This article guides you to all the criteria you should know when looking for the best sourcing company in China. Whether it is more convenient for your enterprise to use the sourcing agent or company in China; and how to determine the best sourcing service according to your business needs.
China is a manufacturing powerhouse and the world’s second-largest economy. According to the World Bank, China’s $14.3 trillion economy accounts for 16.34 percent of the global gross domestic product in 2019. According to a report from Economic Forum and Statista, China is likely to overtake the United States to become the world’s largest economy by 2024.
Why use Chinese sourcing agents to import from China?
A Chinese sourcing agent/company refers to an individual or agent who procures goods and products not available in the importer’s market on behalf of the buyer. Today, sourcing agents in China are not just procurement or sourcing professionals, they also provide end-to-end solutions to guide companies through the entire import process-from selecting the right suppliers to ensure quality and managing logistics.
It is not surprising that brands, retailers, and companies around the world now rely on Chinese supply chains. However, working directly with Chinese manufacturers is not easy. Language barriers, poor communication, lack of local business knowledge, and lack of physical presence may affect the quality of your imported goods, thereby affecting your business success. Most importers rely on the support and assistance of Chinese sourcing agents.
3 Sourcing Methods in “China”
There are three different ways of sourcing in China, each of which has different advantages and disadvantages. Before using any service of a Chinese sourcing agent, please evaluate your business needs and the type of procurement that best meets your needs.
- Chinese Sourcing Agent
A sourcing agent in China can be an individual agent, and you can hire him full-time. A separate sourcing agent can act as your Chinese representative at a low cost. There are thousands of sourcing agents providing services on the mainland. If they focus on the right product category, you can take advantage of their network and save time. Unfortunately, many personal sourcing agents receive a commission from the factory, causing them to defend the manufacturer rather than your business when things go wrong.
- Sourcing Companies
Chinese sourcing companies will charge you more at the beginning of the procurement process, but you have more control and full transparency. In addition, Chinese sourcing companies or sourcing agencies have the support of different departments, such as quality inspection, warehousing, and transportation. Sourcing companies are more efficient in integrating supplier resources and providing services to many different buyers at the same time.
Sourcing companies are located in industrial towns and cities. For example, most of China’s sourcing companies are located in Shanghai, Yiwu, Guangzhou, and Shenzhen.
- Sourcing Websites
A sourcing website or business-to-business (B2B) portal is a platform for companies to interact with suppliers, manufacturers, and distributors. Such websites provide entrepreneurs with a quick and convenient way to order products in small batches. However, information about the supply chain of these products is still hidden. While sourcing websites is a good choice for start-up entrepreneurs, costs will continue to increase in the long run.
Alibaba is the best-known B2B platform in the world. However, it has a negative reputation among companies, claiming that they have been ripped off by Chinese manufacturers on the platform. However, despite these problems, Alibaba provides trade insurance to protect retailers before they receive orders. Companies on Alibaba can also read the manufacturer’s comments.
Compared with other sourcing websites in China, DHgate has a lower minimum order quantity (MOQ). In addition, when the buyer confirms that they have received the goods, DH gate’s payment processing system will transfer the payment to the seller.
Made in China
If your company is sourcing industrial products, auto parts, sporting goods, and computer products, then made in China is a good choice. Made in China provides online inspection and reporting capabilities that allow companies to choose legitimate suppliers.
Although Global Resources does not provide trade insurance, they are Alibaba’s biggest competitor. Unfortunately, Global Sources does not have a rating and review system on its website to help the company find reliable manufacturers.
How much does a sourcing agent/company cost in China?
sourcing agents in China make money in a variety of ways, such as service charges, hourly charges, product price cuts, or deposits.
In this section, we explain the main ways in which Chinese sourcing agents and companies are compensated for the supply of their services and goods. However, before we discuss this in-depth, it is necessary to understand two key points to put this in perspective.
Many companies are completely transparent about the way they charge. However, most companies are not. If you compare service rates between different outsourcing companies in China, can be a daunting task.
Therefore, the benchmark of sourcing agents and company rates is the product price. The best way to measure the sourcing agent rate is the product price.
Many sourcing agents in China work on a commission basis, usually between 2% and 10%. sourcing agents, who claim to charge only a low percentage (such as 1% to 3%), offer few services other than to handle your transactions and shipments.
On the other hand, be wary of companies that offer a wide range of services at the same profit margins. It is difficult to run a business with a 2 percent profit margin, so combining a range of comprehensive services with such a high-profit margin may mean that they may lie about charging you. For example, they will increase the margin by 2%, but, when they buy goods, they will get an extra deposit.
Another option is to charge a 2% fee, but provide almost no services for other services. For example, they will say that they will conduct a comprehensive quality check, but in fact, they can only take a few pictures at most. Be careful when working with Chinese sourcing agents, who promise a price of only 2%.
Throughout the scope, there are very professional sourcing companies that charge about 10% of the fee.
