Importers often feel like they need some help to find a good supplier in China or in other Asian countries. In this article I am going to study the different options available to them.
I heard lots of stories about sourcing agents, and they seem to follow three different types of business models:
- The trading company that acts as the supplier and gets an undisclosed margin on top of the factory’s price
- The consulting agency that works based on fixed fees and that is transparent about the whole supply chain
- The individual agent who is paid by the buyer on a percentage basis
Let’s study the buyer’s options:
1. The two types of sourcing agents that might make sense
Depending on your needs, you might want to work with a trading company or with a consulting agency.
A trading company is a good choice if:
- What you need is convenience rather than control over your supply chain
- You need someone to do the search and to follow product developments for you for free (and this someone will make money only if you place orders)
- You don’t want to follow the whole production process closely, and you are happy to rely on someone for that
In some cases, the trading company provides the technical experience the manufacturer (and the importer) might lack. This is an extra benefit for the buyer.
Now, be careful. Just like you need to qualify a manufacturer, you should ensure that you work with honest and professional people.
A consulting agency is a good choice if:
- What you need is control rather than convenience
- You want your supply chain to be transparent to you
- You need a very professional sourcing process, including background checks and factory audits rather than personal connections and “should be fine” feelings
- You want to pay only a one-time fee for sourcing a good manufacturer, rather than paying a trader’s margin that might be unjustified on every order
If I were importing goods from Asia, I’d certainly try to work with this type of agent. In the long run, it allows the buyer to save money while reducing risks. However, it is not realistic for very impatient buyers who want to hit the ground running.
2. The one option you should avoid
I tend to advise importers against using individual agents that get paid a percentage of the order. The vast majority of them (whether they are locals or not) are giving a disservice to their clients, for reasons that I listed before:
- They will be too disorganized—and sometimes too lazy—to follow an objective process where potential suppliers are identified, then short-listed, and then visited in person and carefully checked.
- If they have personal contacts who may know someone who knows a manufacturer of the product you are looking for, that’s the route they will take in priority. If their uncle can supply it, he will automatically be the lucky one. Forget about competency-based selection.
- They will look very hard-working and honest, but in most cases they will get 5% or 10% from the factory, without disclosing it to you. That hidden commission is on top of what you will give them.
- As a consequence of the above point, they will be inclined to defend the manufacturer more than your company when things go wrong—and things WILL go wrong at one point or another.
- They will seldom take the pain to draw samples at random and check product quality. And, even if they do it and they find some issues, they will probably not tell you. Remember, a commissioned agent that you are not supervising closely will have more than one boss.
Maybe I am harsh, but I have heard too many horror stories to see any upside regarding this option.
[UPDATE 11 July: of course there are honest agents who DO bring some value in the deals they follow. But 95% of agents are nothing but matchmakers. A good rule of thumb: if the agent brings no technical expertise, he is probably useless].
3. Other options
If you can afford to open a buying office (which usually costs upwards of 60,000 USD per year), it might be a good idea. You can hire some staff who knows the industry and who can orient you toward good suppliers.
You can also manage the supplier qualification process from the home office. Your employees (or yourself) can go to trade shows and/or browse online directories, and then visit factories.
Whatever option you choose, though, do not forget that searching the right supplier takes time and effort, and should be done professionally. An importing business is worth nothing without good suppliers.