China sourcing agent fees explained. Get a better grasp on cost and what fee structures can you expect. Also, some tips on what works well and what to look out for.
This blog article was first published on www.sourcingallies.com
Made in China. Sourced from China
Go East! That’s the magical rule entrepreneurs have sworn by since China became a member of the World Trade Organization (WTO) in 2001 — an event that transformed it from a minor player in global manufacturing into the “world’s factory”. Today, China is the world’s second largest economy after the United States, with a GDP (gross domestic product, or the monetary value of all finished goods and services made in a country in a specific period) worth $15.42 trillion in 2020. It accounts for 16% of global GDP, right behind the US (24%). This is phenomenal growth since 2001, when China’s GDP stood at $1.33 trillion and it was the world’s sixth largest economy. Today, China is the world’s go-to supplier of labor-intensive products including but not limited to clothing, footwear, textiles, furniture, cosmetics, toys and all kinds of fixtures and fittings. The value of goods exported by China in 2019 touched $2.5 trillion, up from $0.51 trillion in 2001. The manufacturing sector contributes an impressive 27% to the country’s GDP.
There are three main reasons why China is the manufacturing powerhouse it is today — low labor costs, a skilled and technically superior workforce, and excellent infrastructure. The results are robust factory output and an export market that is only getting larger. Such is China’s tenacity that it is the only economy to have expanded in 2020 in the face of a ravaging Covid-19 pandemic. It has also survived a bruising trade war with the US and laid to rest all talk that its exporting capacity is way past its peak. All of which goes to show that sourcing manufactured goods from China is a very good idea.
Despite the positives, western businesses are often wary of buying directly from a manufacturer or supplier in China, especially if they are new to the game and to China’s unique ways of doing business. An experienced China sourcing agent can make the experience both convenient and profitable. In a nutshell, a sourcing agent is an individual, agency or company that helps a buyer identify and verify a supplier and facilitates communication between the two. If required, a sourcing agent can also take care of the entire procurement process and do the heavy lifting for you — from negotiating the price, managing production and quality control to supervising payment, preparing and checking documents, shipping and logistics.
You probably need a China sourcing agent if you:
- Have no prior experience sourcing and importing goods from that country
- Need a large inventory of goods
- Need to source multiple products
Picking the right sourcing agent for your specific needs can sometimes be as challenging as deciding on a supplier yourself. Keep in mind that a good China sourcing agent has:
- A local presence in China, as in an office or a team
- An office close to you, which makes them easily accessible when a problem arises with your order
- Excellent communication skills, including fluency in Mandarin — the most-spoken language in China — and English
- Experience as a China sourcing agent
- Expertise in sourcing your particular product
Read our tips on picking the right China sourcing agent.
The right sourcing agent can make a world of difference to your business dealings in an unfamiliar Chinese market. And that leads us to the all-important questions: How much does a sourcing agent charge for their services? Are they expensive? Are they worth my money? This blog delves deep into the subject of China sourcing agent fees. Read on to know about:
- Common fee structures
- Fee size
- Most beneficial fee model
Before we begin, check out our related blogs:
Common fee structures
There are hundreds of thousands of sourcing agents procuring a wide range of products for customers across the globe. Depending on the scope of the services they offer, there are two common types of China sourcing agent fees:
1. One-time fee for finding a supplier — This job commonly entails a) finding an appropriate supplier in China, b) verifying their credentials by checking if they are located where they claim to be, if they supply the required product, if they are a manufacturer or a trading company (a trading company buys rather than makes products to sell), and c) communicating your requirements to the supplier, such as color, quantity and other product details. Once the supplier is approved, the sourcing agent hands over any further responsibility and risk in the procurement process to the buyer and receives a fixed one-time fee for their service.
2. Continuous production management fee — Beyond simply finding a supplier, you can also hire a sourcing agent to take care of all other aspects of sourcing your product — from tooling, sampling, preparing the required documents and negotiating the best price to arranging quality control inspections, shipping and any problem-solving that might be required at any stage of the production process.
How are these fees calculated? Usually, there are two common charging models for China sourcing agent fees:
3. Flat fee — Many China sourcing agents charge a flat fee. This might be calculated on a per-product basis or for a certain period of time (say, a month, a week, or, very rarely, by the hour).
4. Commission — Apart from the flat fee model, a China sourcing agent might charge a commission on the total dollar value of the purchase order. Commissions in the 5% to 10% range are said to be common in China. However, commissions depend on the type of product you require and your order size.
How much will it cost me?
