In fact, factories and trading companies have their own characteristics.

In this article, I will analyze their respective advantages and disadvantages for you. Let you figure out under what situation you should choose a trading company or factory (manufacturer).

What is a factory and what is a trading company?

A factory is an industrial place where workers use professional equipment and skills to manufacture products. They use different manufacturing processes to make plastic, metal, wood, or other raw materials into intermediate products or finished products.

But trading companies are not, they don’t produce any products themselves. Usually, a trading company has a close relationship with one or more factories. They make money by adding prices to products and providing other valuable services.

Therefore, you may be wondering why trading companies are so popular. Is it worth paying their markup?

Advantages of the factory

Cheaper price:

I think this is why most people are more willing to cooperate with the factory. Indeed, usually, the price offered by the factory is more favorable than the trading company. Since the factory itself controls the raw material purchase channels, production, and technology. While the trading company purchases from the factory and increases the price of the products, it seems that the price of the factory is definitely more competitive than the trading company.

But this has a precondition, that is, your purchase quantity is large enough. If your order amount does not satisfy the factory’s appetite, the price offered by the factory may not be so ideal at this time.

Technical knowledge:

The factory masters the production processes of the product, and the superiority in technical knowledge is incomparable by trading companies. 

Therefore, when you need to develop new technologies, new processes, or try to customize your products, the factory can understand your needs better than a trading company and realize it through technical means.

Disadvantages of the factory

High MOQ:

The minimum order quantity (MOQ) of the factory will be much higher. One of the first questions that Chinese factories will ask you when communicating is the quantity of your order. They prefer customers who place large orders for a single product (such as 40′ HIGH-CUBE containers).

If your purchase quantity does not meet their MOQ, you may be rejected. 

Lack of product variety:

Each product needs a dedicated manufacturing process and production line as well as skilled workers. The limitations of the factory’s productivity determine that they are unlikely to have a very rich product category.

Difficulty in communication, poor sense of service:

When dealing with factories, no matter how big or small, communication is often a frustrating problem. This is because factories are usually located in remote areas or the countryside in order to save land rent and human resource costs. These places often hard to attract high-quality talented people. This leads to the low level of education of employees in factories, especially small factories (compared to trading companies).

In addition, their work focuses more on production, so the sense of service is usually weak. In the entire commodity circulation link, the factory is too far away from the end customer. As a result, it is often difficult for them to understand the problems feedback by customers. For importers, problems that will seriously affect their sales and after-sales satisfaction are often ignored and not understood by factories.

Language barrier:

One of the biggest obstacles in cross-border trade is language barriers. The language problem is encountered when dealing with most small and medium-sized factories. For the reasons mentioned above, few factory employees can speak English. And usually, they can speak very basic English. Therefore, when you have a complicated design, customization, transaction terms requirements, or want to obtain detailed English manuals and instructions for use, you will worry whether they understand what you want to express.

Safety:

Transaction security is an issue that should be considered more priority than low prices. You should have heard stories like this: negotiate a price, place an order, pay the payment, and then can’t contact the factory anymore. This is direct danger of cooperating with many unknown small factories. Although you can reduce this risk through factory audits. But when problems happen, the lack of accountability of factories is still worrying.

Advantages of trading company

Low MOQ(minimum order quantity):

Trading companies are very suitable for small batch import needs. Because they have integrated many customer orders to form a scale effect and place orders to the factory, they often get lower prices. At the same time, the trading company usually maintains a good relationship with the factories and keeps some product inventory on hand. When facing small orders, it is easier and more enjoyable for the factory to cooperate with trading companies, which can avoid long and complicated communication with foreign customers. This is a more cost-effective option for factories. That’s why the MOQ of the trading company can be much lower than it is given by the factory.

Flexibility:

Trading companies often maintain a close cooperative relationship with many factories. Through the contacts accumulated in these factories and industries, they can access more factory resources in different categories. This allows trading companies to make plans more flexibly for customers and better respond to emergencies.

For example: if there is an insufficient production capacity of the factory to finished a big order on time, as a trading company, he can split the order into several small orders and allocate them to other factories to do it together. Or a customer needs to purchase many different products, and as we know that a factory can produce a limited species of products. Thus if you want to work directly with the manufacturer, you may need to communicate with many different factories at the same time. By a trading company, you only need to hand over the problem to him, and he will solve it all for you.

Import experience:

It takes time to find a reliable factory and establish a good relationship with it. So if you are a new importing from China, cooperating with trading companies will make your start easier and more efficient. Trading companies have already kept relationships with many factories, and they pass on these relationships to you, thereby increasing their value to customers

At the same time, experienced trading companies can give you some additional guidance and market information, which may save you time, energy, and money.