The fees charged by these professional sourcing companies and what they do are honest and transparent. In addition to professional fees, Chinese sourcing companies also include other services, such as quality control inspection of all goods produced. Because they cannot afford the quality defects of any products, large retailers often employ professional sourcing agents and companies.
For example, sofa importers and good white brands. Each piece of equipment needs to be inspected according to detailed specifications. This is a huge job, but large retailers will take this cost into account in their prices.
- Tax Refund
Tax rebate is a common and standard means for Chinese sourcing companies or agents to rename their services.
Goods exported from China have a “tax rebate” that can be applied for. This is taxable when raw materials are produced into commodities. However, part of the tax can be recovered when the goods are shipped out of China.
In the past few years, Chinese manufacturers can only produce goods. The export license is required for export products. Manufacturers also need to communicate with importers in English. Therefore, a “trading company” or “export company” is often a bridge between importers or overseas customers and Chinese manufacturers.
The trading company will hold an export license. These trading companies will collect the customer’s currency and then convert it into domestic renminbi (RMB) to pay the manufacturer. When trading companies pay the factory, they only pay for the goods (EXW terms), but they sell free on board (FOB/CIF) to the importer.
This means that while the trading company recovers the tax, it is only the gross profit of the trading company. Trading companies will have to pay for all export costs, such as transporting goods from the factory to the port and loading them into shipping containers, as well as various other processing and documentation costs.
It is also worth noting that since trading companies buy in one currency and sell in another until the goods are exported and the transaction is settled, the trading company itself often does not know its exact net profit. Because trading companies are considered exporters, they will reserve the right to collect a “tax refund”. The rebate amount varies by product but is usually around 10%.
- Flat fee
Some Chinese sourcing agents and companies do not charge commissions nor charge suppliers or Chinese manufacturers. Instead, these sourcing agents and companies provide other services at a fixed fee.
For example, the cost of sourcing products ranges from $4 billion to $5000. Then, the sourcing agent and the company will charge factory management fees and quality control fees. These uniform fees are charged for each order or shipping container.
Importers often seek value-added services after problems with manufacturers and are now seeking additional support to ensure that there is no trouble with trading and production.
- Hourly wage
Some agents will charge by the hour for several procurement-related tasks such as negotiation, product development, factory management, quality control, and logistics. This arrangement is suitable for importers who do not need full-time assistance but occasionally need Chinese on-site personnel to work for them.
It is worth noting that hourly pay is not as common in China as it is in the West. Generally speaking, it can be challenging to find a professional sourcing agent who needs time in China.
- Hidden fees
Although Chinese sourcing agents explain how they pay, it is not easy to work with a cross-border sourcing agent.
As we have discussed, it is common not to compare directly, whether or not your preferred sourcing company in China has explained the details of their charges. Specific costs may be hidden for a variety of reasons.
If you are working with an engineer who claims to be working in a certain proportion, please pay attention to the key details that will affect your business, such as pricing, specifications, and value-added services. Therefore, even if agents are not transparent about their fees, focusing on the key points mentioned above will best protect your business.
Once again, when it comes to the tax rebate model, even the trading companies themselves do not know their exact margin until the exports of goods and transactions are fully settled. The lack of accurate information is due to fluctuations in currency and final logistics costs.
How to verify the sourcing agent in China?
Based on our years of professional sourcing experience, we have created a list of what we are looking for in suitable sourcing agents in China.
- Business License
The first item on our list is to ask for their licenses, especially their license numbers. Like any supplier, you need to find a registered or licensed sourcing agent-which means they have legal jurisdiction to work as a sourcing company in China. Use their license numbers to monitor the performance records of sourcing agents and assess whether they currently face any legal problems.
- Experience and specialty
In addition to obtaining government permission, it is also important to have many years of professional sourcing experience, especially in your product category. The more experienced they are, the faster and more effective the whole process will be. Look forward to responsive service, high-quality products, and mutually beneficial negotiations.
- Sentimental speech
Positive reviews and impressive recommendations from other customers are important. Recommendations and recommendations from colleagues are usually the best way to find sourcing companies in China. You want to find agile and collaborative vendors.
The right sourcing agent cooperates well with you and Chinese manufacturers. Therefore, you must find someone who is proficient in English, the local language, and the language of your market.
- Location and flexibility
Professional sourcing companies are located in China, not far from industrial sites, factories, and warehouses. The strategic location of your supplier not only helps to save travel costs but also the sourcing agent can keep you up-to-date immediately.
- Supplier network
You can contact the Chinese sourcing agent to get in touch with China’s vast network of suppliers. The sourcing agent you are hiring should have a long list of certified manufacturers and other professional contacts. sourcing companies must be able to access and help you find multiple suppliers.
Transparency is the most important consideration when looking for sourcing companies in China. You don’t want any misunderstandings in the entire working relationship, whether it’s cost, production, or otherwise. Professional sourcing agents are completely transparent with customers. If you meet someone who avoids communication, they may not be as reliable or credible as they seem.
If you want to know more about how to source in China, please leave the comment or read our previous blogs.