In the process of communicating with new clients, especially during the first contact, they sometimes ask me a few questions.
‘Are you a trading company?’
In most cases, clients inquire if we are a company that sells scarves. Sometimes they may ask if we are a company that sells daily essentials or toys, or if we deal with new energy products.
In response, I explain that we are not a trading company; we are a sourcing agent. What we sell is not products, but services.
At times, the clients may appear puzzled and ask, ‘If you don’t sell products, what services do you offer?’
This article addresses these questions, highlighting the differences between trading companies and procurement agencies. It helps clients understand whether they should choose a trading company or a sourcing agent. We emphasize that what we sell is not products but service
First, let’s introduce the concept of a trading company. What is a trading company?
A trading company, as the name suggests, is a company that sells products.
These products can be scarves, toys, daily essentials, or any other merchandise. In essence, a trading company deals with tangible products. Without products, how could they engage in trading?
Trading companies may often be factories themselves because factories produce products and subsequently need to sell them, i.e., engage in sales. Alternatively, trading companies could be distributors who do not manufacture products but procure them from factories for resale.
This is what a trading company is.
Secondly, let’s introduce the concept of a sourcing agent.
What is a sourcing agent?
A sourcing agent, as the name implies, is an agent for clients to source products in China. The core of a sourcing agent’s business is procurement.
When clients require specific products, a sourcing agent assists by seeking out, price checking, procuring, placing orders, and conducting product quality inspections.
Now, we can summarize their differences:
- Trading companies have products; their primary focus is on selling. In contrast, procurement agencies prioritize service, helping clients source the products they need.
- The relationship between trading companies and clients is business relationship, often involving a zero-sum game.
If a trading company increases its profit margins, it means higher prices for the clients, resulting in reduced client profits. In contrast, procurement agencies establish partnership relationships with clients, which tend to be non-zero-sum.
Procurement agencies represent clients, and their profit increases as they procure high-quality, cost-effective products, ultimately benefiting both the agency and the client.
- Trading companies typically offer a limited range of products.
If clients’ requirements match the products offered by a trading company, the client can place orders directly with the trading company.
However, if clients need a wide variety of products, relying solely on trading companies necessitates negotiations and orders from multiple companies, along with the logistical challenge of transporting goods to the client’s warehouse, incurring substantial shipping costs and time. Alternatively, by engaging an experienced sourcing agent, clients can simplify the process.
A sourcing agent helps clients source all the required products in China, places orders, consolidates shipments, conducts quality checks, and arranges unified transportation to the client’s warehouse in their home country, significantly reducing various costs.
These three points highlight the key distinctions between procurement agencies and trading companies
So, should you choose a trading company or a sourcing agent to source products from China?
The answer, as described in point 3, depends on your specific needs.
If you need only one or a few products, and the quantity is substantial (at least a container load), you can consider choosing a trading company.
This is because you can negotiate and transact with just one or two trading companies, keeping the cost of negotiations and transactions relatively low.
Additionally, if you find a supplier that is a factory, they are likely to respond professionally to technical and specialized inquiries.
This is an advantage of dealing with trading companies, especially when you are sure you are dealing with factory suppliers who often have technical experts to address your inquiries.
However, if you need to source a variety of products, such as a dozen or more different items, and the quantities are not very large, especially if you plan to operate a local supermarket in your own country, then choosing a professional and experienced sourcing agent is a better choice.
In this case, the advantages of a sourcing agent come into play.
They have the expertise in procurement, often have the ability to source products at competitive prices in wholesale markets, and can handle sourcing even when the quantities are not substantial.
They can efficiently manage the variety of styles and handle the entire procurement process, including ordering, consolidation, quality checks, and ultimately transportation to your country’s warehouse.
The choice between a sourcing agent and a trading company depends on your specific business needs. It’s not a matter of one being inherently better than the other; rather, it’s about selecting the approach that aligns more closely with your business requirements.
In conclusion, I personally believe that trading companies primarily sell products, while procurement agencies primarily sell services.
Procurement agencies, despite not having their own products, offer a range of services such as sourcing, pricing, ordering, quality control, and logistics, which can be viewed as service-oriented activities.
I must acknowledge that my perspective may be influenced by my role as the founder of a sourcing agent, but it’s based on my experience.
Whether dealing with factories or distributor trading companies, their profit margins usually range from 10% to 20%, meaning they mark up their products by that percentage over their costs. In contrast, procurement agencies typically charge a 5% commission based on the final product value, which is significantly lower.
So, before deciding to work with a trading company, I recommend reaching out to us (luuksourcing.com) for a quotation. Perhaps the cost of our sourcing agent services is not higher than the price you might find directly from a trading company, and we offer additional services. Why not give us a try and see if we can collaborate effectively?