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Sourcing Agent 101: Who are They? How They Work? How They Charge?
2023-12-27 17:20:52
Nowadays, sourcing agents /companies play an increasingly important role in managing international supply chains. However, many small businesses still confused about sourcing agents, especially there is ambiguous and outdated information online misleading them. Therefore, I sorted out 8 buyers’ most concerned and confused questions about sourcing agency and gave you the most objective answers.
1. What is a sourcing agent or sourcing company? What do they do?
A sourcing agent is a person or agency that represents a buyer to source commodities, buy products that are out of the buyer’s reach. Sourcing agents/companies are often needed in international trade.
In the traditional sense of the term, a sourcing agent is only to source suppliers for his client. Indeed, the services provided by sourcing agents can include selecting the right supplier, price negotiation, following up production, quality control, product compliance & testing, shipping & logistics.etc.
2.Sourcing agent VS sourcing company comparison
In the global market, people often take these two words as one meaning. For example, if you want to find someone sourcing for you, you can say – I need a “sourcing agent” or a “sourcing company ”, it doesn’t matter. But actually, these are two different concepts.
1) Sourcing agent
One option for a sourcing agent is to hire them on an individual basis, and they can work for you full-time. Typically, this sole sourcing agent works from home or in a tiny office with just one or two employees.
Some of them might have worked for trade companies or sourcing companies for a number of years. These independent sourcing agents can be located on many freelance marketplaces (such as Upwork, Fiverr, and others), and some of them might even have their own Google page.
2) Sourcing company
Another name for a sourcing company is a sourcing agency. It's simple to comprehend: a sourcing organization is assisted by a group of knowledgeable sourcing representatives and well-organized apartments such as shipping, warehouse, and quality inspection systems. They are able to serve numerous buyers concurrently and integrate supplier resources more effectively.
The majority of sourcing businesses are found in industrial clusters. For instance, Yiwu, Guangzhou, and Shenzhen are home to the majority of China sourcing agents and enterprises.
In summary, sourcing agents and sourcing firms function as intermediaries between buyers and suppliers; the selection of whom to use depends on your preferences.
3.Who needs a sourcing agent/ company?
1) People who have no experience in importing
Importing from overseas involves too many complicated aspects, like sourcing the right suppliers，following up production，product testing and quality control，and dealing with shipping, etc.
If you have no experience in overseas purchasing, you can find a sourcing agent/company to help you start your first importing journey.
2) People who have multiple product categories to deal with
Selecting 2 reliable suppliers for 1 product may need you to contact 10+ suppliers. Suppose you are looking for 10 products, then you need to contact at least 100 suppliers and verify them. In this case, a sourcing agent/company can not only do the tedious job more efficiently but also consolidate all the goods you required.
3) Large retailers, supermarkets
Is it saying that a large importer with abundant funds and experiences doesn’t need a sourcing agent? Certainly not! Large enterprises also need them in order to manage their supply chains better.
Take the chain supermarkets as an example, they will need to buy thousands of product categories. It is almost impossible for them to go to each factory and purchase every product by themselves.
Retail giants such as Walmart and Target are all procured their products by sourcing agents or trading companies.
4) People who deal in special product categories
Besides daily necessities, there are some special product categories such as building materials, chemistry, medicine and so on. Take the Chinese chemistry & medicine industry as an example，it is quite difficult to find suppliers neither at the exhibition or online. So you have to entrust a sourcing agency or trading company who is specialized in the industry to help with your business.
Three advantages of sourcing agents/companies
A reliable sourcing agent/company plays an important role in international trade purchasing.
a. They can find suppliers who offer a competitive price and good quality. A good sourcing agent can help you find capable and reliable manufacturers. Because a good agent/company has accumulated a lot of qualified factories’ resources already that you may not find online.
b. They can improve sourcing efficiency. A local sourcing agent/company can help you overcome barriers of culture and languages. He knows exactly what you want, and negotiate with suppliers about the details of the products, and in turn deliver the message to you in fluent English, which greatly reduces the communication cost.
c. Reduce your risk of importing from overseas. A good sourcing agent/company must be experienced in dealing with product production, quality control, compliance certifications, import and export process rules, and international shipping.
