When it comes to manufacturing your products, it's essential to know whether you're collaborating directly with a factory or working through a trading company. To help you navigate this distinction, here are some valuable tips to determine if you're engaged with a trading company.
Firstly, let's understand what a trading company is. Often known as vendors or intermediaries, trading companies act as a bridge connecting buyers and sellers, without involvement in product ownership or manufacturing. Platforms like Alibaba and Global Sources predominantly list companies that are not the actual factories producing the showcased products. Instead, most of these entities are agents or trading companies dealing with multiple factories, lacking ownership or control over a specific factory or product category.
While working with a trading company may have its benefits due to their wide product capabilities and lower minimum order quantities, there are certain drawbacks, such as limited transparency regarding the production location, lack of control and transparency in the production line, concerns about certification authenticity, and higher unit prices.
Outlined below are five key indicators to help you identify whether you're working with a trading company or a factory, along with strategies to differentiate between the two:
1) Product Variety:
Consider if the company offers diverse product lines requiring different manufacturing processes.
Trading companies tend to offer a wide range of unrelated products, while factories specialize in specific product types.
2 ) Company Name:
Trading companies often have catchy, marketable names or include phrases like "import & export" or "trade."
Factories typically incorporate the location in their formal business name, reflecting their specialization.
3) Company Location:
Check if the company is located in densely-populated metropolitan areas like Hong Kong, Shanghai, or Shenzhen.
Factories are often situated in regions known for manufacturing specific products, considering labor costs and raw material availability.
4) Company Website:
Trading companies usually have modern websites offering a broad product range and fully in English.
Factory websites are typically basic, focusing on a specific product category, and may have Chinese contact information.
5) Factory Visit & Audit:
Trading companies often hide the actual manufacturing factory.
Difficulty in visiting the factory for inspections or audits suggests the involvement of a trading company rather than direct engagement with the factory.