Logistics plan:

An experienced trading company can not only provide all kinds of products for you, but also can easily handle the logistics of delivering them to your sales market. And flexibly formulate a more affordable logistics plan according to the type of your goods and the urgency of your needs. 

If the trading company does not have its own logistics department, they can recommend you to a trusted partner who can handle all the paperwork and arrangements from the factory to your warehouse.

Safety:

Mature trading companies are legal enterprises, some large trading companies, have legal business entities both in your home country and China. Due to legal constraints, it is almost impossible for them to disappear after your payment because it will make them lose more than gain. 

You can reduce the risk by signing a business agreement with a trading company. Remember to review carefully before signing. After confirming it is correct, you can rest assured that it has legal effect.

Rich product categories:

Trading companies provide more types of products. And because they are more focused on service and marketing, they are usually happy to provide you with more samples for free. For importers, actively requesting best-selling samples from trading companies is also a good way to get more product sales opportunities.

At the same time, even if you only want to buy one product, the trading company can also provide the same product with different quality levels and prices according to your requirements.

Service and communication:

Since trading companies are not involved in the production, they can spend more time and energy to understand and serve customers. When factories are unwilling to cooperate, trading companies are likely to redouble their efforts.

Trading companies are more aware of their strengths and weaknesses as middlemen. Their selling point is their service, not price. Therefore, they will respond to your inquiries very quickly, even if the product you are looking for is different from theirs, they will try their best to provide a solution.

Sometimes, customers themselves don’t know what kind of product or solution they exactly need. For this kind of vague demand, the factory is often unwilling to serve. What the factory needs are clear products and orders. In comparison, the trading company is willing to provide professional advice and communicate with you to find business opportunities that suit you. Therefore, if you are looking for a solution, rather than just lowering prices, a trading company is your choice.

Language advantage:

One of the core values of trading companies is service, so they will recruit employees with relevant abilities. Therefore, the people of trading companies have stronger English expression and understanding skills(compared to factories). This allows them to communicate smoothly with foreign customers more accurately and efficiently. At the same time, since the employees of the trading company are locals, it is easier to deal with the factory.

Disadvantages of trading company

Price:

Yes, price is the biggest disadvantage of trading companies.

Since the trading company increased the price they get from the factory, you might think the price you get from them will always be higher. The actual situation is not always true. When your purchase quantity is not large enough, since the trading company has established a long-term cooperative relationship with the factory, they can get a better price than you.

At the same time, some trading companies often use factories that are not large enough, and these factories do not have their own international sales teams or export licenses. Therefore, they have to rely on trading companies to obtain orders from foreign customers, thus trading companies can obtain lower prices than well-known online factories.

However, if your order is large enough, for the same factory, the price you can get directly from the factory will be cheaper than through a trading company.

Technical knowledge:

Since trading companies usually do not participate in product production, they are not as good as first-line factories in terms of the manufacturing process and technical knowledge. For some products that require complex customization or new technologies, trading companies cannot quickly and accurately determine whether they can be achieved. 

But this is not always true, even if a factory has concluded that a certain technology and design is impossible to achieve. But other factories may be able to make breakthroughs. And this is an opportunity for trading companies. By integrating factory resources, they can achieve things that a single factory cannot do.

Summary

Therefore, before you get rid of the idea of a trading company that reduces your profits and is just an obstacle between the factory and you, please understand the huge benefits they can bring.

Below, I briefly summarized a few situations for you to make your choice more clear:

1. If you are a large company and the purchased quantity for each product is huge, you should directly contact the factory.

2. If you are a large company, but the quantity of each order is not very large, you should find a large trading company instead of a factory.

Reasons:

Because your quantity is small, you won’t get a good price, and you also need to spend more time talking with different suppliers on many things.

So you should find one or two large trading companies, collect all your orders, let them purchase everything for you, you will save a lot of time and labor costs.

3. If you are a small company, but you have a great demand for one or two products, you can find a factory or a trading company.

Why are there two options?

The factory options are easy to understand, why are there trading companies?

You should be aware that a large quantities purchase for you may not be considered a big order for others, especially for factories.

Therefore, you have to compare not only the prices between the factory and the trading company but also the payment terms and delivery time.

There is only one principle: choose the one that can save you time, energy, and cost, and the most important thing is transaction security.

4. If you are a small company and plan to order a few or dozens of styles in small quantities, the best choice is a trading company.

They will give you the right price and good service. If you really want to cooperate with the factory, you will find that either the factory ignores you or accepts your order without the good price you expect.

Although in the long term, a reliable factory will provide great support for your business. However, it all depends on the number of orders you give to the factory.

In short, both factories and trading companies have their strengths and weaknesses, please make your choice according to your own needs. The most suitable for you is the best.

Now it’s your turn.

Thanks for reading my article,  if you have any questions or some interesting stories during your cross-border sourcing experiences, welcome to leave a comment below or contact me, I’m here all the time.