4.What services do sourcing agents provide mostly?
Sourcing service fees vary according to the work scope you order from the agent. So make sure you have made it clear about the service scope and charges before you start cooperation, in case some potential disputes occur. That’s why I cover one chapter to introduce the service of sourcing agent/company services.
Following are the main services most sourcing agent provide:
1) Sourcing product suppliers
It is the basic service of every sourcing agent to verify and select the supplier that meets the requirements of their clients. And they will negotiate with the supplier on behalf of the buyer to get the best price and confirm the details of production.
However, some buyers may be entangled in whether the sourcing agent/company should give the supplier information to them. Some even think the agent is cheating them or making shady money by not giving the supplier information to them.
Let me explain to you here, whether the supplier information is provided to the buyer depends on the service model of the sourcing agent.
Individual sourcing agent
Some individual sourcing agents can be found on Fiverr or Upwork, who are usually paid a fixed salary (by hour/day) or can be paid a fixed commission for one project. This mode of cooperation is just like finding yourself a sourcing assistant in a foreign country.
Essentially, the buyer pays the salary to get the supplier information, so it is the obligation for the agent to provide the supplier’s contacts to his boss–the buyer and the buyers themselves will communicate with the suppliers to negotiate the price.
Sourcing company/agency
If it is a sourcing company /agency, they will not give the supplier information directly to the buyer. The following are the two core reasons.
Firstly, these quality suppliers are their accumulated resources (including those can’t be found on B2B websites), which is why you can get a competitive price from the sourcing company.
Secondly, they charge their service fees by a certain percentage of the total value of goods, that is to say, this is their profit model.
2) Follow-up production, inspect the quality, and arrange shipment
Once a suitable supplier is found, production of the goods can begin. The purchasing agent/company will help coordinate to ensure the factory completes production on time and adheres to excellent quality standards. They also provide quality inspection services, working with quality inspection companies to inspect finished products and minimize defects before shipment. The final step is shipping arrangements, which requires expertise in negotiating competitive prices and obtaining the necessary documents and product certificates required for customs clearance. These services are usually provided by purchasing agents/companies and you can choose the one that best suits your needs.
3) Other services
In addition to the mainstream services mentioned above, some large professional sourcing companies also offer private label solutions, including but not limited to the following aspects:
•Customize the product
•Customize packaging/labels
•Free product photography for eCommerce
In a word, there are good as well as bad sourcing agents in this industry. This leads to the result that many buyers afraid to try the sourcing service. Therefore, it is important to find a reliable sourcing agent for long-term cooperation and a stable supply chain.
5.How does sourcing agent or sourcing company charge?
Do you know this is an interesting question-how does a sourcing agent charge? There is no specific charge standard as there are thousands of sourcing companies and individual sourcing agents around the world. The sourcing agent fees vary greatly according to the service scope, the cooperation methods, the product category, and the amount of the order.
Many purchasing agents/companies attract customers with low service fees even free service for trial order, but the buyer will finally find that the overall procurement cost (product cost + shipping cost + time cost) is not low at all. And the buyer may receive unsatisfying goods even the agent declaim they did the quality inspection.
To give a general idea about the sourcing service fees, I introduced 4 common charging methods of sourcing agents in the following.
1) Fixed salary for each project or a certain period
Many individual sourcing agents charge a fixed salary for each product or a certain period (week/month). They usually charge less than $50 for each product. Pretty cheap, right? And you can talk to your suppliers about your products and build a business relationship directly. The disadvantage is that these agents are usually not professional, and the suppliers they find are usually not the most cost-effective ones.
Some experienced buyers prefer to hire an individual full-time sourcing agent for weeks or months, to do some simple sourcing work like finding suppliers, translating and communicating with the suppliers. If you want to import from China, you can hire a full-time China buying agent around $800 a month to work only for you.
