This article guides you throughout all the criteria you should be aware of when looking for the best sourcing company in China. Whether is more convenient for your business to use a Chinese sourcing agent or company; and how to identify the best sourcing service according to your business’ needs.
China is a manufacturing powerhouse and the world’s second largest economy. Based on World Bank data, China’s $14.3-trillion economy made up for 16.34 percent of the Gross Domestic Product produced globally in 2019. And according to a report from the World Economic Forum and Statista, China could overtake the United States as the world’s largest economy by 2024.
Why using a chinese sourcing agent to import from china?
It comes as little surprise then that brands, retailers, and enterprises across the globe now depend on China for their supply chain. However, working directly with Chinese manufacturers is not easy. The language barrier, miscommunication, lack of local business knowledge and lack of a physical presence can impact the quality of your imported goods and, consequently, the success of your business.
Most importers rely on the support and assistance of a sourcing agent in China.
A Chinese sourcing agent / company is a person or agency representing a buyer in sourcing commodities and purchasing products that are not available in the importer’s own market. More than just purchasing or procurement professionals, sourcing agents in China today offer end-to-end solutions that guide businesses throughout the full import process—from selecting the right supplier to assuring quality and managing logistics.
Ways of sourcing in China
There are three different ways of sourcing in China, and each one has varying pros and cons. Before engaging the services of any Chinese sourcing agent, assess your business’ needs and the type of sourcing that can best address your requirements.
Chinese sourcing agent
A sourcing agent in China can be an individual agent whom you can hire full-time. Individual sourcing agents can act as your China representative at a low cost. There are thousands of sourcing agents in the mainland who offer their services. If they specialize in the right product categories, you can leverage their network and save time. Unfortunately, many individual sourcing agents get commissions from factories, leading them to defend the manufacturer—rather than your business—when things go wrong.
Sourcing companies
Sourcing companies in China will charge you more at the beginning of the purchasing process, but you have more control and full transparency. In addition, Chinese sourcing companies or sourcing agencies have the support of distinct departments, such as quality inspection, storage, and shipping. Sourcing companies are more efficient in integrating supplier resources and serve many different buyers at once.
Sourcing companies are located in industrial towns and cities. Most sourcing companies in China, for example, are in Shanghai, Yiwu, Guangzhou, and Shenzhen.
HUACI Sourcing is a UK-owned sourcing company in China. Established since 2004, our company has helped hundreds of clients to export more than USD 150 million worth of goods from China.
We understand transparency, efficiency and good communication are important values that foreign importers expect when importing from China.
Sourcing websites
Sourcing websites or business-to-business (B2B) portals are platforms for companies to interact with suppliers, manufacturers, and distributors. Such websites are a quick and convenient way for entrepreneurs to order products in small quantities. However, information about the products’ supply chain remains hidden. And while sourcing websites are a good option for budding entrepreneurs, the costs add up in the long term.
Alibaba
Alibaba is the most widely recognized B2B platform in the world. However, it has quite a negative reputation among companies, claiming that they have been ripped off by Chinese manufacturers on the platform. Despite these problems, however, Alibaba offers trade insurance that protects orders until they are received by retailers. Companies on Alibaba can also read manufacturer reviews.
DHgate
DHgate has a lower minimum order quantity (MOQ) compared to other sourcing websites in China. Moreover, DHgate’s payment handling system turns over payments to the seller when the buyer confirms that they have received their goods.
Made in China
Made in China is a good option if your company is sourcing industrial products, automotive parts and accessories, sporting goods, and computer products. Made in China provides online inspection and reporting facilities to allow companies to choose a legitimate supplier.
Global Sources
Although they do not offer trade insurance, Global Sources is Alibaba’s largest competitor. Unfortunately, Global Sources does not have a rating and review system on its website to help companies find a reliable manufacturer.
Infographic on the different models when importing from China
In the graph below, we provide a detailed comparison of importing directly versus using a Chinese sourcing agent versus a sourcing company.
The comparison table compares all the factors your should be aware of before choosing a Chinese sourcing agent or company. Including: factory audits, quality assurance, price negotiation, payment terms, quality control, purchasing and vendor management.
