Global products sourcing offers a cost advantage that domestic outsourcing cannot match. Since 2009, China has been the world's largest exporter, building economic relationships with developed industrial economies as well as developing countries. Integrated supply chains, world-class infrastructure and a sophisticated labor force enable the nation’s manufacturers to meet the tight deadlines that international companies operate on. Global sourcing from China is expected to continue strongly despite the unprecedented COVID-19 pandemic.
If you have been thinking about procuring goods from China, you may have heard of sourcing agents. A sourcing agent is someone that helps you find suppliers in a country. It could be an independent agent, a firm, or a large corporation that offers product sourcing services.
The agent’s service may not end after you have signed the manufacturing agreement. Most sourcing agents provide comprehensive service. They undertake quality checks of products, coordinate feedback and communications between you and the factory, and handle product shipping based on agreed terms.
Essentially, an international purchasing agent is a third-party that works as an extension of your internal business team. The company charges you a commission, a percentage of the total order value. Sourcing agents that work on behalf of a factory charge the manufacturer a commission. They are trading companies that find clients seeking specific products for factories in their network.
Finding a high-quality manufacturer is one of the most important steps of setting up an importing business. The right manufacturer is the bedrock of your business as they mass produce products that are in demand in the market(s) you sell to. A reliable manufacturer means quality products, happy customers, positive reviews, and increased sales.
Navigating global sourcing from China is difficult. Finding and vetting a supplier can be time- and effort-intensive. It is not uncommon for middlemen to pose as manufacturers and charge a high markup to the buyer. This is why importers make it a point to visit the factory and speak to the facility manager. They hire a translator to ensure that the meaning and context of what they say is interpreted correctly by the manager and vice-versa.
Chinese manufacturers are open to providing discounts and favorable terms to buyers that make it clear that they’re interested in a long-term relationship. Maintaining harmony and ensuring smooth communication is more important from the buyer’s perspective as the factory may have many clients that place bigger orders. But this can be tricky for two reasons.
The language barrier is one issue: less than 1% of the population in China speak English. The overlap between professional and social interactions in Chinese business culture and at the same time, the importance accorded to rank and hierarchy, can feel alien to western businesses.
A global sourcing company that has a presence in China is invaluable in overcoming these complexities. Here is a look at the specific benefits you can expect by engaging a China sourcing agent.
If you need to find a manufacturer in China, how do you go about it? You may think of doing a Google search or probably looking up online marketplaces like Alibaba. The internet is going to throw up a massive list of manufacturers in China. How do you find out the right manufacturer for your business?
Typically, the process begins with you sending an email to the suppliers on your long list. You’ll need to state your requirements (type of product, material, dimensions and so on) clearly to avoid confusions on their end. The supplier will try to find out about your business – if they know you’re buying from China for the first time or that you’re a small company that may not place large orders, they’ll likely offer you less competitive prices.
This is why there is always room for negotiating prices, if not MOQs. Expect a lot of back and forth before deal finalization.
On both counts, an international purchasing agent with China sourcing expertise can save you significant time. Depending on the product you want to source, the agent would be able to connect you to those manufacturers who specialize in manufacturing the product you want. The sourcing agent can connect you to Chinese manufacturers who have already been vetted. The agent also plays a helpful role in negotiating the best terms with the supplier. So, when you hire a global sourcing agent, you end up saving a considerable amount of time that you would have otherwise spent on searching for and getting to know suppliers.
It is imperative to verify the credentials of a manufacturer before you start doing business with them. The supplier documents to request are:
- Foreign trade registration certificate, proving that the company can legally carry out foreign trade and to confirm their English name.
- Bank account certificate, to get details of the company’s bank account in Mainland China and rule out fraud. It will give you the confidence that your payment will go to this account and not to an offshore account.
- ISO 900 certificate
- Customs registration certificate
One way is to pay a professional translator to translate all the certificates to English, but that is going to be an additional expense. What do you do if a manufacturer hands you fake documents? You or the translator have no way of identifying an original document from a fake one.
An experiencing global sourcing company should be able tell an original document apart from a fake document. They have a good understanding of the requirements that a Chinese manufacturer must meet before they can legally export goods.
Even if everything checks out, you may still want to tour the factory. Successful global sourcing and outsourcing is not just about keeping prices low. The products manufactured at the Chinese factory must meet the quality standards demanded by your market.
