BigWorldAndSmallWorld Blog

Whether you go to a conference or exhibition in China, or search for a Chinese company online, many people worry about or don’t know if they are dealing with a factory or a trading company. How to differentiate these two? I am sharing some important tips here and I hope it is helpful. It is essential for you to learn them. In fact both factory and trading company have its own advantage. In the end, who you decide to work with largely depends on your experience and what kind of risks you are willing to take. Each circumstance is different; therefore we don’t recommend one solution for all.

1. This is the most import one among all tips: Only a few large factories in China have the licenses to trade with overseas companies directly; therefore most factories must rely on trading companies as the middle men to carry out the transactions. License to export is required by China’s policy and the policy has been in place for a long time. So ask a factory or a trading company to show you the license, this is a must.

2. Of course the product is what you want. Find out how good the quality is early on will help you make decision and save big in the future. So ask a lot of questions.

3. Ask for a business card, normally the business name will be on it. If it is a factory (厂或工厂), it will say so. If it is a trading company（贸易公司、外贸公司）or import or export company (进出口公司), it will say so too. Therefore you can tell from the name, it’s the easiest way.
Note: If you don’t know Chinese, I recommend you to learn some key Chinese words for your business. You will find it to be very beneficial!

4. A factory is able to provide you the original product certificate (CE) while a trading company normally doesn’t have it. The CE would clearly state which factory this certificate is issued to, match the name on the certificate with the business name.

5. Ask for pictures of how the product is made, again a trading company normally doesn’t have that information while a factory may be happy to show you.

6. A trading company may provide products from various different industries while a factory may provide products for only one industry. This may not be true for all factories, however a large percentage of the factories fall into this category.

7. Ask to visit the factory to see it by your own eyes how the product is made and the factory environment. A true factory would be happy to arrange a visit fairly quickly while a trading company may take a while because it has to go through contacts to make this special arrangement for you. So you can test the business to see what the reply will be.

8. It is always a good idea to get a quote from three vendors regardless it’s a factory or a trading company. Only then, you will have a better handle of pricing.

9. You should know that even though a factory may give you the lowest price and it usually has some rooms for you to negotiate to lower the price furthermore, while a trading company may give you a higher price because it needs to make a profit, a factory may ask you to purchase the product in a huge quantity. Do you need that much quantity?

10. A trading company may be more responsive to your request when issues occur because it wants to treat you their customer nice thus to confront with the factory on your behalf, while a factory may be somewhat difficult to deal with or delay responding you.

11. Unlike a trading company who is very familiar with overseas orders in terms of communication, negotiation, goods in stock, custom form and shipping, a factory may not have the experience or resources thus a factory is more likely to make mistakes.

I would recommend you to consider all facts and balance pros and cons; then you will have a good feel for what’s the best for your situation. As you acquire more experience dealing with Chinese companies, your preferred method may change too.