How much does a sourcing company cost in China?
Sourcing agents in China earn money in various ways, such as service fees, hourly charges, or a cut or margin on the product price.
In this section, we explain the primary ways that Chinese sourcing agents and companies are compensated for their services and supply of goods.
Before we go into that, however, it is essential to understand two key points to put this in perspective.
Many companies are fully transparent about how they charge. However, most companies are not. If you compare the rates for services among different sourcing companies in China, this can be a daunting task.
Thus, the benchmark of the rates of sourcing agents and companies is the product price.
The best way to benchmark sourcing agents’ rates is the product price.
Commission
Many sourcing agents in China work on a commission basis, typically from 2 to more than 10 percent.
Sourcing agents who claim to work for very low percentages, such as 1 to 3 percent, offer very few services other than to process your transaction and ship your goods.
On the other hand, be wary of companies that offer a wide array of services at the same margins. Running a business on a 2 percent margin is tough, so combining a comprehensive list of services with such margins may mean that they are possibly lying about how they will charge you. For example, they will add on a margin of 2 percent, but, in fact, when they purchase the goods, they will make an additional margin.
Another scheme would be to charge 2 percent but to provide little to nothing for other services. For example, they would say they conduct comprehensive quality checks, but, in reality, they take a couple of photos at best. Be careful about working with Chinese sourcing agents who promise so much for only 2 percent.
Across the spectrum, there are highly professional sourcing companies that charge approximately 10 percent.
These professional sourcing companies are honest and transparent about what they charge and what they do. With their professional fees, Chinese sourcing companies include other services, such as quality control inspections on all of the produced goods.
Because they cannot afford a quality fault on any of their products, large retailers often hire professional sourcing agents and companies.
For example, sofa importers and white good brands. Each unit needs to be checked based on detailed specifications. It is a tremendous amount of work, but large retailers will factor this cost into their prices.
Tax rebateÂ
A tax rebate is a common and standard means for Chinese sourcing companies or agents to be renumerated for their services.
When goods are exported from China, there is a “tax back” that can be claimed. When the raw materials were produced into goods, this was taxed. However, when the goods are shipped out of China, a part of this tax can be claimed back.
In years past, Chinese manufacturers could only produce goods. An export license was required to ship out products. Manufacturers also need to communicate with importers in English. As such, “trading companies” or “export companies” were often the bridge between the importer or overseas customer and the China manufacturer.
The trading company would hold the export license. These trading companies would collect in the client’s currency, which was then exchanged into the domestic Chinese currency (RMB) to pay the manufacturer. When the trading company pays the factory, they pay only for the goods (EXW terms), and yet they sell to the importer on a free on board/cost, insurance, and freight (FOB/CIF) basis.
This meant that the trading company, while they collect the tax back, this is only a gross profit for the trading company. The trading company would have to cover all the export charges, such as delivering goods from the factory to the port and loading them into a shipping container and various other handling and document charges.
It is also worth noting that, because the trading company buys in one currency and sells in another until the goods are exported and the transaction is settled, the trading company itself will often not know their exact net margin. Because the trading company is perceived as the exporter, they would reserve the right to collect the “tax back.” The amount of tax back varies from product to product but is usually around 10 percent.
At HUACI Sourcing, we believe the tax rebating remuneration is the most fair and efficient when working with foreign importers. If you’d like to find out more, below is our sourcing service packages.
Flat fee
Some Chinese sourcing agents and companies neither work on a commission basis nor charge the supplier or Chinese manufacturer. Instead, these sourcing agents and companies offer other services for a flat fee.
Product sourcing, for example, costs $400 to $5,000. Sourcing agents and companies will then charge factory management and quality control fees. These flat fees are charged for every order or shipping container.
Importers often seek value-added services after having issues with manufacturers and are now looking for additional support to ensure that transactions and production are hassle-free.
Hourly rate
Some agents will work on several sourcing-related tasks—such as negotiation, product development, factory management, quality control, and logistics—for an hourly fee. This arrangement suits importers who do not require full-time assistance but occasionally need someone on the ground in China to work for them.
