Today, every businessman tries to look for a certain Chinese company to source their product. As a result, China has turned into a factory of the world. The majority of the companies prefer to deal with Chinese companies on their own. However, a few other companies find dealing with Chinese suppliers is too overwhelming.
Particularly for small or mid-size companies, it is difficult to deal with Chinese companies for several reasons. Therefore, these days, such companies prefer to get help from a procurement service provider available in China.
What exactly does a procurement agent in China do, and how can they contribute to your business's growth? Keep reading to discover detailed insights into these questions.
The evolution of procurement in China
1. Product expertise
Knowledge of a product and its industry is crucial. First, insiders possess a deeper understanding of what constitutes good quality and pricing for specific products. This expertise is essential for assessing product standards accurately. Second, their established networks can expedite the processes of sourcing and vetting suppliers.
However, it is important to note that you may not find a specialized procurement and purchasing agency for every niche product. Even when you do find one, it is your responsibility to clearly communicate your quality standards and product specifications to ensure the agency is well-informed.
2. Offered services
There is no universal standard for the services provided by China-based procurement and purchasing agencies. Some agencies offer comprehensive, ‘one-stop shop’ solutions, while others focus on specific functions. The range of services that procurement and purchasing agencies may provide includes:
a. Supplier identification and price research - Supplier sourcing forms the core function of any procurement and purchasing agency unless they already have an established network of suppliers. However, the approaches to selecting suppliers can differ widely. Some buying agents in China may rely heavily on relationships, kickbacks, and low prices, while others use more advanced and systematic methods to identify and evaluate suppliers.
b. Design capabilities - Some agents function as commodity traders, focusing on standard products, while others specialize in developing custom-designed products. Each type of agent has its own strengths and should be assigned projects that match their expertise to ensure optimal results.
c. Quality inspections - Some purchasing agencies have in-house quality inspectors, while others outsource this function to specialized quality assurance firms. In many cases, it is more practical to select your own quality control (QC) partner, as this approach is often more cost-effective and reliable. Specialized quality inspection companies typically adhere to international evaluation standards, such as AQL (Acceptable Quality Level), and have local offices throughout China. This setup helps to lower travel costs and accelerate the inspection process.
d. Product compliance and testing - This is closely related to product expertise, so pay close attention. No single individual or company can possess the comprehensive knowledge and experience required to ensure compliance with all regulations across every market and product. At most, a procurement agency may have some relevant experience in their specific field, but many may lack even the fundamental knowledge needed. Product compliance is a highly complex area, and it is unrealistic to expect your agency to be fully versed in all regulatory requirements. Instead, you should seek out a specialized, likely local, partner who is well-equipped to handle compliance issues.
e. Shipping and logistics - Purchasing agencies typically have partnerships with freight forwarders to assist with managing shipping logistics from point A to point B. Alternatively, you may choose to work with a local partner if that better suits your preferences.
f. Customs procedures, import taxes and VAT - Customs clearance and import tax declarations are generally handled by freight forwarders rather than procurement agents. However, some purchasing agencies operate subsidiaries in their target markets, which can assist clients with these aspects of their business.
3. Methodology
Finding a supplier may be straightforward. Sites like Alibaba.com, 1688 sourcing platform or Globalsources.com provide millions of options. However, distinguishing industry-leading and reliably trustworthy suppliers requires a different level of scrutiny. To help with this, let us compare the various types of procurement agencies:
a. Relationship-based supplier selection - Most businesses may not prefer this option as such a procurement service provider may select a supplier based on the recommendation of any of their friends or relatives and not based on the expertise of the supplier. Avoid such an option.
b. Method-based supplier selection - Effective supplier selection must be tailored to the customer's specific needs. This necessitates that the agent thoroughly understands the product's technical specifications and how to evaluate a supplier’s capability to meet those specifications. A robust supplier assessment protocol should consider multiple data points. For example, the following criteria may be included:
- Product compliance and test reports
- Company data, such as location, business scope and capital,
- Quality Management System: QMS Certificates
- On-site inspections
- CSR and social compliance.
The agency should be able to clearly explain its assessment process and provide documentation outlining its evaluation criteria.
c. Established supplier network - Many organizations choose not to offer supplier sourcing and vetting services; instead, they prefer to work within their established network of suppliers. This approach has several advantages but is only effective if your product needs are met within their existing network.
Additionally, these agencies may be hesitant to share detailed information about their suppliers for various reasons.
4. Revenue model
Procurement and purchasing agencies have various revenue models, and not all rely on commissions based on the order value, as many importers might assume. Here is an overview of the different ways these agencies can generate income:
a. Commission:
- Pros: Lower costs before the product starts.
- Cons: This model provides the agent with an incentive to concentrate on large-volume orders for products that require minimal to no development before production. It is not ideal for Original Equipment Manufacturer (OEM) products.
b. Fixed price
- Pros: This model is appropriate for customized products that require time for development before they are ready for mass production. Since you pay a fixed service fee, the agent has no incentive to cut corners to expedite the process or pressure you into placing large initial orders.
