manufacturing
3 Ways to Tell a Factory from a Trading Company
In this article we are going to discuss how to tell a factory from a trading company?
In our previous article, we talked about 13 ways how to find suppliers in China. However, the supplier you find in China can be a direct manufacturer or a trading company. In this article, we are going to discuss how to tell a factory from a trading company?
What is the difference between a trading company and a manufacturer?
The manufacturer is a direct factory that sells its own produced goods, whereas the trading company is an independent company that cooperates with several manufacturers and resells their goods with a little markup.
Trading and manufacturing companies go hand in hand in China, and sometimes it takes years of experience to tell the difference between them.
How To Tell The Difference Between A Trading Company And A Direct Manufacturer?
1) Variety of offered products
Direct Manufacturer offers only own-produced goods, therefore the variety of products they offer will be limited. The rule of thumb is that if the goods they offer potentially could be produced on the same equipment, then you are dealing with a direct manufacturer.
The trading company, on the other hand, could be offering seemingly the same products, however, you need to pay attention to the manufacturing processes behind the items.
For example, the company that offers plastic ball pens in various sizes and shapes is most likely a direct manufacturer.
On the other hand, the company that offers plastic ball pens, metal ball pens, and fountain pens with a special finish such as Swarovski crystals pens, most likely is a trading company. The engineering process behind the production of metal-based pens and plastic-based pens is completely different. It requires different production lines, different equipment, and different processing since metal and plastic are processed differently. Unless you are dealing with a huge manufacturer who owns both metal and plastic processing production lines.
2) Company name structure
When you are dealing with a new supplier time will come for due diligence. At this point, you need to request the Chinese supplier to provide you with their Business License (in Chinese Yíngyè zhízhào 营业执照）
Examine the company name structure. In accordance with Peoples’ Republic of China company registration regulations, the Trading and Manufacturing company names must include the company business scope.
Let’s break down together the key Difference between trader and manufacturer, based on the example of these two suppliers from Alibaba.com
Alibaba trading company vs manufacturer
The first company we took as an example is a direct manufacturer. The registered company name is “Hubei Huayue Plastic Industry Co.,Ltd.”. “Hubei” specifies the province where the company is registered. Next, we see a business scope specified in this Chinese suppliers company name “Plastic Industry” which tells us the business nature of the company. Finally, we see the variety of products offered by this supplier is quite limited, they only offer plastic and paper-based cups, bowls, and lunch boxes. These goods could be potentially manufactured on one or two production lines.
The second company we took as an example is a trading company. The registered company name is “Hangzhou Meshine Import and Export Co.,Ltd.”. “Hangzhou” specifies the city where the company is registered. Next, we see a business scope specified in this Chinese suppliers company name “Import and Export” which tells us the business nature of the company. Finally, we see the big variety of products offered by this supplier, which obviously couldn’t be manufactured in the same factory.
3) Company registered address
Another way to tell a difference between Trading company vs manufacturer is to check out the company’s registered address. The manufacturer will have registered an actual factory address somewhere in the suburbs or a special development zones. Whereas trading company will have office address in business buildings somewhere in the center of the city.
Be aware that some manufacturers have their sales and administration team in city-located offices, set up separately from the manufacturing sites. Therefore watch out for other specified in this article signs, to tell for sure a trading company from a manufacturer.
These key factors will help you determine whether your newly found Chinese supplier is a trading company or a direct manufacturer. If you wondering Which is best trading company or manufacturer, the correct answer depends on your specific case. Cooperation with both a trading company and a direct manufacturer has its pros and cons.
Thank you for sticking with us till the end. We encourage you to take bold but smartly calculated actions in your China business. Keep learning constantly and achieve new business heights every day!
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