It is worth noting that, in China, being paid by the hour is not as common as in the West. Generally speaking, finding professional sourcing agents in China who have the hours when you need them can be challenging.
Hidden charges
Even though sourcing agents in China will explain how they are paid, working with a sourcing agent across borders is not easy.
As we have discussed, regardless of whether your preferred sourcing company in China explains the breakdown of their charges, not directly comparing is common. For various reasons, specific fees may be hidden.
If you are working with an agent who says they work on a certain percentage, focus on the critical details that will impact your business, such as pricing, specifications, and value-added services. Hence, even if the agent is not transparent about their fees, focusing on the key points mentioned earlier will best protect your business.
Referring once again to the tax back model, even the trading company itself does not know their exact margin until the goods are exported and the transaction is fully settled. This lack of precise information is due to fluctuations in currency and final logistics costs.
Case scenario
Two suppliers can provide quotations for the same product, and yet one offers much more value than the other. Hence, the key to comparing rates is to compare both the price and the specifications.
An importer wants to order an outdoor camping chair. They provide a photograph and the dimensions and then ask two sourcing agents for a price.
Sourcing agent A
Sourcing agent A, an individual agent, quotes a price of $10. The outdoor camping chair uses a steel tube frame made of 1-millimeter-thick tubes, and the fabric used for the chair is thin. The outdoor camping chair’s quality is lacking, as the product was manufactured at the lowest possible price.
The sourcing agent is very affordable, and they charge only a 2 percent commission as their standard fee. They also do not spend much time negotiating the price and specifications with the manufacturer.
The importer can buy the low-quality outdoor camping chair through Sourcing Agent A for $10 x 2 percent = $10.20
Sourcing agent B
Sourcing agent B, a sourcing company, quotes an all-in price of $8. Sourcing agent B has a much more thorough sourcing process and spends more time gathering information and negotiating for the best price and quality to offer the client.
This outdoor camping chair uses 2-millimeter-thick steel tubes and thick waterproof fabric and comes packaged in a five-ply cardboard box. The product is of better quality. Through Sourcing agent B, this camping chair can be purchased for $7.25. A 10 percent margin is charged for the sourcing agent’s services.
The importer can buy the good-quality outdoor camping chair through Sourcing Agent B for $7.25 x 10 percent = $8
Conclusion
Even if you know exactly how much the sourcing agent will charge, it does not mean that the agent charging a lower fee will be the best agent for your business.
How to verify a sourcing agent in China?
Based on our many years of professional sourcing experience, we have created a checklist of what to look for in the right China sourcing agent.
At HUACI Sourcing, we understand transparency, efficiency and good communication is key to all foreign importers. We meet alll the requirements listed below. HUACI Sourcing UK Office has been in business since 2004 and has exported over USD 150 millions worth of goods.
Business license
The first item on our checklist is asking for their license, especially their license number. As with any vendor, you need to find a registered or licensed sourcing agent—meaning, they have the legal jurisdiction to work as a sourcing company in China. Use their license number to monitor the sourcing agent’s track record and assess if they are currently facing any legal issues.
Experience and specialization
In addition to their government license, having years of professional sourcing experience—especially in your product category—is as important. The more seasoned they are, the more quickly and effectively the entire process can proceed. Expect responsive service, high-quality products, and mutually beneficial negotiations.
Testimonials
Positive reviews and impressive testimonials from other clients matter. Referrals and recommendations from colleagues are often the best way to find a sourcing company in China. You want to find vendors that are agile and collaborative.
Language
The right sourcing agent works well with both you and the Chinese manufacturer. Therefore, you must find one that is fluent in English, the vernacular, and the language of your market.
Location and flexibility
Professional sourcing companies are on the ground, in China, working not far from industrial sites, factories, and warehouses. Not only does your vendor’s strategic location help save on travel costs, but the sourcing agent can immediately keep you updated.
