgent Order Syndrome”

This is by far the number one issue, I notice with enquiries from new importers and I like to call it the “Urgent Order Syndrome”. Normally the first email we receive from a potential new importer would go somewhere along these lines:

I am looking to import 2,000 units of kitchen scale from China. These are required urgently as we have huge demand for these. Can you help us out and get us the best possible prices on these?”

While the exuberance is totally understandable as all new entrepreneurs are excited about their venture and want things to move fast, this can often be a recipe for disaster.

This urgency often results in requirements for product & packaging not being “specific” enough, quality control procedures being lax, factories skipping procedures to cut down on “production time” and last but not the least, losing out on good suppliers, who may have a quality product but are not flexible on their delivery times, or have longer delivery times simply because they have more business.

All these issues can lead to quality problems and the loss from these quality issues can be far greater than the time savings achieved by trying to speed up the process.

Another thing I see commonly in such cases is people negotiating aggressively on “Delivery Period” and choosing a supplier because they promise a slightly shorter delivery time relative to the “Industry Standard”.

In many of these cases, suppliers tend to quote a shorter delivery time to close the sale and may still take the same time, in other cases, they may skip processes to speed up production which can lead to quality problems.

2. Not comparing “Like for Like”

For most new importers first importing from China, the sourcing process starts on a B2B website like Alibaba. It involves contacting multiple suppliers, getting quotes, comparing them and shortlisting the best suppliers, in many cases based on price.

However, from my experience, often people do not compare like for like specifications albeit unintentionally. For a majority of the products, there are so many subtle differences in a product that influence the pricing. These can be materials, components, type of paint, dimensions (thickness is a common culprit) or other specifications.

This problem is less severe, when someone knows the product well, however even in those cases differences among suppliers start to get highlighted, when you are deeper in the sourcing process.

In many other cases, especially when people are sourcing new products that they haven’t worked with before, very obvious differences are sometimes missed, leading to good suppliers being shot down because their first quote looked expensive.

One of the ways to deal with this is to spend some up-front researching and understanding the specifics and finer details of the product as well as expected quality problems with that product. Asking a lot of good questions about the make-up of the product, to the first few suppliers you speak to also helps.

3. Overestimating the Profit Margin on a Product

This is a very common problem when first starting out importing and normally happens due to the nature of international trade. Even in a simple international trade transaction there are several parties involved which can make it difficult to calculate the landed cost of a product and hence the expected profit.

On top of that, what I often see in the consulting work I do with a lot of e-commerce clients is that when you factor in other costs for e-commerce platforms, say Amazon seller fees, domestic courier costs, marketing costs, professional product photography costs, etc. the profit margins don’t always look viable & there might be better opportunities in a different product.

New importers often base their costing on the obvious costs such as product cost, logistics, and inspection. However, there are often other not so obvious costs that influence profit margins for a product.

These can be for unexpected contingencies such as cost of random customs inspections at port of loading or port of destination or unplanned contingencies such as cost of returns.

4. Not Realizing how “Economies of Scale” work

This is a difficult one for new importers which takes a while to get used to when importing from China. This is also critical when it comes to working out the landed cost of your product.

When requesting quotes from Chinese factories, the first question you can expect is about your quantities. The answer to this question influences:

Whether the supplier will respond to your email

The quote you get from the supplier (High-Low)

The “service level” you will get

Your customization options (White Labelling, Customized Packaging, etc.)

Your logistics cost per unit.

All these things will have a significant influence on your “Landed cost” & quality of the product. While this should be a whole post in itself, I would like to mention out of the factors above, “logistics cost per unit” is the most important one, especially for sea shipping, I often see people losing margins because of getting this wrong when it comes to LCL shipments.

5. Expecting Perfection on Small Orders

I am a huge proponent of being very clear & specific on your requirements when importing from China, as it’s one of the best levers against quality problems. This is one of the reasons we ask a lot of upfront questions to our client when starting a new sourcing project.

However, this is a bit different from expecting a “Perfect Product”. While the objective of every quality control process should be to aim for perfection, in reality this may not always be achievable for “smaller orders”, especially on your first order with a given factory.

There are several reasons for this, relating to how factories in China work, economies of scale, the thought-process of the factory workers, and the perception of the factories towards what is considered perfect or acceptable.

I have often seen importers lose valuable time, in trying of get minor things perfected such as the taping of the box in a certain way. The law of diminishing returns comes into play here, i.e. the time spent and the QC cost of getting this level of perfection, often outweighs the cost of doing so “for smaller orders”.

But more importantly, for e-commerce sellers this cost can often be bigger, when you take into account the “opportunity cost” of potential lost sales during the time spent on reworking the goods.

