I was asked several times about the difference between an agent, a trader, and an importer. The question often comes from someone trying to start a business to help domestic buyers (in their country) get the products they need.

The truth is, there is a continuum between the agent (who takes minimal risk but controls nothing) and the importer (who takes high risks but has more control over his supply chain).

I started reading the Q&As on the China Sourcing Information website, and I found an interesting article: Tips for becoming a sourcing agent for Chinese suppliers.

Sourcing agent

Agents usually get paid 5 to 10% of the FOB value of the goods, after the final payment is done. There are two kinds of agents:

• The agent paid by the buyer to find new suppliers, to make communication easier, and to follow production. He or she is usually an individual based in the manufacturing country.
• The agent paid by the seller to find new clients and then make communication easier. The CSIC article has a few good tips for this situation:

I don’t have enough fingers to count the number of times in past few years that I have heard of the sales partner doing the heavy lifting to open up a new market, only for the factory to cut that person out of the loop once the market has been opened. So, here are some tools to protect yourself:

1. Set up an exclusivity arrangement with the supplier. Have wording that protects against gray market imports and also covers anything that factory or its subsidiaries produce. For example, if you get exclusivity on only a brand, the supplier can always make a new brand on the same product and cut you out, so be sure to have true protection in your exclusivity arrangement.

It’s nice to have an exclusivity agreement in place, but the protection under a document alone is far from sufficient. To further protect your interests I suggest the following:

2. Find a supplier you feel comfortable with. If you sense they are not trustworthy during your initial discussions, then move on to another supplier. Review carefully how they have done marketing in other nations. For example, if they have a history of opening new markets via outside commissioned sales partners at first, but later set up their own sales offices once business grows. That should be a red flag, unless the original sales partners were treated fairly in the process.

3. Do your due diligence. Get some references. Speak to their sales partners in other countries to get a feel for what it is like to work with this factory.

Trader

A trading company buys the products in its name and sells them its own customers while making a margin. All the communication goes through it. It is sometimes easy for the buyer to know the name of the factory, and traders are often cut out of the relationship.

Brand owner

The CSIC Q&A distinguishes another type of agent: the brand owner.

Consider being the brand owner. Even if you are the sales agent, you can work with the factory to develop a local brand for your market. If you own that brand as a trademark and the end buyers value the brand, then should the factory try to cut you out of the mix at a later point

a) they can’t do it using the original brand. So you have a better chance of retaining your buyers’ loyalty.

b) If you own the brand, you can move production to another factory if needed. So you, rather than the factory, are in the driver’s seat.

Importer & wholesaler

This type of company sources products and gets them delivered in its country. It typically buys them in bulk and sells them in small deliveries to retailers, who have no way to find where the goods have been manufactured.

The risks are quite high, since the importer is at a loss if the goods received from Asia happen to be unsellable on the domestic market. The margin can vary considerably based on various criteria (the level of competition, the presence of a brand, whether the products have been pre-sold or if they have to be pushed…).

Here is some advice from the CSIC article that applies to importers and traders:

Rather than being a sales partner working on a commission, consider being the exclusive distributor in your country. A distributor takes title to the goods, marks up as they see fit, and most importantly controls the contact with the buyers. An effective distributor is much harder for the supplier to remove from the supply chain than a simple agent. The down side is you have some finance and product liability risks when you are the distributor, but often the mark ups are higher, so the reward may be worth the risk. There are pros and cons, so my point is not to say distributor is always better than agent relationship, but you should certainly explore your options.

I advise you to check out the CSIC’s Q&A forum!