Supplier network
You get in touch with a China sourcing agent to gain access to a vast network of suppliers in China. The sourcing agent you want to hire should have a long list of accredited manufacturers and other professional contacts. Sourcing companies must be accessible and help you find several suppliers.
Transparency
Transparency is the most vital consideration when looking for a sourcing company in China. You do not want to have any misunderstandings throughout the working relationship, whether it is costs, production, or something else. A professional sourcing agent is fully transparent with clients. If you face someone that avoids communication, then they may not be as reliable or reputable as they seem.
How to identify an unqualified china sourcing agent?
Here are the red flags or warning signs to look out for when searching for your business’ sourcing agent.
Paid by the factory
If a China sourcing agent gets in touch with you through a factory’s reference, decline their offer. Some factories pay sourcing agents to find buyers. These agents, in turn, direct you to the factory without your objectives and interests in mind. Frequently, there is a catch: the supplier that pays produces inferior-quality products. The sourcing agent will guide you to hire these manufacturers, ultimately receiving commissions from both you and the factory. Unfortunately, you are left with poorly made products.
Offers quality inspections but works on commission
Sourcing agents who work on a commission basis and asks you to inspect for product quality on your behalf are a red flag. Such sourcing agents receive their commission only when the final product is delivered to the buyer. If the product has a defect, the buyer will not accept it, then the sourcing agent will not get their commission.
In this case, why would a sourcing agent look for product defects, only to lose their commission? This is the reason why we recommend avoiding such sourcing companies.
Unlicensed
Again, a government license is critical to operating a legitimate business. It is vital to hire a sourcing company that is legally licensed to provide their services to foreign clients.
Takes too long to find suppliers
Good sourcing agents do not spend much time looking manufacturers in China. After all, time is precious, and everything should be done efficiently. Your business may be paralyzed if the sourcing agent does not immediately find a supplier for you. Professional sourcing companies have a vast network and have been working in your product domain for years, so they should not take weeks or months to locate suppliers.
Poor language skills
Sourcing agents are the bridge, the communicator between you and the Chinese manufacturer. The primary goal of hiring a China sourcing agent is to avoid miscommunication and to get things done effectively. Suppose your sourcing agent is unresponsive or has poor communication skills.
In that case, it is better to go look for someone else. Moreover, find an agent present in your desired industrial town or city. It is a good indicator that they are fluent in the language of your preferred location.
Traps of dubious Chinese sourcing agents
Finally, the section that is everyone’s primary concern. You may have heard a lot about the practices of unprofessional sourcing agents or companies.
The sourcing agent in China may receive kickbacks or bribes. Suppose the buyer and sourcing agent have agreed on product price and supplier information transparency from the start. Yet, the agent asks the supplier for a kickback. In that case, the act is illegal and unethical.
Let us look at an example. Your company had received two quotations from Supplier A and B that are equal in price. If Supplier B offers a kickback, then the agent is likely to recommend Supplier B, no matter if the quality of their product is good or otherwise.
If your sourcing agent accepts kickbacks, then your business may end up in the following situations:
- The goods you had received do not meet your standards, or the product does not comply with government requirements in your market and is, thus, illegal to import, much less sell.
- Should the product quality be disputed, your sourcing agent will not be on your side or defend your business interests. Instead, they are likely to excuse the supplier for various reasons.
Kickbacks often happen in large orders worth tens of thousands of US dollars. For smaller orders, most sourcing agents do not bother to get involved in kickbacks or bribes.
Kickbacks are less of a problem now than four or five years ago. Because buyers can directly find suppliers through numerous channels, they can compare and weigh their options on their own. Importers can also decide if the product price and service commission provided by the sourcing agent is reasonable.
The right China sourcing agent or company plays a vital role in managing your supply chains. Besides helping you obtain competitive prices, professional sourcing agents take care of other essential processes. Excellent service makes the company’s business model competitive.
Questions to ask to potential sourcing companies in China
- Where are your offices?
- How fluently do you speak Chinese?
- For how many years have you been working as a sourcing agent in China?
- Which product category is your expertise?
- How do you find suppliers in China?
- How do you certify each supplier? Do you have a checklist for inspecting their factory and products?