2) No extra charge but gain from the price difference
Many individual sourcing agents or sourcing companies use this charge method. Usually in this situation, the sourcing agent can provide good suppliers with more competitive prices or better product quality, which is impossible for the buyer to find these suppliers through normal channels, like some B2B websites.
In turn, if the buyers could find their competitive prices on their own, they would never consider such sourcing agents.
3) Percentage service fee based on product value
The most common approach is for purchasing agents or companies to charge a percentage of the total order value as they provide additional services such as production monitoring, quality control, shipping arrangements and consolidation. Therefore, they charge a certain percentage of the value of the goods as service fees. In China, typical service fees are 5-10% of the total order value. In addition, service fees are greatly affected by product category and order size. For example, for highly competitive and popular products such as steel, or if the order amount exceeds US$500,000, the service fee may be around 3%, or even lower. Purchasing companies are generally reluctant to accept service charges of less than 5% for daily consumer goods. While some sourcing companies may entice customers with service fees of 3% or less, customers often find that product prices are much higher than those from most online suppliers, such as Alibaba suppliers. Or, even if they initially get a perfect sample, they may receive low-quality merchandise.
6.What tricks does bad sourcing agent play? Kickback, bribe, etc.
Now finally to the part that everyone CARES about. You may have heard a lot about the dark side of sourcing agent/company, such as accept kickback or bribe from the supplier, which make the buyers are afraid to use the sourcing agent. I will now reveal the common sourcing agent tricks in the following.
Kickback and bribe from suppliers
First of all, kickbacks or bribes happen to either individual sourcing agents or sourcing companies. If the buyer and sourcing agent/company have agreed on product price and supplier information transparency at the beginning of cooperation, the agent still asks the supplier for a kickback, it becomes illegal/unethical acts.
For example, suppose now you get two equal prices from supplier A and supplier B, if the B supplier offer kickback to the sourcing agent, then the agent is likely to choose the B no matter if the product quality from B is good or not. If your sourcing agent accepts kickback, you may end up with the following situations:
•The goods you received are not to meet your quality requirements, or product that is in non-compliance with the certification requirements in your market and thus illegal to import and sell.
•If there is a dispute over product quality, your sourcing agent will not stand on your side or try to defend your interests for you, but more likely to excuse the supplier for various reasons.
So, a good sourcing agent/company plays an important role in your supply chain management. In addition to helping you to obtain competitive product prices, they also devote to take care of the follow-up processes, because the good service is the core competitiveness of their business model. As to some individual sourcing agents who might do a one-time business, I can’t guarantee the service quality.
7.Where to find sourcing agent for different types of business
You may ask me, where can I find a reliable purchasing agent? Don’t worry, I’ll show you three places to find a sourcing agent/company.
1) Google
Searching on Google is always the first thought for most people when encountering problems. In fact, Google does help in most cases, it gives useful information. If you want to find a sourcing agent in one country, such as China, you can just type in “ China sourcing agent”, and there will be a list of Chinese sourcing companies in the search results.
When you are checking out one of the sourcing websites, pay attention to the content, the years of establishment, company photos, contact information, the team size, infrastructure, customer reviews and testimonials, blogs, etc. Only a professional team will invest enough money and energy to optimize its websites on Google.
2) Upwork / Fiverr
Upwork and Fiverr are freelancing websites where you can find some individual sourcing agents. Some of them are doing it as a part-time job, they will help you find a supplier and provide you with a supplier’s report. You will then need to contact the supplier and dealing with follow-up processes by yourself.
As this individual sourcing agent can pop up quickly, they can also disappear quickly. So you should be more careful with your individual agents when it comes to paying services fees issues.
3) Fairs
In addition to looking for sourcing agents online, you can also pay a visit to trade fairs. For example, if you want to import from China and get a China import agent, you can visit Canton fair, Hong Kong fair, and the Yiwu international fair, etc.
But looking for a sourcing company at a fair is more suitable for large importers, who are more likely to spend millions of dollars in purchasing every year and need to import hundreds or thousands of different types of products.