Most of the sourcing agents in China are fluent in English, Mandarin, and Cantonese. By hiring a sourcing agent, the language and cultural barriers between you and the Chinese manufacturer become more or less invisible. This is important for the following reasons:
- For your product to turn out exactly how you want, specifications and quality standards should be crystal clear to the factory. To create the right perceptions about their capabilities, Chinese factories seldom seek product clarifications from importers. A global sourcing agent steps in to make sure that the manufacturer has understood your requirements correctly.
- Having a product manufactured for the first time? Your product can benefit from experienced-backed inputs on design. Many sourcing agents have professionals in their team who assist with product design and development. They let you know if some of your requirements are not very practical. Or they may make certain recommendations that improve your product.
- Mass production begins only after a product sample has been approved by the buyer. The ‘example’ product that must be replicated in the required quantities is known as the ‘golden sample’ as it is made to the highest quality. The golden sample may not turn out perfectly the first time, necessitating the global sourcing agent to once again emphasize your expectations.
- When the product is being manufactured, the agent can visit the factory or have one of their representative stationed there to check the quality of a finished item from the first batch. Any issues in this stage can be rectified quickly to avoid hassles after many more batches have rolled off the assembly line.
- Many sourcing agents, besides having an office in China, have international offices. You can make inquiries during business hours and don’t have to rely on agent representatives working in a different time zone.
As you can see, a global sourcing and procurement agent offers conveniences that make your global outsourcing experience less stressful and increase chances of a successful long-term relationship with a Chinese factory.
Naturally, you want to get the best possible prices and payment terms. While a global sourcing companywon’t tell you how to negotiate, they will clarify your terms and requests to the factory. The terms will also be stated in the manufacturing agreement you sign. This legally binding document will be considered by the courts in the event of a dispute.
- When it comes to price, you never want to bring it down below the floor price, which is the lowest price at which your product can be sold. Driving prices below this level will affect product quality and that is a risk you don’t want to take.
- Come to the negotiation table with price data on other suppliers. If you’re aware that you can get better prices elsewhere, you will be in a better position to bargain with the supplier.
- Successful global sourcing in China is a matter of striking a balance between price, quality and on-time deliveries. Never discount the possibility that the factory may become lax and stop prioritizing you after they win bigger clients. Investing in relationship-building is essential, and it’s much harder without a sourcing agent.
- Never pay 100% of the purchase order value before your order has been shipped. Pay a part of the amount as down payment, some after shipping and the rest after you’ve taken delivery of the products and conducted a quality inspection.
- Negotiate the payment method. Options include wire transfers (telegraphic transfers), letters of credit and PayPal. Plan payments so that you’re able to honor your obligations in the even of a cash flow crunch. Late payments can sour buyer-seller relationships, and move you to the back of the queue for discounts and favorable terms.
You will also need to account for shipping costs. The most common shipment term is Free on Board (FOB), where the seller assumes responsibility for transporting the goods to the port of origin, inclusive of the transportation costs and other fees. Once the items are on the ship, liability and costs (customs, taxes and so on) shift to you. International purchasing agents assist with shipping, and as such, you should be able to save on shipping costs and receive your order on time.
Sourcing agents have boots on the ground to connect you to new suppliers and tap into global sourcing supply chains. When you want to switch suppliers or start selling a different type of product, your agent can help you build more alliances.
The value of a China sourcing company can be felt in every stage of the buyer-seller relationship lifecycle. By working with one, you ensure that quality control is an ongoing process and not a one-time step. It may not be feasible for you to travel to China to audit factories every time. As sourcing agents have a presence in China, it is much easier for them to perform audits, ensuring that the quality of the products meets your expectations.
With regards to logistics, the sourcing agent can keep a check on deliveries, taking this burden off your shoulders as you expand and grow your business. It includes getting or moving to better shipment terms. When you need to cut costs or scale up, working out a deal with your existing supplier or a new factory quickly and without conflict can be difficult when you’re on your own. As the go-between, the global products sourcing agent can help you tweak terms with minimum stress and fuss.
To forge new business relationships in China, you must engage socially with sellers in your industry. Geographical distance and language barrier come in the way of making contacts that stick. And if you have a China+1 strategy, managing various sellers can be challenging. An intermediary who works on your behalf in the country you source from can help you make the most of the available opportunities, smoothing out many constraints in the path of global sourcing from China.