What is a China sourcing company?

China sourcing companies provide services tailored and customizable to importers (i.e., CEOs of medium-sized companies or China Procurement Directors at large ones) to maximize the benefit of their China supply chain. Sourcing companies provide an array of different China Procurement services, from supplier identification, CSR/ESG audits, price benchmarking, and sampling to contract negotiations and logistics. China sourcing companies help to manage and execute every aspect of China supply chain management and procurement. Ideally, a China sourcing company acts as an extension of an importer’s home office.

How does a China sourcing company differ from sourcing agents?

Agents and China sourcing companies both offer services tailored to importers’ requirements but it’s important to note their similarities and differences.

Similarities

Placing orders and logistics:

Both sourcing agents and sourcing companies help importers place and monitor orders and work with you on logistics. They do everything possible to ensure that importers have a good experience to encourage repeat orders.

Range of services:

Both Agents and China sourcing companies provide the services necessary to ensure a successful buying program for the importers they are working with.  These china sourcing services are mostly related to the “3 essentials”:

– Pricing and placing orders: e. Finding the low cost supplier for a specific product.
– Quality Assurance: Ensuring that the product delivered to the client conforms to what was ordered.
– On time delivery: Ensuring that shipment of merchandise leaves on time, every time.

Differences

Finding factories:

China sourcing agent often have a network of specific manufacturers and suppliers that they have established relationships with and rarely stray from.

In contrast, a China sourcing company does not favor any specific factory. They will benchmark factories, provide quotes, coordinate or conduct inspections, make recommendations, etc., and leave the choice of supplier to the importer. Their main concern is to secure the optimal factory for the importer’s program.

Payment for services:

Agents usually work on a commission basis, whereas most sourcing companies work on a fee basis.  The difference between these two payment approaches is as follows:

Commission:

Usually no payment is due until shipment occurs or payment is made to the factory. The benefits for the client are:
– No overhead.
– The cost of service is directly linked to cost of goods.
– If no orders are placed, no payment is due.

Fees:

The client pays for specific services, usually based on time spent. The benefits for the client are:
– Better control over their program.
– Ability to secure services that are not directly linked to orders (e.g. Research)
– Lower first cost for the goods.
– Typically, the more the importer buys, the more they save.


What are the benefits of using a China sourcing company?

A China sourcing company can provide the following beneficial China procurement services to importers:
– Hands-on control over their supply chain.
– Management of a broad range of products from order placement to delivery
– Assistance in product development
– Introduction to new ideas for packaging, cost reduction, etc.
– Benchmark factories, continuously look for low cost providers
– Monitor quality throughout the process
– Ensure on-time delivery
– Other services: e.g. Travel support, access to local technical expertise, etc.


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  1. Cost-effectiveness: China is known for its low-cost manufacturing.
  2. Wide range of suppliers: China has a large number of suppliers for various materials. This means that you have a greater chance of quickly finding the specific materials you need, as well as having more options to choose from.
  3. Quality: China reliably makes some of the highest quality products in the world (i.e. iPhones).
  4. Large manufacturing capacity: China has a vast manufacturing capacity, which means that they can produce large quantities quickly. 
  5. Efficient logistics: China has a highly efficient transport and logistics system.

A China sourcing company is a specialized business that helps companies source materials, products, and services from China. They differ from other companies by their:

  1. Expertise in China sourcing: They have a deep understanding of the local market, the culture, the language, and the suppliers in China. This allows them to navigate the complexities of China sourcing and provide valuable insights and advice to their clients.
  2. Local presence in China: This allows them to have direct access to suppliers, conduct on-site inspections, and manage logistics more efficiently. 
  3. Quality control and assurance: They can provide quality control and assurance services, which can help ensure that the materials and products sourced from China meet the required standards and specifications. They can conduct factory inspections, product testing, and other quality control measures to minimize the risk of defects or non-compliance.
  4. Cost-effective solutions: They can help companies find cost-effective solutions for sourcing materials and products from China by leveraging their knowledge of the local market and their relationships with suppliers to negotiate favorable prices and terms for their clients.
  5. Customized services: They can assist with product development, supplier selection, logistics, and other aspects of the sourcing process.

You can completely prevent quality problems by following three steps: (1) Pay close attention to specifying the quality of the product; (2) have a good quality assurance system; and (3) have good people manage the process. 

Avoiding defective goods and poor quality after placing an order can be challenging, especially when sourcing materials or products from overseas. The key is to finalize quality requirements with suppliers before placing an order: Prevention is better than a cure. Here are some additional tips that can help minimize the risk of receiving defective goods or poor-quality products:

  1. Quality starts with the manufacturer: So do your due diligence. Check their reputation, verify their business license, and ask for references or testimonials from other clients. Check their manufacturing ability, ask for samples, and inspect them thoroughly to ensure they meet your quality requirements. Check their QC (quality control) systems. 
  2. Be clear on specifications: Clearly define the specifications of the materials or products you want to buy and make sure the supplier understands your requirements and agrees to them – before placing the order.
  3. Conduct inspections: Inspect the materials or products before they are shipped to your location. 
  4. Use a quality control system: This can include inspections at various stages of production, product testing, and other quality assurance measures.
  5. Effectively communicate with the supplier throughout the process.  

Put it in writing: Have a clear agreement with the supplier that includes the specifications (CPG uses a PSS), delivery terms, payment terms, and quality control measures. Furthermore, make sure to have a dispute resolution mechanism in place in case any issues arise.

