Trading company versus factory

I have worked as a full-time employee for several companies over the years and at all but one company the sourcing strategy was to deal exclusively with factories and to avoid trading companies.  Some product development and sourcing  professionals are very knowledgeable about their product and industry and find they can have more productive discussions dealing directly with the factory than going through an agent who does not possess product specific knowledge in many cases.  Representatives of trading companies are also notorious for not spending a lot of time on-site at factories and specifications sent from customers are sometimes passed on only via fax or phone – thus increasing the likelihood of error.  The result is that quality cannot be controlled easily. You can control quality much more easily if you deal directly with the factory, provided there are no language barriers, and provided you show up in China occasionally. Of course, one of the main reasons that importers like to avoid trading companies is cost. If you go direct to the FTY you will generally cut your first costs in half.  Sometimes your first cost savings by going directly to the factory will be as much as 60 %. 

However, this is not to say that trading companies have no value. In discussions with friends and local agents in China this past year I have come to realize there are exceptions – when working with a trading company is preferable to going it alone.  One exception is when you need to source a special product e.g. an unusual fabric or a special type of plastic. You may spend a lot of time looking for a factory that can do what you want or you can go through a trading company that may already have relationships with factories that will be useful to you.  Provided the trading company has proven reliable after a rigorous sample order and has passed a credit check it might be OK to use them.  Another case when you might want to use a trading company is when you have a low value/high volume product that does not need extensive QC. If  the trading company can give you a lower cost than the FTY – which sometimes does happen – then it probably makes sense to use the trading company. 

In short, think factory direct – especially if you have a design-driven product –  but don’t rule out the possibility of using a trading company if necessary.


2 thoughts on “Trading company versus factory

  1. Kathy: Hey, thanks. Yes, I have kind of changed my mind about trading companies. Try to avoid them if possible but if you absolutely have to use one, then look for a good one.

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