Some of these requirements are essential, for e.g. when working with Amazon FBA, they tend to have very specific requirements on how the packaging needs to be and hence it is for the importer to identify what are the non-negotiables when it comes to the product & packaging.

It is easy to misunderstand this point, so I would like to emphasize that, perfection in itself is not always hard to achieve, but what I am referring to here is more about the link between the degree of perfection you aim for and the value of your order.

Smaller & medium end factories that are willing to accept smaller orders often have less resources to achieve perfection relative to larger, higher-end factories.

Also, normally, it takes a couple of shipments with a given supplier in China, for them to really understand your requirements in-depth and have the process perfected & customized for your unique requirement.

China Sourcing Agent

Elksourcing：Difference Between Sourcing Company & Trading Company

Apr 10, 2021 1688 dropshipping service, Elksourcing by 露露

A lot of people believe that a sourcing and a trading company is one and the same thing. There are good reasons for why this line is blurred as sourcing & trading companies often step into each other’s domain. However, I hope I can address some of the key difference between a sourcing company & trading company.

Process specialization Vs. Industry Specialization:

While there may be sourcing companies specializing in an industry, especially for highly technical industries like automotive, in most cases sourcing companies in China tend to be specialists in systems & processes related to quality control, international trade & supply chain management.

These processes & systems can be plugged into most industries & products. Trading companies on the other hand tend to specialize in specific products or industries.

Breadth of Knowledge Vs. Depth of Knowledge:

Professional Sourcing companies in China tend to have a wider “breadth” of knowledge about various industries as well as supporting industries such as quality control, testing, logistics, etc. and how all these come together to form an efficient & effective supply chain. Trading companies on the other hand may have a wider depth of knowledge about their own products or industries.

Sourcing companies do not carry product catalogs:

A sourcing company would not normally carry its own product catalogs & price lists while a trading company would actively carry and promote their own product catalogs. A sourcing company would “source” each product based on the client’s custom requirements. However, sourcing companies often leverage existing factory relationships from previous engagements to source for new clients.

Protect Client’s Interest Vs. Factory’s Interest:

A sourcing company is expected to be the representative of the client on the ground, executing their instructions and at the same at ensuring proper systems and processes are laid out to ensure a smooth transaction. These include quality control, risk-management and logistics depending on the scope of the sourcing company’s service.

A trading company has to play a fine balancing act between managing manufacturer’s interests and clients’ interests and often would put the manufacturer interest first, as they tend to have fixed manufacturers who they procure from to supply to multiple clients and hence may have a volume advantage with those manufacturers.

A sourcing company on the other head is in a position to put more pressure on a supplier or switch suppliers with greater ease if defined standards are not met as they do not have a vested interest in protecting a manufacturer and instead their interest lies in ensuring they retain their clients by helping them avoid issues with the suppliers.

Dispute Management:

If there is a dispute, for example a pre-shipment inspection of goods not passing or a payment dispute with a supplier, the sourcing company in China is expected to represent the client in the dispute and try to resolve issues or get compensation through various means (negotiation, contract enforcement, etc.)

Whereas, when dealing with a trading company, the trader is effectively the supplier and therefore, the importer would be directly dealing with the trader to resolve disputes.

Strategic Objective:

In most cases, the strategic objective of a sourcing company would be to manage costs, risks & quality for a client by using their established systems and processes, experience & knowledge of the area they are operating in & their available resources on the ground for execution purposes.

The strategic objective of a trading company is to maximize the sales of their product lines in order to get scale advantages when buying from their factories and hence improving earnings through expanded margins.

Network of Supporting Industries:

Most sourcing companies would either have a network of companies providing a range of services that may be needed on ad-hoc basis for supporting projects or have some of these services in-house. This may include, industry specific engineers, quality control inspectors, product & packaging designers, product testing laboratories, etc. This comes along with the exposure of working with different kinds of products, industries & types of projects (for example sourcing existing products, new product development, etc.).

Trading companies on the other hand may have a stronger network for parts and compatible accessories related to the products they deal in.

Value Added Services:

A sourcing company can provide a range of other value-added services to importers and depending on the relationship with the client may often add and customize services, and pretty much act as a company’s branch office in China. This may include market research work and product recommendations from other industries where profitable opportunities may exist. This may also include building a large supplier base for existing products, as well as strategic advice and consultancy.

A trading company may be able to provide added services in the form of product recommendations related to existing product or industry or customizations to the current product.

I hope the above gives some clarity into the nature of differences between sourcing company and trading company, however it is important to realize that pretty much every point mentioned for a sourcing company above can be applied to a trading company and vice-versa. This is what blurs the line of difference and often causes confusion.

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