Can you tell who is a manufacturer and who is actually a trader?

Just open the exhibitors list on A+A website and take a look at those Chinese suppliers, can you tell who is a manufacturer and who is actually a trader? I believe there is a less chance that you can figure it out unless you have got a lot of experience in this industry.  When you are visiting suppliers’ website or talking to them directly on trade show, nobody tells you they are a trader. Sometimes, even giving an actual visit to your supplier can still not really make it clear. Traders usually take you to a factory that is said to be owned by them even though it is not. If you think you can tell from factory’s name at gate, you are wrong. Oftentimes, the factory puts the traders’ name on their gate that can make you think it is the trader’s factory.

Believe it or not, trade shows like Chinese Canton fair, Germany A+A etc have at least half of exhibitors who are traders. They never say themselves as traders. Why? That is because few customers would like to buy from traders and they think trader marks up the price they get. No matter how true this thought is, this is what most buyers thinks about. If traders tell truth about their real  identity then buyers will go away right away. So traders hide there real identity to survive in this industry. You know customers are not idiot, later on they might be able to find what the truth is. So traders try their best to hide their real identity.

The market is full of competition mainly in terms of price. In order to survive, traders have to manage to find their own ways to offer a fair price to customers. They have to figure out how to compete with factory that could provide a better price. The following is what they typically do:

Relying on cheap factories and focusing on low quality products

Those cheap factories are usually small and might have a relatively lower cost. The lower cost sometimes is made at the cost of sacrificing quality, but it is not a problem because many customers want cheap products. On the other hand, some bigger factories would not satisfy low margin of producing cheap products, but small factories are OK with low margin. Small factories also do not export by themselves because their product category is too narrow and do not have much resource to do it’s own exportation. So traders finally come in and work together with small factories to provide cheap products. Traders just make a small markup based on small factories price. That’s why you have seen what traders offer is lower than some factories. The typical cheap gloves going to Poland are mostly produced at small factories.

Focusing on high quality products

Most traders rely on cheap factories, but there are also a few traders that are focused on quality products. Over the years, some traders working in glove industry have accumulated a lot of customers and have been supplying a very big quantity. What they do is to leverage their big volume to bring down the price from big and quality factories and offer the same price as those quality factories offer, focusing on providing quality products. The profit margin from quality gloves are relatively high so traders with big volume can bargain a better price that is good to both factories and traders. You see traders are also offering the same price as those factories offer in terms of quality products.

Turning to production

Over the years, traders have felt more and more pressure from competition. Even though they work hard to find a better price with small factories, some think trading is not something you can for life. So some of them turned to production. They started making one or two product categories by their own. So up to now, you have seen a lot to suppliers who not only do trading but also do production for certain product categories. Maybe this is a good step to make of  keeping the business in case trading would be dead in future. But quickly people got to realized operating a factory is far more complicated than running a trading company. People who are suitable to trading are not necessarily good at running factories.

Supplying a variety of products

For some foreign buyers, it is a better choice to buy from traders than factories. If you are a buyer buying a variety of products like work gloves, safety shoes, tools etc but your quantity of each category is not big,  trader might be a better option for you. The following might be some reasons for you to buy from traders if you are one of them:

  • Your quantity is small, so no factory would like to spend much time on you.
  • Factories might even offer you a high price to reimburse the profit of such small quantity .
  • Each item from each individual factory costs more to do individual exportation in terms of custom FOB cost and sea freight.
  • You are not an expert in a certain products category because you buy too many stuff. You do not really know what factories supply is good or bad.
  • Traders have regular contacts and they can make everything go smoothly which also saves you tons of effort.

Traders are losing it’s legitimacy in competition. They have to find a good reason that can make them survive, but unfortunately the value they could provide customers is less and less. Some values they can provide like cheap products, good quality control, dealing with small and complex orders still exist a little bit, but couldn’t last forever. I do not have good vision of how trading in this industry will look like in future.

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