Be aware of your needs (quality, quantity, pricing, and timing) and be mindful of the China opportunities as well as its challenges. 

Determining the best approach to China sourcing hinges on your unique needs and criteria. There are three fundamental pillars you can follow to maximize your success in China sourcing:

  1. Pricing: Be clear on what pricing you must have to achieve your goals, then secure that target by establishing precise specifications, identifying and pre-qualifying suitable factories, engaging in effective negotiations, and implementing a transparent and comprehensive purchase order to ensure compliance.
  2. Quality: Define precise product specifications through a Product Specification Sheet (PSS), actively engage with and oversee the factory’s quality control processes, create an Inspection Specification Sheet (ISS), and conduct inspections at critical stages
  3. Delivery: Strive for 100% on-time delivery by placing orders promptly, closely supervising all aspects of production, anticipating and mitigating potential surprises, conducting thorough inspections, proactively booking vessels when necessary, and selecting the most suitable shipping method.

Find a reputable and professional China sourcing company that will manage the above process in real-time on-site. 

The savings that you can expect from sourcing in China will depend on various factors, including the type of product or material, the quantity, and the supplier. On average, CPG saves its clients 18% on first costs. Here are some potential savings you can expect from sourcing in China:

  1. Lower labor costs: China has a large workforce, which can provide lower labor costs compared to other countries. 
  2. Economies of scale: Suppliers can produce large quantities of materials or products at a lower cost, resulting in lower prices for the customer.
  3. Lower raw material costs: China is a major producer of many raw materials, such as steel and plastics. 
  4. Lower overhead costs: Many Chinese suppliers have lower overhead costs due to the lower costs of rent, utilities, and other expenses.
  5. Lower margins: Many Chinese suppliers are willing to work on low margins to secure your orders.
  1. Expertise and Efficiency: Benefit from an experienced, professional team that can efficiently navigate the complexities of the Chinese market and supply chain, saving you valuable time and money.
  2. Expanded Supplier Network: Gain access to a broad network of established suppliers, providing a wider range of options and competitive pricing.
  3. Negotiation Leverage: Leverage the negotiation skills and relationships of a China sourcing company to secure more favorable pricing and terms with suppliers.
  4. Quality Assurance: Ensure better quality control by implementing rigorous quality control measures, guaranteeing that all materials and products align with your specifications and requirements.
  5. Risk Mitigation: Minimize risks associated with conducting business in China, including language barriers, cultural disparities, and regulatory challenges.
  6. Effective Communication: Overcome language and cultural differences through professional interpreters employed by the sourcing company, facilitating clear and efficient communication with suppliers.

Disadvantages of Using a China Sourcing Company:

  • Additional Costs: You could incur extra expenses such as service fees (or commissions if you are working with a sourcing agent), potentially impacting your overall budget.
  • Loss of Control: Experience a potential loss of control if the China sourcing company restricts your access to supplier information, such as refusing to disclose supplier names or contact details.
Accordion Content

This is a very rare occurrence but one you should be aware of. 

Here’s a step-by-step guide to help you navigate this unlikely scenario:

  1. Focus on Prevention
  • Prevention is Paramount: Recourse in long-distance disputes is hard. It is far better to avoid any disputes in the first place. Before entering into a buy/sell contract:
    • Know your supplier: Make sure you are dealing with known, experienced, capable, and reliable suppliers who value their reputation and whose business model depends on a reliable flow of orders. 
    • Know your product: Make sure the supplier understands your specific needs. 
    • Document Everything: Maintain comprehensive records of all communications with the supplier.
    • Deposit Records: Keep a record of deposit payments and any other pertinent information.
    • Create awareness of your presence and reach: Make sure the supplier knows you are active and watching and that you are not helpless. 
  1. Communicate with the Supplier
  • Communication is Key: Begin by reaching out to the supplier in writing. Inquire about the order’s status and express your concerns regarding the deposit. Remember that most suppliers want to preserve their reputation and avoid conflict. 
  • Prevent misunderstandings: There could be a chance of miscommunication or an unforeseen delay in the shipment. Engaging in dialogue with the supplier is the first step towards resolving the issue amicably.
  1. Review Your Contract
  • Examine the Agreement: Thoroughly review the contract you have with the supplier. Are there clauses or provisions that specifically address situations of non-delivery or the failure to return a deposit?
  • Legal Recourse: Understanding your contractual rights can clarify the recourse available to you.
  1. Consider Legal Action (as a Last Resort)
  • Exercise Caution: Legal action should be a last resort due to its potential complexities and costs.
  • Engage a Lawyer: If communication with the supplier fails and your contract doesn’t offer a resolution, you might need to seek legal representation in China to pursue action against the supplier. Be aware that legal proceedings can be time-consuming and expensive, with uncertain outcomes.
  1. Explore Third-Party Assistance
  • Seeking Mediation: Consider involving a third party, such as a reputable China sourcing company or mediator. While their involvement may have limitations if not engaged from the beginning of the order process, they can sometimes facilitate dialogue and negotiation with the supplier and provide unexpected solutions.
  • Expertise Matters: Choose a third party with extensive experience in China sourcing and dispute resolution.

Chinese suppliers typically prefer to receive payments via wire transfer or bank transfer because these methods are secure, fast, and widely accepted in China.  Some suppliers may also accept payments through online payment platforms, such as PayPal or Alipay, but this is less common and always for small expenses such as sample fees or international air freight costs. 

It’s also important to confirm the currency in which the supplier prefers to receive payments, as some may prefer to receive payments in US dollars, while others may prefer Chinese yuan.

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