“Commerce” refers to the purchase and sale of products or services for a profit. Starting from this definition, even a manufacturer (or manufacturing company) could be compared to a wholesaler assuming that, in reality, he sells his products. In this article, however, the term “wholesaler” does not refer to manufacturers, but to Chinese companies that specialize in buying goods from manufacturers and selling them to overseas buyers.
That said, Chinese suppliers don’t just mean traders or manufacturers. Many of them, in fact, are somewhere in between. In this article, we introduce you to the five most common types of wholesalers in China and explain what importers need to know to avoid dealing with disorganized merchants and even scammers.
1: Hong Kong’s offshore companies
Generally, Chinese manufacturers usually invoice overseas customers through an offshore company usually registered in Hong Kong. It is rare for these companies to have much more than a PO Box (e.g., a virtual office) in Hong Kong, and for this reason, it cannot be assumed that they actually operate from this city.
It is rare for these offshore companies to belong to the manufacturer that is based in mainland China, instead, they are usually owned by the legal representative or another employee. Although these companies cannot be considered true wholesalers, there are some risks when payments are made to an offshore company rather than directly to the company that actually produces the goods.
In the event of any dispute due to delays or, even worse, quality issues, the manufacturer can easily walk away from negotiations. As mentioned, you don’t pay them, but it remains complicated to prove what kind of connection exists between an off-shore company and a producer.
2: Small wholesalers
Sourcing products through large B2B supplier lists often proves to be a tricky thing. A generic product search, such as “snapback caps,” can easily result in a list of thousands of suppliers. China, in fact, is the world’s leading exporter, but the numbers do not tell the whole story.
Many, if not most, of the suppliers on China’s B2B lists are merchants rather than manufacturers. Under the first category, most of them are mostly small wholesalers who sell a little bit of everything. Think of them as opportunists with a website at their disposal.
When small and medium-sized enterprises importing from China run into serious problems, this category of wholesalers is very often the source of such problems. That’s why:
- Often, smaller merchants buy goods from local producers, while sometimes they turn to local wholesale markets. These goods are made almost exclusively for the Chinese domestic market and compliance with foreign regulations and directives is absolutely not taken into consideration.
- If for some reason you decide to settle for a small merchant, be sure to steer clear of toys, cosmetics, electronic systems, and anything that is strictly regulated. At the very least, it is not illegal to pay exaggerated prices for poor quality garbage, which is exactly what you should expect from small, disorganized merchants.
- Because it’s rare for smaller merchants to know more about the product, beyond its cost, they tend to lack the technical expertise to handle product development. Such a lack of technical skills leads to generating errors, and errors lead to serious problems on the quality … And these quality issues result in your future failure.
- Forget about warranties and refunds. These guys live off the crumbs left by the older shopkeepers. If nothing else, they are survival companies that are capable of supporting the owner and a few employees, and they do not have sufficient resources to reimburse buyers, even if they wanted to, nor do they have the authority to force the manufacturer to remake or repair a batch of defective items.
Once in Xuzhou, a place where I hope not to return, I visited a factory early in the morning where I was brought back later that day by a wholesaler. The main difference between the first and second visit was that the factory staff actually knew a thing or two about the product (in case you were wondering, it was glass bottles), while the trader answered “Yes” to every single question I asked him.
Is there at least one good reason to buy from a small dealer?
I mean, is it obvious that small traders wouldn’t make up such a large part of the industry if they didn’t suit a few? I say no. I can’t find a single good reason why you should buy from them. They don’t offer lower prices because they don’t have the buying power of large wholesale companies, plus they can hardly offer a lower Minimum Order Quantity than any other merchant.
So why, or perhaps, how can these small traders exist?
It might seem like a harsh judgment, but they are opportunists. Many companies select suppliers based on completely irrelevant factors, sometimes simply because small merchants are the only ones who have taken the trouble to respond to their requests.
2: Small wholesalers
The specialized wholesaler may be small, for example, it may have a registered capital of less than RMB 1,000,000. What really differentiates it, compared to the type of merchant I just warned you about, is that the specialized wholesaler actually knows a thing or two about the product. He is not an opportunist, in the sense that he does not try to push the sale of any garbage he can get. On the contrary, it is highly specialized in a certain product sector.
I have worked with a lot of these wholesalers and achieved great results. Precisely because they are specialized, these wholesalers tend to be quite knowledgeable about the regulations applied to foreign products and labeling requirements, sometimes more than the manufacturer himself. Another obvious advantage of being specialized is that they place the order with fewer suppliers, which, in turn, allows them to ensure that product specifications are met.
This type of wholesaler is often based in major cities in mainland China, such as Shanghai, Guangzhou, and Shenzhen. Many are also located in Hong Kong, but they are not confused with the registered Hong Kong companies that actually operate there, much less do they not get confused with the type of companies that only have a PO Box, as described earlier in this guide.
4: Wholesalers representing
This type of wholesaler is very similar to the one I told you about earlier, i.e. the specialized wholesaler. The main difference lies in the scope of business operations, as this second type of wholesaler operates much more as a large sales branch for several manufacturers, often between five and twenty factories. The representative wholesaler may be part of a group, or he may operate independently, but with close cooperation. It is easier to find this type of wholesaler in the clothing and textile sector, rather than, for example, in the electronics and toys sector.
5: Manufacturers/wholesalers
A producer who sells “his” goods can be considered, as already mentioned, a trader. However, many manufacturers do not limit their trade to “homemade” goods, but also trade products made by other factories. I would say that most of the small and medium-sized manufacturers you find in China belong to this category.
Is this type of manufacturer/wholesaler a problem? Depends on. Many of these suppliers expand the assortment of their products and sell merchandise within the same product category. A wristwatch manufacturer can, for example, also sell related items such as repair tools and gift wrapping. Some may also act as tradesmen by representing their subcontractors.
In the end, it all comes down to the same elements described earlier in this article. Does the supplier know the regulations applicable to the product? Does it manage the quality assurance process and control its subcontractors? If the answer is yes, the fact that the goods are not produced “at home” may not be a problem at all.
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