Thursday, January 20, 2011

A Breakdown on Trade Companies_ the Bad and the Ugly

This is Part II.  Part I covered “the Good”.  Notice these are not blanket statements about trade companies but comparing the Good vs. the Bad and a bit of focus on the ugly.  Because it can get ugly…and ordering offshore isn’t like putting coins into a vending machine, it takes serious effort.  Now to resume our regularly scheduled broadcast… 

Companies will promise the world'll get more than you bargained for
The Bad: Many trade companies are not very specialized in one area.  They fail to maintain strong contacts with their factories.  Your order risks being outsourced every time afresh, to a factory they haven’t dealt with in the past.
  A large portion has never worked in design, engineering or direct manufacturing of their own item so they have a very low technical understanding of the product and processes.  This means they have to rely on the factories’ interpretation, solutions, comments, for every situation or problem.  This kind of trade company isn’t proactively handling issues and boosting the security of your order, but instead are passively reacting and are more so middlemen English translators. 

Trade companies in comparison to a factory can communicate better with an overseas buyer but they tend to be elusive.  Their communication tends to be misleading and not very straight. 

In comparison to a factory, prices are obviously higher, but the higher price is not because of a value-added service.  It is because they did not obtain an accurate quote from their factory, so they just further increase the margin to cover unknowns and needed effort to quote accurately.  This creates unrealistic pricing in the market. 

When you’re dealing with a trade company (as most of the promo importers do), you never know who you are dealing with on what.  If the trade company you’re dealing with is not a solid company, it’s possible they’re taking your inquiry and simply re-outsourcing it to another trade company.  

It could go through other companies before actually going to the factory.  China operates on layers of hidden contacts, connections, sources and trade-offs.  You’re working with a lot more “smoke and mirrors” when dealing with the trade companies.

Many trade companies are very far from the factory they selected to manufacture your order.  Does the trade company visit the factory?  How can a trade company in South China / Hong Kong, properly control an order that’s producing in Jiangsu or Zhejiang Province (where most production for the promotional industry takes place).  There’s the physical distance, not to mention the cultural differences of the areas (South China vs. Jiangsu, Chinese to Chinese would be dealing with cultural differences).  

The Ugly:  I’ve seen trade companies lose control of their orders.  Many of them do not have solid relationships with their factories; they lose control on the quality and the order becomes disastrous.

Many of the quality issues between factory and trade company are a result of money issues.  The trade company puts strict payment terms on the factory;  the factory isn’t motivated, because of tight funds, they are then tight on the order.  This is reflected in quality and delivery.

The “ugly-side” of trade companies do not visit their factories and if you’re dealing with one in Hong Kong or South China, they may not actually know where the factory is.  They’re loosely handling things by chat-rooms and telephone.  When production arrives to the trade company in the south, they find the quality is different than expected.

I’ve seen the factory and trade company go to all out war and the factory refuse to proceed any further; your order comes to a standstill, delivery time ticks away.  The factory doesn’t care because you’re not their client (the trade company is the direct client) and the trade company cannot do anything about it because they don’t have the backbone and control ability to get the factory lined up.

Think, Due Diligence, Don't Assume
Check The “good” on trade companies in my previous post.  I’m giving equal time to the good vs. the bad/ugly side of things.  Overseas buyers make mistakes in the area of assuming the offshore contact will operate in a presumed area of ethics & integrity.  Don’t make this assumption.  Don’t put your cultural standards and expectations on folks.  Doing so, will set you up for failure. 

If you’re importing from China, good contacts are vital, but put forth due diligence in establishing the contact.

Trade companies are needed, especially if you don't have your own presence here and are not able to deal with the hassles and headaches that come with dealing with factories.  But choose wisely.  Have your supplier be upfront with you about the material vendors, certifications, and what 3rd party is supplying what portion.    

Share your experiences, tips or agreements or disagreements.  

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