Learn about the benefits and downsides of engaging with a China sourcing company to handle your procurement needs.
With the rise and dominance of Amazon and e-commerce sites like it, many businesses are looking to develop new products to stay competitive in the online marketplace.
These businesses are forced to decide between sourcing directly through a site like Alibaba or Made-in-China or going the more traditional route through using a sourcing company.
What’s best for you and your company depends on your needs, resources, and time.
In this article, we’ll discuss the pros and cons of using a China sourcing company to facilitate your product’s production as opposed to working directly with a manufacturer.
What are Sourcing Agencies?
Chinese sourcing agencies tend to be made up of small teams of 5-25 “sourcing agents” who specialize in helping companies manufacture their products offshore. These companies have a broad range of connections throughout the supply chain in China including manufacturers, freight forwarders, testing agencies, and related businesses.
Typically, a Western company will approach a sourcing agency with a product they would like to develop and have mass-produced. They’ll send detailed product and project specifications to their dedicated sourcing agent.
If the product and packaging is already completely designed, the agent will then approach manufacturers in that industry for a quote for making this item. If not, many sourcing agencies offer product development and packaging consulting services.
After the client chooses a manufacturer, the sourcing agent will negotiate a contract with that factory that will include the product specifications, payment terms, production time frame, and other details.
Sourcing companies also have catalogues of items they’ve sourced in the past to provide companies with a starting place. Agencies often provide additional support services such as graphic design, testing and certification support, product consolidation, quality control and logistics consulting to ensure smooth production and delivery.
Depending on the sourcing agency, fees are assessed by adding an additional per-item cost to the quote received from a factory, adding a percentage commission to the order, or charging a flat fee.
Pros of Using a Chinese Sourcing Company
Contracting out for your product sourcing frees your company up to focus on your core business and reduces your risk of losing your investment.
Access to More Manufacturers
Most Chinese factories have no online presence and instead rely on sourcing agencies and repeat clients for their business. While Alibaba has made it easier for more manufacturers to post their products online, it still requires factories to have English speaking staff, pay a large annual subscription fee, and percentage fees per order. Most simply aren’t willing to invest the money and time, especially when their business is already thriving.
Similarly, smaller factories lack the funds to invest even if they wanted to and are often willing to take lower profit margins to better compete. These kinds of factories are only available through sourcing agents who’ve cultivated extensive supplier lists and built relationships with each one.
In many cases, they’ve already down business with many of these manufacturers which can make it easier to negotiate better terms and production times.
The greater number of factories bidding on quotes also means clients are likely to find better prices than if searching alone.
China Sourcing Agencies Reduce Your Exposure
Unfortunately, scams and misrepresentation are rampant on sites like Alibaba and Made-in-China. It’s not uncommon for suppliers to promise low prices and high-quality products and then take your deposit and run. It’s very difficult to independently verify an account is who they claim to be and have the necessary production capabilities. Another common occurrence is receiving poorly packaged goods with cheaply made materials barely resembling your original product design.
Sales staff at the factory may insist that everything is as agreed or that they’re not at fault. Some may even say that they had to use cheaper materials because the price you negotiated was too low. Some factories may be focused on receiving your long-term business, but many more are satisfied simply to make more money now.
When things like this occur, most of the time there is little to no recourse if you are directly sourcing. Lawsuits against Chinese companies from foreigners are seldom won and can end up costing you even more money.
Sourcing companies based in China help reduce your risk greatly. They have legal standing for lawsuits for when production goes awry, speak Mandarin and local dialects to prevent miscommunications, and understand the business culture which allows them to avoid shady factories and create binding contracts.
These examples will not happen to everyone and many report satisfactory experiences using Alibaba. However, when you’re investing thousands of dollars, it only takes once to seriously disrupt your business’s finances.
Save You Time & Energy to Focus on Your Core Business
Sourcing your products can be an exhausting, confusing, and time-consuming process. It starts by messaging suppliers who seem to meet your requirements and having extensive conversations with each one about your product specifications. Often you’re 2+ hours in when they change the price or add a fee that takes it out of your budget.
Similarly, you might run into issues getting your products exported out of China or imported into your home country and be forced to spend hours and hours on the phone with support and different government agencies.
When you hire a sourcing agency, their staff will take care of many of these tasks, freeing you up to focus on your product’s design and core business dealings. Many sourcing agencies also offer sample checking services meaning they’ll receive samples from factories for you, check them, and then only send the high-quality samples matching your specifications to you. This will save you hundreds of dollars in shipping fees and weeks of waiting for a sample that is clearly not what you need.
