China direct sourcing solution is a dominant trend for a couple of decades. By going factory-direct, the importers have significantly decreased their FOB rates. It means trading companies or sourcing agents are eliminated. Unfortunately, for some importers, it has led to lower reliability and high overall production costs.
Outsourcing product manufacturing tasks to China offers multiple benefits, which no other country can provide.
- China has a big low-cost labor pool, so the cost-effectiveness associated with the labor force is matchless.
- The supplier base in China is best, if not great. It imports materials and sub-components from other countries and is assembled in China. It deals in a variety of niches including electronics, automobiles, textiles, toys, plastic, etc.
- Infrastructure is robust, so allows the transportation of raw materials and finished goods with ease.
- China’s efficient infrastructure and suppliers’ in-depth understanding and knowledge of the global supply chain enable you to significantly scale your production without extra hassle.
The benefits mentioned above are appealing but considering China direct sourcing solution is not that simple. Product quality is the first line of concern because if the standards are not as expected then this can be bad for your business even if your selling price is low.
You need a steady high-quality product supply to maximize your outsourcing product manufacturing process. Before you hire a supplier it is essential to have a solid business strategy developed. You will need it because the culture, people, and economy are all alien to importers. Here are a few pointers, which can help you lessen the possibility of making wrong deals with a factory-direct solution.
What comprises of direct sourcing solution?
China direct sourcing solution means you will deal with the manufacturer directly, which is cost-effective. The profit margin is high but the issues lie in productive communication because the majority of the suppliers don’t have English-speaking desk staff. Alibaba has acquired many big suppliers in China, so you will find it hard to find a suitable manufacturer.
Factory-direct is a traditional method that has its benefits and flaws. Buyers choose it because they eliminate the middleman and commission, but forget they will need local support. Importers can work on their own if they can handle the entire process, but need to remember that it needs serious work.
You need to find a reliable supplier online, directly, or at trade fairs. It is also essential to find out that the supplier offers excellent product quality because China products have a low reputation. There are good manufacturers but you need to look for them. The language was a barrier but manufacturers are trying to overcome this shortcoming. They are hiring English-speaking front desk staff.
Direct sourcing solutions mean you will have to visit the factories in China for checking potential suppliers’ manufacturing processes and how their quality management works. You will also need to ensure that their quality standards suit your market.
Working directly with manufacturers means you gain sufficient scope in price and terms negotiations. However, the language barrier can be a problem and lead to misunderstanding.
Low FOB prices make importers feel thrilled but importing directly from China involves some hidden expenses. The total production cost will include shipping charges, import duties, and more. It differs from one country to another. Never approve of promises an untested supplier makes, you will have to do a reality check.
As the global market is competitive, businesses need to concentrate on profit margins but not on the cost of quality compromise or increasing production cost. It is also better to choose other options like taking help from trading companies or sourcing agents to find a reliable manufacturer offering product quality as well as keep production cost low.
Which one is better- trading company or sourcing agents?
Trading companies and sourcing agents are your other alternatives. Both differ in a small way. Both make profits adding a little margin on per unit cost. When you are manufacturing products in China then price is not the only thing to consider there are several other important factors you will find.
Both offer importers a one-stop export portal but need capabilities to connect with the best Chinese manufacturers and ensure that the supplier will clearly get an idea of what your consumer needs. They must even have a strong bond with trustworthy shipping companies offering good rates, smooth customer clearance, and acceptable delivery time. Both are fluent in English, so the issue of the language barrier is eliminated.
The subtle difference is that sourcing agents will agree to work with any kind of niche but the trading services will handle a single industry or niche. Working with a sourcing agent is safe because they most probably offer a single product to a single client, so the idea of your product is not copied. The trading company can sell the same product to several other new customers, so your product idea will get stolen.
Sourcing agents organize the business processes including quality control, inventory management, and warehousing. These processes must get managed smoothly, which determines your outsourcing project’s success or failure. On the other hand, trading companies concentrate on a specific product or niche.
For example, if you are looking for a special pipe type, contact a trader that specializes in the steel sector. They are familiar with the niche and product technology but not generally experts in project management, QC, or logistics.
Remember, the expertise of sourcing agents minimizes the project delay or complication risks because they know a lot regarding business processes from the start to final production stages along with shipment and logistics.
The trading company needs to deal with both manufacturer’s and the client’s interests. Therefore in case of disagreement, they would obviously defend the manufacturer. Alternatively, a sourcing agent protects client’s interests because they represent them in China.
There is no golden rule for choosing the best outsourcing method – China direct sourcing solutions, trading services, or sourcing agent. Understand your goals and what is best for your consumer as the basis for choosing a way to outsource – direct or indirect!