Comparing Different Channels for Sourcing from China Part 2/2

A. Using a trading company

Trading companies usually specialize in a certain industry - so they can find the right products quickly. Sometimes a trading company can help if the original supplier does not have an export license. A buyer can also make use of a trading company, especially when the trade value and volume is very small, in which case suppliers might be unwilling to supply directly.

However, there are pitfalls when doing business with or through trading companies. First of all, they do not usually reveal the original suppliers' information and prices to the end buyers - their direct client. They might make a large profit from the price differences. In addition, quality is another concern, since a trading company would usually prefer to source material or goods with the lowest possible price. I know of some trading companies that supply bad quality products while using fake certificates.

Strategic sourcing is very popular now. Sometimes the buyer needs to work with the original suppliers closely for products innovation, new market development, or other strategic purposes. A trading company operating between the buyer and supplier would then represent a barrier, especially since efficient, direct communication between the buy & supply parties is absolutely essential.

B. Sourcing through a professional service provider

Nowadays, there are a great number of sourcing service providers who play an active role in China. Their scope, deliverables, and fee structures are diverse. Some of their service models are similar to that of a trading company. However, some models are more creative and a foreign buyer can get great benefit and success by sourcing with the right service provider.

In my opinion, the ideal model is for the sourcing service provider to serve as your own sourcing team in China. This team can do all the work related to sourcing:

1. Identify potential suppliers,
2. Collect quotations
3. Arrange a trip plan to China for the buyer, and accompany them to meet the potential suppliers
4. Negotiate with the suppliers
5. Assist the buyer and the suppliers to sign the supply contracts (while keeping prices transparent among the three parties)
6. Supervise the subsequent transaction process (with the suppliers exporting directly to the buyer) and manage the potential risks
7. Manage the ongoing relationship between the buyer and the suppliers, and
8. Monitor the development of the industry.

A good sourcing service provider can help a buyer save both time and money in sourcing from China, although there are also issues to look out for when working with a sourcing service provider, such as making sure the service provider does not overcharge the buyer in terms of service fees. Yet obviously, using the wrong service provider can entail a great deal of risk. Therefore, it is essential to find the best sourcing service provider through a proper filter, taking into account the ideal service model, a reasonable fee structure, and reliable service quality.

From my point of view, the ideal sourcing service provider for someone who buys from China should meet the following criteria:

1. They should have a multi-cultural sourcing team to be able to communicate thoroughly with both the buyers and the suppliers;
2. The team members, especially the Chinese team members, should have extensive industrial and trading knowledge and experience; and
3. The sourcing service provider should have very good and solid references for their sourcing services.

Lastly, sourcing through a sourcing service provider obviously applies to these kinds of buyers:

1. Those who need to find the original suppliers; and
2. Those who do not have their own sourcing team in China or the team they currently have is not yet working well or fully operational.

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