Quality Control Services
Most sourcing agencies offer pre and post-production quality control services to ensure your products are being manufactured as agreed to in the contract with no switching of materials or other improper production practices.
Pre-production QC means making a trip out to the factory and checking out their production facilities.
- Do they have the staff and equipment to create these products?
- Will they be able to deliver on-time?
- Have they made products like this before?
- Are there any other red flags?
Post-production quality assurance would involve making another trip out to the factory to inspect the finished products and ensure the shipment is well-packaged.
- Open a few products to check for quality from random parts of the pallet.
- Check for external damage or printing errors to packaging.
- Ensure the quantity produced matches the order number.
- Ask the factory to reproduce any flawed items.
- Make sure the pallets won’t be damaged during transit.
If you’re sourcing these items yourself, you may end up spending weeks flying to China, hiring a translator, visiting the factory, and negotiating issues that arise. If you don’t do this and roll the dice, you may find a container full of products that look nothing like what you designed.
Freight Negotiation & Logistics Support
Freight forwarding quotes are not always so clear. This is especially true if they sense they can take advantage of you. Often these invoices include a long list of items and fees that are difficult for those without experience to make heads or tails of. Sourcing agents know how much the shipment should cost and will negotiate on your behalf until the bill is more reasonable.
Additionally, many sourcing companies offer product consolidation services. If you have several different products you’re developing in China, shipping them each individually out of China costs significantly more than shipping them together. With product consolidation, you could have all your products shipped to one location in China and then exported from there reducing shipping costs.
Dropshipping and warehousing in China is also a common offering of China sourcing companies.
Product Development & Design Services
While you probably already know exactly what features and design your product should have, you might be less clear on things like material types and packaging. Sourcing agents often have staff that specialize in materials, moulds, packaging, and inserts.
They’ll be able to explain the pros and cons of different options to you and help you make the best decision for your product and company.
Additionally, many offer free use of their in-house design team to help with creating your packaging and inserts.
Cons of Using a China Sourcing Company
Although there are many benefits to using a sourcing company, there are also costs to weigh those benefits against.
No Direct Relationship With Factories
Sourcing agencies handle communications between you and the factory producing your goods. While this can be a good thing, if you want to work directly with the factory, many sourcing agencies won’t provide that information to you. This means you’ll have less control over your supply chain.
Higher Costs Than Direct-Sourcing
Typically, quotes from sourcing agents tend to be higher than those from Alibaba since you’re paying for a wide range of services along with these products. It’s important to understand what your margins need to be for each product and factor this in when deciding whether or not to source directly or use an agency.
For example, if you are looking to source 1000 coffee cups the sourcing agent may get a quote of $3 from a factory. They may then add 10-30% for their fee and give you a cost of around $3.60 per cup.
In most cases, if you approach an agency with your budget, they will work to find creative solutions to help you get within that number. These solutions will likely involve using lower-cost materials in the packaging, removing some additional inserts such as a straw with a cup, suggesting higher quantity orders, or negotiating a better deal for you in exchange for a larger upfront deposit.
Not Every Sourcing Company is Created Alike
There are plenty of stories of deals going very wrong with sourcing agencies in China. This is especially true of sourcing companies focusing on short term gains or on big clients at the expense of smaller ones. There can also be issues with communicating your specifications and professional expectations, especially with agencies that lack Western staff or don’t have Chinese staff who’ve lived and worked abroad.
It’s important to look at review sites like TrustPilot and to get references when possible. If something is starting to smell fishy at any point in the process, don’t move ahead until you’ve resolved your concerns and trust is restored.
Is Using a China Sourcing Company Right for Me?
There is no right or wrong answer here. The best thing to do is consider the amount of time you and your team have available to source products and if that time might be better used elsewhere. Additionally, if you’re competing entirely on costs with razor-thin margins, sourcing directly may be a better option.
Why Consider Sourcing with Sphere Resources?
With most sourcing agencies you’re forced to choose between a China-based company without Western staff or a locally based company working remotely and without the ability to regularly visit factories.
At Sphere Resources, you get the best of both worlds. We are based in the heart of Chinese manufacturing with headquarters in Dongguan, Guangdong and are also led by our Australian CEO, Sam Clay, who lives in China. Sam oversees a team of local Chinese, highly experienced and well-connected with suppliers and manufacturers, as well as American marketing and sales staff.
Customer service is at the core of what we do. We provide highly customized service according to your needs. Our goal is to add value to your organization everywhere we can. This is why we offer so many complimentary support services and go above and beyond when negotiating terms on your behalf.