Why should you assume that all potential suppliers are middlemen?
First off, assume all potential suppliers are middlemen until proven otherwise. If someone says “Yes, I own a factory,” you don’t necessarily believe it. You want to find some proof. And then in another session we’re going to talk about how to verify who actually owns the factory. Maybe it’s a cultural issue, maybe it’s linguistic, and I don’t think most of the sellers are trying to trick you or lie to you.
Maybe they don’t realize they’re lying when you ask them “Are you the factory”, and they say “yes.” Maybe they don’t own the factory, but they have a cousin who owns the factory, or they have a very close relationship. These sellers know that buyers want to go factory direct, so they tend to exaggerate things, or I like to say things a little bit more elasticity with truth in China than back home. So the seller might imply that they own the factory when in reality they have maybe a loose relationship with them.
Trading companies will say “We have a factory”, or “We own the factory.” Usually, they say, “We have a factory,” because that is a little bit ambiguous, meaning, “’you have a factory’ meaning you have a relationship with the factory? Okay, that’s different from owning a factory.” So assume all potential sellers are middlemen until proven otherwise.
No “Code of Ethics” (are potential suppliers middlemen)
Some more words of warning, there are no “Code of Ethics” as we talked about in an earlier session for factories, let alone sourcing agents. The spin is that the US or European middlemen—western face, based in China, trying to get your order, it’s really a trading company—They’ll say to you “You’re too small to go factory direct, but you can leverage our superior buying power to get that factory direct price”. 90% of the time, it’s simply not true. Often there’s factory out there that’s willing to accept your order at the given size. But it’s a slick sales message from these trading companies to make you feel safe, and make you think that it’s worth doing business with them even stay at arm’s length from the factory. They’re going to find a better price than you can find on your own.
During the RFQ (request for quotation) session that we’re going to talk about later will explain how to go out and get quotations. So you know: Do I need to deal with this trading company because my minimum order quality is too small for factory direct, or should I be going factory direct? That’s the spin of the European middlemen or the US middlemen that says they’re going to leverage their buying power because you can’t go factory direct.
The spin of the Chinese middlemen will be “We own the factory”, and then excuses and excuses and excuses to keep you away from it. They know that you want to go factory direct, so they tell you they have a factory, they own the factory. But then when it’s time to visit that factory, “There’s terrible flood, and the road is out”, “Our factory is so far away, why don’t we just meet at the hotel and or we’ll talk business at the airport”, “We have some staff problem, it’s Chinese New Year, our people haven’t returned”, “We’ve been closed down for a little while because there’s no power.” I’ve heard every excuse in the book for why I can’t visit the factory. If the person is telling you that they really own the factory, they’re going to find every way to get you on-site, because they know if they can prove it to you that they’re a real factory, it’s going to help seal the deal.
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ABL Blog: Sr. Editor and Primary Content Creator: Michael J. Bellamy
Originally from Upstate New York, Mike moved to Asia in 1993 and is a China business advisor to both Fortune 500 companies and small businesses. Recognized as an expert on doing business in China, he has been interviewed by WSJ, CNBC, FT & Bloomberg.
A featured presenter on China issues at seminars, trade shows and corporate events across the globe.
Learn more about Mike and AsiaBridge Law at
https://www.asiabridgelaw.com/business-advisory-services/
Mike is the author of “The Essential Reference Guide to China Sourcing”
(available on Amazon).