People sometimes ask if hiring a sourcing agent in China is necessary for businesses that want to start buying products there. While it is an option, there are pros and cons which we’ll outline. We also give you other options, who they’re suitable for, and outline the drawbacks, too, so you can make a choice that suits your needs.

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Who typically uses a sourcing agent to buy from China and what types are there?

Some buyers want to find a supplier in China, but they don’t trust Alibaba, they don’t know what to ask suppliers, what appropriate terms to agree, etc. In these cases, they might typically approach a sourcing agent to take the burden of doing that work and providing them with a list of suppliers who should be suitable. A typical sourcing agent gets 5-10/12% commission on the business when they match overseas buyers and Chinese suppliers. However, there are different types of ‘sourcing agents’ you might encounter:

• Commissioned agent – most popular as they find suppliers for you and play the role of matchmaker. They are probably paid by both the factory they introduce and you, the customer, even if they might suggest otherwise.
• Trading companies – they’re a middle-man and take payments for the orders directly from the overseas purchaser. You may not know which factory/ies they use or if the supplier of your products is the same from batch to batch. They do the sourcing work and take more responsibility for the orders, but also probably charge more than commissioned agents.
• Agents who work by the hour or day – this is similar to what we provide at Sofeast with our factory identification solution. You pay for the work and get the results, there’s no commission and no payments to us from factories. You may then choose to audit the selected factories to get deeper information about their capabilities, quality systems, social compliance, etc. (08:06)

4 sourcing approaches the buyer can take.

1. Purchase directly from factories yourself – easier to source suppliers yourself now than before thanks to the Canton fair, Alibaba, etc.
2. Use a commissioned agent
3. Work with a trading company
4. Pay a third-party service provider a one-time fee to do the sourcing work (13:10)

When does each approach make sense (and pros & cons)?

• If you buy simpler, non-customized products (not products that can have any safety implications like electrical devices, food contact, or children’s toys), in smaller quantities with no development work, doing the sourcing yourself online will probably work for you as risks are low and even if you make a mistake you may only lose a couple of thousand dollars. You’re also learning the ropes and gaining valuable sourcing experience. (15:24)
• A commissioned sourcing agent can give you helpful backup if you’re new to sourcing as they have local networks, understand your needs, can find suppliers who accept low volumes, quickly provide relevant manufacturers, etc. You also don’t pay upfront, so it incentivises them to find you good suppliers so you place an order and they get the commission. As your business grows you may choose to handle everything yourself and at this point, you can choose to stop working with the agent and hand off their responsibilities to a member of staff or pay a third party by the hour. Drawbacks are that the factories the sourcing agent finds for you will still pay them a finder’s fee even after you stop using the agent, and this will be added to their price to you, so this may not be preferable long term if your orders are getting larger. Be wary of some less honest sourcing agents who don’t push for the best price for you because the more you pay, the more commission they make and the more factories pay them. (17:14)
• Trading companies don’t charge you upfront either and will find suppliers and get samples made and shipped to you ASAP so you place an order – their business model is usually based on getting your order agreed quickly, and not spending time developing products and following the pre-production activities that will require investment of time and money before you pay them anything. So plus points are ease of use for you, speed, and they usually have good communication.
  The drawbacks are that they are incentivized to keep your supplier/s information from you so you don’t buy direct and cut them out of the process, but a lack of supply chain transparency isn’t possible for products where you need them to be compliant to specific standard or safety is a risk because you may not know if the products have been made and tested to be compliant. For simpler products, this is less of an issue. To keep you from contacting factories, they may choose small suppliers who don’t do export business and are often less accustomed to foreign customers’ needs. The trader can make a higher margin here as these suppliers are cheaper, but the risks of you receiving poor quality and non-compliant products also increase. If things go wrong, it is also in the trading company’s interest to ship the products to you without telling you of the problem, and then take the payment as dealing with problems delays their payment.
  Some traders are smart and are adapting to new compliance rules that require supply chain transparency and they will disclose the information when you work together and put in the work to assure that your products are compliant…the ones who won’t are probably a dying breed. (27:23)
• If you’re placing large orders and/or you need to invest a lot of time and effort to develop a new product buying directly from a suitable manufacturer provides a firm bedrock for your supply chain and you don’t have other parties in there muddying the waters. You should also have a relationship with critical component suppliers in the chain, too (unless they are, say, huge battery companies, for example). You may either hire staff to handle sourcing in-house or contractors and pay them by the hour or day to maintain control over your supply chain, retain visibility, and avoid being a hostage to any other party. (37:20)

Sourcing options and compliance.

For simpler products that don’t provide risks for users like socks, for example, regulations are fewer and agents and traders should be fine if you know you don’t need to provide supply chain information. But even for products like this, the legislation is changing and in the US you need to prove that cotton doesn’t come from Xinjiang and in the EU the Ecodesign regulation requires sustainable materials to be used and proof of that. So the days of using an agent or trading company that can’t provide supply chain information are numbered. (41:25)

Related content…

• Sourcing from China 101, Part 1: Do You Need a Sourcing Agent?
• Why First-Time Buyers Fall for Trading Companies in China
• Having Visibility into your China Supply Chain
• Listen to our podcast series on sourcing from China: 👉 DIY Sourcing from China Series