Trading Company or Factory: Which Chinese Supplier Should You Use?

In China, there are two basic types of suppliers that you will encounter: trading companies and factories.

What is the difference between these two types of suppliers? In this article, I'll address the differences between these two and when youshould use each.

What is a Factory?

A factory in China is exactly what you think it is: it's a place that produces or manufactures various goods and widgets.

They normally have some type of machinery to produce these items, although the sophistication of that machinery can drastically vary.

For example, compare a textile factory that may simply have sewing machines as their primary machinery compared to a metal forgery

which has much more complex and expensive machinery.

Factories almost always specialize in a particular type of product and material. You would not expect a textile factory to also make stainless

steel products as the machinery and skill set are completely different for each type of product.

Factories tend to offer lower prices compared to trading companies, and you get more control over your products as you are directly in

communication with the factory in charge of making your products. However, factories have a much smaller assortment of products and

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What is a Trading Company?

A trading company does not actually produce any goods. Instead, they source a variety of products from one or more factories

(often, they work with several factories). They are similar, although not identical, to what we would imagine in the west as a distributor

or a wholesaler. Their big benefit is that they are able to offer a wide variety of products. In the past, before the opening up of China, trading

companies were essentially the only way to import from China, but this has all changed now.

A good trading company will source difficult-to-find products from difficult-to-find factories. If they're doing their job, they will also perform

some type of quality control as well. The downside of a trading company is that they typically have higher prices than factories as they take

some markup over the factory, and you will have less control over the actual production of your goods.

What Are the Advantages and Disadvantages of Trading Companies and Factories?

Here's a summary of the strengths and weaknesses of each to help you decide which one is better for your business.

Should You Use a Factory or a Trading Company?

Neither factories nor trading companies are inherently bad or good.

A trading company will normally be more expensive than a factory, but a good trading company should add additional value through sourcing,

quality inspection, customer service, etc. The problem is that some trading companies offer little additional value and essentially buy and resell

products with no value added.

Working with a factory directly gives you one major advantage: you have a more direct line of communication with the factory. When a problem

occurs or when you are trying to customize a product, it will be easier to communicate with the factory (opposed to a trading company which will

essentially be a filter between you and the factory). Working with factories also affords you potentially the lowest prices, especially if you are

ordering a reasonable quantity.

In my experience, if you are ordering at a single time a 20′ container or more of a single product, then it's usually wise to work directly with a

factory. You should also try to work directly with a factory if you are customizing a product or inventing a completely new product. For importers

purchasing small amounts of product and/or need a variety of products, working with a trading company is also a wise decision.