Ways to Verify Chinese Suppliers Are Factories, Not Trading Companies

1. Check the Business License

This method can provide a basic idea of who you are working with.  I wouldn’t say that it is a 100% be all end all to decide what type of business it is, but it does give some good data on who they might be.  In recent years the Chinese government has set up an online system to allow individuals to search for Chinese registered companies online.  Find the website here.  All your factory needs to do is to provide you their official name in Chinese and/or their registration number and you can find the following information about them.

The most important place to look is at the “Business Scope” (经营范围).  This can tell you very clearly what the company was set up to do.  A factories business scope will usually include words such as “manufacturer, producer, or processor” (制造, 生产, 加工).  Usually a trading company will have other descriptions.

Another spot to check is registered capital.  Usually companies with larger registered capital are factories.  This is not to say that someone with low registered capital or no registered capital is not a factory, but if you see a high registered capital number than it is very likely that the business that you are having a discussion with is indeed a factory.

The website is completely in Chinese however I think that most of the translation can be done well enough with Google Translate.  Many companies charge money for these reports but they are just taking this information and translating it to English, you can do this yourself!

2. Compare your Supplier’s MOQ

Factory’s MOQs in most cases are normally higher than for trading companies.  When searching for factories on Alibaba or Global Sourcing I always am looking for the companies that have higher MOQ’s listed as those are the ones that are usually factories.  MOQ’s are always negotiable so you shouldn’t worry about the posted MOQ in the beginning.

Traders can always to lower volumes as they either have good relationships with the factories, keep their own inventory, or have other clients that are purchasing the same products.  This gives them an ability to sell smaller quantities of goods to buyers.

The reason why factories like to keep MOQs is that there is a cost to set up the production line for each type of product and raw material is not easy to buy in small quantities.  It becomes too expensive to make small batches for customers, and the factory is unable to make money.  Usually in the beginning I always like to tell the factory that I will do a smaller size “sample order” in the beginning, and if I am happy with the products then I will purchase higher volumes.

3. Check the product offerings 

Factories are usually specialized in one or several kinds of similar products.  If they have a massive range or products in their catalog then they are often times a trading company.

Factories can often make a variety of similar products in different industries such a plastic molded parts.  A company may make plastic molded parts for the toy and consumer appliance industries but it would be strange if they made plastic molded parts and electronic devices.  Product categories that vary too much would usually mean that this company is a trading company.

4. Check the Factory Auditing Reports

When suppliers tell you that they have supplied multinational companies such as Walmart, GE, Costco, etc. then you can request for them to send you the audit report.  When you do receive these reports be sure to look over them carefully.  Often times these large companies will audit aspects of the business that does not directly effect the manufacturing of your products.  They will make sure there is enough toilets per the amount of people in the building and if the proper safety measures have been taken in the building such as fire escapes.  These items of course are very important, but don’t allow these factors to change your view on the manufacturing capability of the business.

If the factory refuses or hesitates to provide you this information then they are often a trading company. When they send you an audit report, then you should check to make sure that the company name on the report matches the business license name.  If these names match then the company you are speaking with then it should be a factory.

5. Check the ISO 9001 Certification

Not all factories have an ISO 9001 Certification, but most companies who do have it are usually factories.  In most cases a trading company would not require this certification.  In general most factories that do spend the time and money to get the certification will be above average factories.  You shouldn’t take this certification and believe that all factories that attain the certificate are operating according to what the specific qualification requires.  I have seen many factories that have the certificate that are not following the standards that ISO requires.

Some trading companies do attain this certificate who are usually specialized in one type of product category, and often have very strong business relationships with their factories.   I am aware of several trading companies that operate in this way, and offer the same service and price as you would get when directly working with the factory.

ISO 9001 Certification

6. Check Where the Supplier Is Located in China

All products have their own industrial areas in China.  By this I mean that many factories that manufacture similar items all manufacture in the same region in China.  The main reason for this is a supply chain is built in a certain area and factories utilize this sub-supply chain to efficiently and competitively manufacture your products.   A good example is Shenzhen in Guangdong province for electronic devices.

Shenzhen has a massive base of electronic suppliers in the city and surrounding areas of Guangdong.   The city essentially has the complete supply chain for all parts that are required to build electronic devices.  Producing electronic devices in other cities is generally more complicated and higher cost than in Shenzhen therefore these types of factories normally establish themselves in regions clustered together.

If you have a supplier from another region offering you electronic devices then there is a higher chance that it is a trading company.

My Favorite Tips and Tricks: 

  1. Ask for their address and business name in Chinese, and tell them you will do a Chinese business name registration search to understand what type of company they are, tell them “you will be very disappointed if you find out that they lied to you.”  Usually after this they will tell you the truth.
  2. Tell them you want to and will visit their factory (even if you have no plans to do so) and will be very disappointed if they lie to you about being the factory or not.  Usually after this they will tell you the truth.
  3. Take the Chinese address that they give you and put it into Baidu Maps.  Look at street view and regular map to see if it is in fact a factory.  Use street view to try and find the sign at the front gate and look to see if the companies name matches.
  4. Ask technical questions, if they can’t answer or take a long time to respond then they are very likely a trading company.

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