Why You Might Want to Think Twice Before Using an Independent Sourcing Agent.
Buyers looking for someone to assist them with China sourcing and dealing with factories will often resort to using independent sourcing agents. These sourcing agents can be found through sites like Upwork and Elance, referrals, or by being approached via cold contact through email or social media, such as Facebook/LinkedIn.
I have a lot of Chinese friends in Shenzhen who are able to support their family working as a buying agent to foreign companies. It is looked at as a relaxing job, no office to go to, no boss to check in with, just the agent acting as a freelancer by being the middleman to factories and buyers.
Other sourcing agents work under sourcing companies. A sourcing company will often act in the same model as a stay at home agent acts, and unless you visit their operations, it can be very difficult to tell the difference.
Most sourcing companies will have websites, be found in various directories and seen advertised at sourcing fairs and other expos.
China can be very difficult to navigate. Even an importer with decades of experience with business in China would need a sourcing agent, or some form of boots on the ground. An agent assists importers with finding factories and getting their products manufactured. They often handle the entire process, creating a screen between the importer and the factory by acting as a middleman.
Traditionally, a sourcing agent will profit in various ways, and it can often be very difficult to determine how many ways a sourcing agent is profiting.
Because the sourcing agent handles all aspects of business in China, they have the opportunity to benefit from not only the customer, but also from the factory and the logistics company.
The most common forms of compensation a sourcing agent will receive are the following:
- Flat rate commission: This rate is usually advertised and ranges between 1% – 10% of the factory price. They collect this fee when it is time to pay the supplier, and tack it onto their clients invoice.
- Blind markup: This is when the sourcing agent acts entirely as a middleman. The client has no idea of the actual cost of the goods, and is paying a rate that their agents see fit.
- Factory commission: A sourcing agent who only takes a commission from a factory can be more similarly thought of as a trading company. They are working on behalf of the factory and find clients searching for specific goods and have existing contacts with factories that the client can work with.
The largest reason for concern when working with a sourcing agent is not knowing who they are really working for. While most will offer low commission rates around 1 – 4%, there is no guarantee they are working in the best interests of the importer.
If a sourcing agent was advertising a 3% commission, they could just as easily request a similar commission from a supplier. If that happens, their views will immediately become biased based on the factors of which supplier offers the better compensation.
An example to this is, if one factory is perfect for the importer, but does not want to offer a substantial kickback to the sourcing agent, the agent would be more inclined to go with a less qualified supplier in exchange for a greater payday.
This also means, in the event of an error during the production phase, the sourcing agent, who was brought on to represent the interests of the buyer could easily defend the interests of the supplier.
While sourcing agents, both working for a company and independent are viable options, it is important to recognize the risk based on their non-transparent business models.