- Are you willing to disclose the factory’s address, as well as visit the site with us?
- Tell me more about your payment structure.
- If I reorder products from the same supplier, are we entitled to a discounted rate for your services?
- How many staff members do you employ?
- Could you walk me through the process of working with you from start to finish?
- Are you registered or licensed? May I have a copy of your registration and/or permit?
- May I visit factories in China with you before and during the production phase?
- Could you provide references of satisfied customers who have availed of your sourcing services in China?
- Do you inspect product quality on our behalf? If so, how many product quality reports will I receive and how often?
- Will I receive frequent production status updates?
- Describe to us your management style? What are your work processes like?
- Do you offer guarantees if the recommended supplier rips me off, delivers a shoddy product, or there are delays in the shipment?
Feel free to send us an inquiry with your product needs here.
Advice on how to choose a sourcing company in China
When choosing a sourcing company you must choose wisely. That is, the supplier is a strategic business partner for your business. Therefore, it is key that you develop a good selection strategy to avoid problems with production in the future. Take note of these tips and implement a structured localization plan, as it is not only one of the first steps of our import, but also one of the most important.
How does the war affect sourcing companies in China?
China is a country that would survive even if its product sales were reduced. China is a country with a planned economy, with short-medium and long-term forecasts, programs and projects, where goals are set and permanently met.
Tips for choosing reliable sourcing companies from China
The main tips are: Negotiate with more than one sourcing company, find suppliers that offer FOB (Free On Board), watch out for suspicious sourcing companies or hire the services of a specialised company.
Is location a relevant factor when choosing a sourcing company in China?
When choosing a manufacturer in China you should consider whether it is a 100% Chinese company or whether it is a half Chinese and half foreign company. This is important to know as doing business with a foreign company will be easier. Because of the culture, procedures and policies that can be involved in this process.
Ideally, a combination of both. The mix of Chinese know-how, resources and personnel. Combined with European staff who know well the needs of a client from this culture. This combination can be supplied in an optimal, simple and efficient way.
Which way of sourcing should I choose among the existing ones?
There are three different ways of sourcing in China, and each one has varying pros and cons. The three ways are:
Chinese sourcing agent: Individual sourcing agents can act as your China representative at a low cost.
Unfortunately, many individual sourcing agents get commissions from factories, leading them to defend the manufacturer rather than your business when things go wrong.
Sourcing companies: Sourcing companies in China will charge you more at the beginning of the purchasing process, but you have more control and full transparency.
Sourcing websites: Such websites are a quick and convenient way for entrepreneurs to order products in small quantities. However, information about the products’ supply chain remains hidden.
Is it possible to verify if a sourcing company is trustworthy in China?
Based on our many years of professional sourcing experience, we have created a checklist of what to look for in the right China sourcing agent:
Business licence: You have to find a registered or licensed sourcing agent, which means that they have the legal jurisdiction to work as a sourcing company.
Testimonials: Positive reviews and impressive testimonials from other clients matter.
Language: The right sourcing agent works well with both you and the Chinese manufacturer.
Experience and specialisation: The more experienced they are, the faster and more efficient the whole process will be.
Location and flexibility: You have to look for professional sourcing companies on the ground, in China, working not far away from the industrial centres.
Transparency: A professional sourcing agent is fully transparent with clients
Supplier network: The sourcing agent you want to hire should have a long list of accredited manufacturers and other professional contacts.
Ways of identifying unqualified sourcing agents in China
The key points that will enable you to identify whether a Chinese sourcing agent is unqualified or not are:
The agent takes too long to find suppliers
Poor language skills
Unlicensed
Offers quality inspections but works on commission
What is the cost of a sourcing agent in China?
The cost of a sourcing agent in China will depend on different factors:
Commission: Many purchasing agents in China work on commission.
Tax refund: When exporting goods from China, you can apply for a tax refund.
Flat rate: Some Chinese purchasing agents work on a flat rate basis.
Hourly rate: Some agents work on various sourcing-related tasks, such as negotiation, product development, factory management, quality control and logistics, for an hourly rate.