Sourcing Agents In China: They Are (NOT) All Made Equal!
Sourcing agents in China help foreign importers deal with the nitty-gritty details of finding reputable suppliers and managing their supply chain.
But with the COVID-19 pandemic having effectively disrupted the proper functioning of international trade, global shipping rates have skyrocketed and longer lead times are expected for cross-border trading activities.
More importantly, offline activities like factory visits to China and onsite in-person monitoring of manufacturing projects are almost impossible at the moment due to the lockdown on international travel and strict quarantine requirements.
Today, sourcing and importing from China has become increasingly challenging.
More and more importers are now employing international procurement offices (IPOs) to source from specific countries or hiring independent sourcing agents in China to be their eyes and ears on the ground.
But, the facts are that they’re not all made equal!
In this article, we’ll be breaking down:
- The 3 types of sourcing partners available to you in China
- The pros and cons of each
- How much each service costs
Keep on reading to discover which sourcing partner will suit your needs best!
1. Independent Sourcing Agents
An independent sourcing agent is usually a freelancer or a one-man band who manages the entire sourcing process for clients. They don’t belong to a bigger company or work for an employer and normally work from home to minimize their operating costs. You can easily locate these independent sourcing agents on online freelancing platforms like Fiverr and Upwork.
1) Potentially better customer service as they tend to have fewer clients.
2) Usually lower sourcing fees as their operating costs are low.
3) Can accommodate your specific requirements easily as there are no restrictions from a boss.
1) Many of them are not as professional in procurement activities and are less experienced in supply chain management.
2) They might actually be the “salesman” of selected suppliers, not truly independent sourcing agents working for you.
3) No capacity to provide advanced services like warehousing and packaging due to limited resources.
4) No clearly defined legal liabilities as they are not a legal entity, in the worst case, they might even be scammers who run away with your deposit.
Starting from $5USD for getting quotations from selected suppliers, but can exceed $2000USD per sourcing project.
The overall cost of employing these sourcing agents depends on a number of factors such as their sourcing experience, supplier networks, and sometimes the total number of hours worked.
Generally, their services are more affordable for small businesses, but the risk of running into trouble can be a lot more costly in the long run.
As they say in China, “yi fen qian yi fen huo.” You always get what you pay for!
2. Sourcing Companies/Sourcing Agencies
Sourcing companies/sourcing agencies are generally more established with a team of professionals responsible for various parts of the sourcing process namely suppliers’ quotations, project management, quality inspections, warehousing, packaging, shipping & logistics, etc.
Some sourcing companies from China have branch offices in overseas countries like the United States to take care of their clients.
However, most of them are located in the industrial clusters of mainland China like Yiwu in Zhejiang province and Guangzhou city where they are close to the manufacturers.
1) Although most of these sourcing agencies in China are considered as small businesses, they have everything in place to make sure the sourcing processes are efficient. Most of them own warehouses to consolidate the products before shipping if purchasing from multiple suppliers at different locations.
2) Suppliers everywhere all prefer buyers that order regularly and frequently. Sourcing agencies are able to generate a stable number of orders month on month so it is easier to negotiate better prices and terms with a network of quality suppliers.
3) Unlike independent sourcing agents who run their businesses solo, sourcing agencies are legally incorporated and buyers’ interests are strictly protected.
1) Potential of neglecting buyers’ interests if clients are too “small”.
2) Might be more expensive than independent sourcing agents due to higher fixed costs like warehousing and staffing.
3) Some of the sourcing agencies are just “buying agents” and have no interest in understanding the market requirements or exporting restrictions of customers, leading to project failures.
1) Fixed/one-time flat fee: usually ranging from around $100USD to $5000USD for standard sourcing services. Most sourcing agencies will ask for more flat fees if the manufacturing projects are more complicated and require a higher level of monitoring.
2) Commission rate model: A certain percentage of the total order value is charged as a service fee. According to our market research, roughly 90% of the sourcing agencies set the commission rate from 3 to 10%. As a rule of thumb, the higher the total order value, the lower the commission rate is, and vice versa. For example, if your total order value is small and below $2000USD, a sourcing agency in China will ask for $200USD (10%) in return.
c) All-inclusive model: A total price including the product costs, shipping rates and the service costs involved are quoted for the clients, no extra commission will be charged.
3. Trading Companies
Trading companies specialize in selling specific product categories and their roles are similar to wholesalers or distributors rather than sourcing agents in China.
Unlike manufacturers, they are able to provide a certain level of purchasing services like repacking but tend to be more biased when it comes to quality inspections. They are usually found on B2B platforms like Alibaba and Global Sources.
1) Might be a good option if you know exactly where to source your products from.
2) Lower prices for specific product categories as they are regularly stocked.
3) More familiar with the importing process and regulations for specific product lines.
1) Not convenient if you would like to source multiple types of products.
2) Lack of project management concepts as they are just sellers or traders.
3) May claim to be manufacturers, but in fact are just a “middleman” that extract profit margins.
Trading companies normally do not charge a sourcing service fee but include the associated costs in their quotations.
Strictly speaking, trading companies are not sourcing agents but can assist in sourcing and creating OEM/ODM products in their specialized product categories.
Also, they are working for manufacturers rather than buyers so it would be difficult to determine whether their prices are fair or not.
Many e-commerce sellers and importers are now relying on sourcing companies/sourcing agents in China to source premium products to sell in their markets with how the world has changed since COVID-19.
Platforms like Alibaba give buyers access to millions of products across different industries, but as we’ve explored, when it comes to the level of service, assurance, liability, and costs involved, there is a lot to consider before diving in.
If customization efforts like OEM/ODM manufacturing are not necessary, one can simply source directly from manufacturers if they know how to select reliable ones — which can be a daunting endeavour due to language barriers and quality issues if the supplier has not been verified.
In most cases, we recommend using our professional services of sourcing agents, especially those that are a legal entity and have assurances when it comes to things like company fact checks, IP protection and quality control.