If you are new to the sourcing business, understanding how sourcing fees work might be confusing. For one, there are no industry standards. Secondly, the charges vary according to the scope of the services (as discussed above), the product quantity, the dollar value of the purchase order and the complexity of the part required, among other factors.
In the backdrop of changing consumer habits and a subsequent increase in online purchases, entrepreneurs sourcing goods from China to sell on Amazon make up a healthy proportion of a sourcing agent’s clientele. Sourcing Allies offers the following Amazon services packages for such customers:
- Audit Package — We verify the supplier by checking their location and legal status, whether they supply your product/products and have done so in the past, whether they are a manufacturer or a trading company. We do this by checking their website or their profile on the online B2B platform Alibaba, or through a phone call if you provide us with their contact details. Cost: $100 per supplier.
- Single Product Package — We conduct a phone audit to verify the supplier’s manufacturing capabilities, size, and experience. We also help you communicate your product requirements and place your order with the supplier. Additionally, we help you track your shipment once it has been dispatched. Cost: $300 per product.
- Sourcing Package — We help you source up to five products as part of a three-month contract. The services offered includes a physical audit, which means that a member of our team visits the factory to verify its location, manufacturing abilities and experience among other things. We also communicate your requirements, help you place an order and track it, ship the goods, and track that as well. Cost: $500 per month.
- Boots on the Ground Package — An annual contract for an unlimited number of products, this package includes a physical audit of the supplier, assistance in communicating your requirements, order tracking and shipping tracking. Cost: $1,000 per month.
Note: Services and rates apply only to off-the-shelf OEM (original equipment manufacturer) products and do not include development or customization. We also offer assistance in setting up third-party quality control inspections under each of these packages but the charges for this would be additional.
What is the best fee model for me?
There isn’t one specific China sourcing agent fee model that is better than the rest. It depends on your requirements. Similarly, it is impossible to put a dollar value on this question. What a buyer can do when deciding on a sourcing package and fee is to keep a few dos and don’ts in mind in order to get the most beneficial deal.
- Pick the package that helps you cultivate a long-term business relationship with the supplier as well as the sourcing agent. Lasting partnerships are more beneficial to all three parties involved than one-time deals. This is especially important if you are in the sourcing business for the long haul.
- Minimize your risks. Pick a package that spells out its supplier verification methods. For example, will the sourcing agent physically visit the factory, and how many times? Will they make sure the supplier’s licenses are valid and up to date?
- Go for a continuous production management package (as discussed above) if you don’t have much experience sourcing from China. Entrusting an experienced sourcing agent who has a local presence in China with the procurement process is better than fumbling through it yourself. This is the preferred service package among Sourcing Allies’ clients, who have the option of choosing between two fee models — manufacturing plus shipping or manufacturing minus shipping.
- Make sure value-added services are included in the package. These could range from troubleshooting at any stage of the production process to taking photographs of your product for an e-commerce platform or even designing custom test equipment to make sure your product meets the required quality standards. At Sourcing Allies, value-added services are a part of our packages and do not invite additional charges.
- Don’t go for the cheapest rates. If the price is too low, it almost always means your product quality will be low as well.
- Don’t be taken in by sourcing agents who offer “free services”. There is no such thing. The agent’s fee and profit margin are built into the package, but you might not get the full range of services you require for such a fee.
- Don’t focus purely on price, is what all of this means. Finding a sourcing agent who understands your requirements, is committed to finding you the right supplier after going through multiple candidates, and is upfront and transparent about the entire procurement process is more beneficial in the long run.
The right price
If you are in the business of sourcing products from China, you’ve most likely heard the term “guanxi” (pronounced gwon-she). Guanxi roughly translates as personal connections, relationships, or social networks. It implies trust between business partners and is an essential part of Chinese business culture. If you have good guanxi with your supplier, it means you understand each other and are likely to help each other out in your business dealings. If you have bad or no guanxi, it means your partnership might not be mutually beneficial.
A sourcing agent is that all-important link that creates good guanxi in your dealings in China. They have the ability to do this through their local presence, communication skills, business insights and, perhaps most importantly, knowledge of cultural nuances. This makes hiring the right China sourcing agent integral to a fulfilling sourcing experience and, eventually, to business success. It’s not something you ought to scrimp on. However, working with a sourcing agent is also about getting the most bang for your buck. The right one will help you negotiate the best price for your product, but without compromising on quality and lead time. Striking a balance between the two is what needs your utmost effort. Your sourcing agent will handle the rest, for the right price, of course!