- Cons: Higher costs upfront.
c. Kickback
- Pros: For you, none.
- Cons: The agent chooses a supplier based on who is willing to offer the highest kickback or bribe. That is essentially the extent of the process.
Some purchasing agents use a combination of revenue models. For instance, they might charge a commission based on the order value while also billing for additional services such as quality inspections and supplier sourcing.
Additionally, many agents may receive kickbacks from suppliers as an extra source of income. However, these kickbacks often come from individual employees rather than being an official company policy.
The role of a procurement agent
In essence, a procurement agent finds supplies and products for businesses at competitive prices, aiming to reduce production costs. They might operate independently, focusing on one business at a time, or run a company that employs multiple agents to work with several businesses simultaneously.
A reputable procurement agent in China should exhibit the following qualities:
Good knowledge of manufacturing hubs within his home country - A skilled procurement agent possesses extensive knowledge of their country’s manufacturing hubs. For instance, a China-based agent has connections with various factories and production centres, enabling them to inquire about raw materials and products. If negotiations with one manufacturer fail, they can leverage other contacts to secure favourable deals.
Well-versed in English/Mandarin languages - A top-notch procurement agent is typically fluent in multiple languages, not just English. As China, the "factory of the world," attracts global businesses for its cost advantages, the agent’s excellent communication skills help secure favourable deals for international clients.
Excellent coordination skills - Procurement agents need exceptional coordination skills to interact effectively with diverse individuals and secure favourable deals. They must adeptly manage relationships with various personalities, maintain clear communication, and stay calm to ensure positive and productive interactions.
Knowledge of compliance rules and regulations - When sourcing products or raw materials internationally, legal considerations come into play. The procurement agent in China must ensure manufacturers meet industry standards, and it is also their responsibility to conduct in-person factory visits for the business.
Benefits of a procurement agent
1. A middleman who will work for the interests of your business
Most businesses try to locate their suppliers from platforms like Alibaba or Made in China, etc. So, you may be thinking that you are dealing with an actual manufacturer, but in fact, they are just a middleman posing as a manufacturer. These middlemen want to make quick money at your expense and never care about your business interests.
Although you can call even a procurement service provider a middleman between you and your Chinese supplier, the difference is that their business interest lies in offering better service to you. If you rate them well, then they are likely to get more business. Therefore, they will take care of your business interests, too.
No doubt, these service providers take money from you. However, they will try to ensure that you are a satisfied customer at the end of the day.
2. Access to high-quality manufacturers and suppliers
Finding the top Chinese manufacturers and suppliers through market research can be difficult because there are so many possibilities available, all of which make excellent and dependable claims. This process is made simpler by a Chinese procurement agent using their extensive network of reliable manufacturers.
Once you provide your product specifications, the agent knows exactly whom to contact, ensuring access to trusted suppliers. This approach saves time and effort, allowing you to secure favourable deals much more quickly than if you were to handle the research and negotiations independently.
3. Contract negotiations on your terms
Negotiating directly with China-based manufacturers often favours their terms, which can undermine your goal of securing cost-effective deals. These dynamics can be altered by a Chinese procurement agent who will stand up for your rights during the negotiations.
These agents are skilled at negotiating favourable conditions and making sure you get the best bargain possible because to their vast knowledge and skills. Their years of experience closing agreements for companies have sharpened their skills, which enable them to cross-cultural and strategic divides that could otherwise work against you.
This expertise ensures that sourcing from a low-cost country remains cost-effective and advantageous for your business.
4. Bridging the cultural gap
The cultural divide between Eastern and Western businesses is significant and can impact negotiations. Direct negotiations can reveal these differences, potentially complicating interactions with manufacturers and suppliers.
However, entrusting a reputable procurement agent with these responsibilities bridges the cultural gap effectively. Mandarin-speaking procurement agents with experience are more likely to be trusted by regional suppliers and manufacturers in China.
Their proficiency in handling cultural quirks and proficient communication is priceless, guaranteeing more successful negotiations and long-term benefits for your company.
5. Timely product deliveries and avoiding inventory crises
Choosing the option to go without any procurement agent can also be a choice. However, you have to devote too much time to Chinese suppliers to ensure everything is as per your choice.
It will be very difficult for you to devote so much of your time as you have the responsibility of running your own business, too.
On the other hand, if you have an experienced procurement service provider available to support you and coordinate all the activities in China. Then there is a much better chance that your supply will arrive well in time.
One of the important benefits of the service provider is that he will ensure that you receive the right quantity. They can also assess your needs well, and in the long run, you will never face an issue like a shortage of inventory during higher demand for your product.
Conclusion
Now that you understand the role of a procurement service provider and the advantages of hiring one, we hope you will select a reliable professional for your business. Keep in mind that procurement service providers offer more than just the opportunity to delegate sourcing tasks; their local expertise and trusted relationships help ensure favourable contract negotiations.
They possess the necessary skills to deal with Chinese suppliers, can be an asset to your business, and can help you source your products from a low-cost country like China.
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