The Bad, The Ugly, and The Good When It Comes to Agents and Middlemen
Today, I just want to be a little bit better-rounded and explain that sometimes the agents are very good but sometimes they’re the root cause of problems. In this blog post, I’d like to share about the bad, the ugly, and the good when it comes to agents and middlemen
Bad, Ugly, and The Good When It Comes To Agents and Middlemen
First off, some of the agents and brokers are what I would call an “opportunistic broker”, meaning they want to broke a deal, they want to put you on a buyer with a factory that they know, get some money up front for making the introduction, and then try to build in an ongoing commission. But if they’re only a broker, and they help set up the deal in the beginning, but they don’t provide any real value, that’s bad for you because you’re paying them a commission which probably is hidden over a long term for just making an introduction.
Let’s talk about some of the ugly things that can happen when dealing with these agents and middlemen. I hear this so often “Yes, it’s our factory”, “Mr. Wang, do you own the factory or are you an agent?”, “I own the factory.” it’s very common. Maybe it’s a language issue; maybe it’s a cultural issue. You almost have to assume that someone is a middleman until proven otherwise. One of the ugly things is these agents will say “Not only are we providing project management, but we own the factory too. We have a close relationship with the factory. You’ll get speedy updates. You’ll have transparency into what’s going on.” If you’re dealing with an agent because they’re telling you that they own or have invested in the factory, you need to double check and make sure that is verified and actually exist.
Not all Agents or Middlemen are Bad
There are also benefit of working with an agent or middlemen especially with the communication. Many foreign buyers don’t know how to communicate clearly with the Chinse factory. Hiring a translator to communicate with the Chinese factory is somewhat time consuming and expensive. Some agents are very good at making this process more efficient
The good, in theory, some of these brokers and agents, they might have multiple customers just like you. Say you’re buying beach towels. You want to buy 5,000 beach towels, but the factory has a minimum order quantity of 10,000. That agent might take orders from multiple customers, aggregate them, and then in theory get a superior price from the factory and pass that discount or some of that discount onto you. One of the reason that it might make sense to deal with an agent to a broker or a trading company, what have you, is that they have that the combined buying power to get you a better price than if you went factory direct on your own.
In order to attract you and get your business, these agents might offer preferential payment terms. The factory wants to get paid up front on the small orders, but the broker or agent might say to you “Give me a small deposit, and then the rest you can pay me 30 days after it’s been delivered.” The factory might never offer those preferential terms to you. So sometimes the agent or the middleman can help with the supply chain finance.
Same is true for quality and warranty issues, especially if that agent or broker maybe they’re willing to sign a contract that clearly states that they’re obligated for any defects. Whereas the factory they’re big, your order is small they might not take those items very seriously. Sometimes having an agent, as long as they’re reputable, they’re
Thanks to the internet, if you do want to go factory direct you can find a factory on your own. So it’s not like you need a broker just to make the introduction. Stay away from these opportunistic brokers that try to play matchmaker, and then they disappear. Maybe 10, 15 years ago when it was a little bit harder to find a factory, that was real value, but now if you’re going to pay someone to be in the middle, they need to provide real on-going value.
Keep in mind that there’s no better business bureau in China. There’s no safety net. God forbid something goes wrong; it’s not like you can call up your embassy and say “This agent did a bad job, and because of their faulty project management I lost $100,000.” Whether it’s the Chinese embassy or your home country’s consulate or embassy in China, they’re basically going to say “There’s not much we can do.” Unless your loss was millions of dollars in some scam, or there’s legal negligence, it’s really hard to get support from whether it’s the police or the embassy staff to help you go after these bad agents and brokers.
Also realize that unlike doctors and lawyers where there are some ethical and professional standards, there’s no realistic association of purchasing agents, or association of Chinese buying offices that self-govern themselves. Keep in mind that there’s no better business bureau, you’re on your own when you deal with these guys. So be careful.
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