If you are just a small or medium-sized importer budget only tens of thousands of dollars in purchases per year, the suppliers on fairs may not accept your order, or they may arrange an unprofessional sourcing agent for you.
8.Practical tips to find reliable sourcing agent or sourcing company
Tip 1: Choose Chinese sourcing agent VS sourcing agent based in other countries（USA, UK, India, etc.）
As China is the largest consumer goods exporting country, Chinese sourcing agents account for a majority of the world’s agents. So I will divide sourcing agents into two types, China sourcing agents, and non-Chinese sourcing agents. What’re the differences between them? Which one to choose? Let’s see the pros and cons of them separately.
The pros and cons of Non-Chinese sourcing agents
How do the sourcing agents based in other countries operate? Generally, they are natives of a certain country and help buyers in their own country purchase from other Asian or Southeast Asian countries, such as China, Vietnam, India, Malaysia, etc.
They usually have their own offices in both the purchasing country and their own country. The team usually has several people, they mainly service for some large buyers.
If you are in the USA, choose a local sourcing agent and you don’t have to worry about language and culture barriers between you and the sourcing agent, the communication efficiency is improved.
If you purchase a large order, you can consider finding a sourcing agent in your own country. However, they are not very friendly to some small businesses, because their service commissions or their own profit is high.
The pros and cons of China sourcing agents
Compared with Non-Chinese sourcing agents, obviously service commission or profit of China sourcing agents is much lower. Besides, they have more professional sourcing teams and richer Chinese supplier resources than non-Chinese sourcing agents.
However, they might be unable to communicate with you as smooth as your native agents due to language differences. In addition, the Chinese sourcing industry mixed with good and bad agents, which makes it hard to distinguish the good ones.
Tip 2: Choose the sourcing agents specialized in a certain item
If you want to import a lot of different types of daily consumer products, choose a sourcing company that has already sourced a lot of daily consumer goods for previous buyers.
If you specialize in importing certain industrial products, then find the sourcing agent specialized in this industry like building materials, medical products. Because these sourcing agents must have accumulated a lot of good suppliers in this industry and can give you sound purchasing and production advice.
Tip 3: Choose the sourcing agent located close to the industry cluster
Each country has its own industrial clusters, which are groups of similar and related firms in a defined geographic area.
For example, if you want to purchase daily commodities from China, the sourcing agent of Yiwu is a good choice. And for clothes, the sourcing agent in Guangzhou will have more advantages.
Locating close to the industry cluster is convenient to contact with factories and reduce intermediate costs, like freight cost, quality supervision fees and so on. For example, If you want to purchase electronic products, the sourcing agents in Yiwu will not have better price advantage than the sourcing agent in Shenzhen.
If you want to source products from China, here is a table of industrial clusters for some industry categories in China for your reference.
Industry CategoryCluster GiftYiwudigital & Electronics productShenzhenChildren’s clothingZhili, Jimo, GuangdongHardwareYongkangCosmeticGuangzhouhome textilesTongxiang, NantongkitchenwareTongxiang, ChaozhouHome decorationFoshanprimary products/ bulk raw materialYuyao (plastic product), Dongguan (coating)TextileGuangzhou, ShaoxingPackagingCangnan, Wenzhou.
Tip 4: Ask the sourcing agent/company if he can provide happy clients’ referrals
A good sourcing agent that provides value would have a lot of happy customers, and they will be happy and proud to provide you the happy customer contacts. So you can check out what the sourcing agent most good at-are they good at finding the best price or inspecting the product? Can they provide a good service?
Tip 5: Choose the sourcing agent with longer sourcing experience
Sourcing experience is a vital factor you should take into consideration. An individual agent who works as an agent for 10 years can be much more resourceful and more reliable than a sourcing company that only established only several months.
The number of years he has been in business is proof of his track record. This means he has continuously provided his clients with a good quality business. Other than being knowledgeable in choosing suppliers he should also be extremely capable in the areas of quality control, logistics and audit.