For Sale In China Blog

For at least the last 200 years trading companies have successfully linked Chinese manufacturers with worldwide consumers. They have provided a valuable link between buyer and seller, often drawing on connections, ‘Guanxi’ to maximise opportunities. In many cases trading companies have provided additional valuable services such as inspection, quality control and relationship management. Additionally, on large orders, traders may have drawn on their considerable contacts to consolidate a number of different suppliers and manufacturers to ensure supply. Let us not also forget that trading companies, most of which were Hong Kong based carried a little more trust and were under the jurisdiction of international trading laws.

What has changed?…………………… Attitude.

Buyers for large consumer companies are now very focussed on a number of additional areas. Whereas, in years past, the focus may have been centred mainly around quality and price there are today many more areas that the buyer has to consider. Powerful global brands must ensure they act responsibly in all areas of commerce. Attention is focussed on the social and working conditions of manufacturing staff. The brands consumers expect their brand to treat all contributing staff members equally whether they be in a low cost manufacturing environment or a well established western factory. Great damage to a brands image can occur if they are found to be allowing, whether knowingly or innocently, any inappropriate practise in any of their production establishments.

Here lies a problem. The relationship between a buyer, his trader and the manufacturer is often compartmentalised. The trader does not wish for the buyer to be introduced to the manufacturer for fear that this could eliminate him from future projects. The trader will often go to great lengths to ensure the buyer does not become privy to such knowledge. Understandably, for the reason quoted this is quite reasonable, however in some cases the reasons could be quite ulterior. Perhaps the trader is not applying the working practise principles the buyer has demanded or perhaps the environmental conditions imposed by the buyer are not being adhered to. Buyers nowadays are becoming more insistent on supplier factory visits as part of their risk management plan and traders are having to accommodate this without losing the continued opportunities in the future. There is much talk that trading companies will evolve into development, quality control, inspection and relationship management companies, but essentially these are activities that could be conducted by the buyers company themselves without the need for the trading company.

A significant value adding activity conducted by traders was using their networks and knowledge to match buyers and sellers but with the increasing use of the internet as a sales mechanism but more importantly a procurement tool there is a question mark over how long this benefit will last. The atmosphere among Western buyers these days is to get as close to the source as possible, to improve and protect quality, brand and reputation and of course, to eliminate any double margin.

The outcome may be that traders bite back………

Trading companies have a huge arsenal of products. All they have to do now is get those products to market and as discussed earlier the internet is an increasingly useful tools to do just that. If this happens all consumer companies need to beware. Trading companies are often very lean as they are accustomed to working on paper thin margins. A brand name will carry sway for many consumers but ultimately it is about the product and as we all know many different brands of differing price points come out of the same Chinese factories. A savvy internet consumer, able to access the right information, as is increasingly easy to do will make an informed choice and might just yet cut-out the Western retailer.