Excerpt from “The Essential Reference Guide to China Sourcing” (chinasourcinginfo.org/book)
How bad is it?
To test my theory that the vast majority of vendors encountered by foreign buyers are actually just middlemen or brokers rather than actual manufacturers, I decided to attend a trade show in Mainland China. I brought with me an electronic fuel pump used in the quality intensive US automotive marketplace. This product combines electric and gasoline – one would assume anybody willing to quote on such a dangerous and technically demanding product would have a lot of production experience. I stood in the main hall of the trade show and held up a sample of the fuel pump and said in English “Can anybody here make this item?” In the blink of an eye I had 15 interested parties. All claimed “mei wenti” (“no problem”) and boasted of their factory direct connections and great pricing. If only it was this simple to find a supplier.
After interviewing all of them, it became obvious that these were people (both Western and Chinese) with only loose connections and no industry experience. They were essentially just middlemen. One was even a cab driver who carried the brochures of all the factories in the area. He would ask the foreign visitor what product they were looking for then magically pull out a brochure from the truck. He then would invent a cousin that has ownership in the given factory thus making up a story about why he could help broker a deal for the buyer to ensure good price and quality. Some naive foreign buyers actual did business with him only to learn that their price was inflated 15% by the back door deal worked out by the cab driver and the factory. Worse off, the factory was just randomly picked based on the recommendation of the cab driver and it turned out this supplier had no proper QC system and as a result most of the parts delivered had quality problems. Today, the amount of money involved in the China Sourcing game is so large that when visiting China just about anybody (bar tenders, hotel staff, exchange students, tour guides, translators, friend of friends and even cab drivers) will offer to be your source in hopes of making a quick buck. BUYER BEWARE!
Definition of Middleman
There are good and bad middlemen. For the sake of this book the bad type of middleman is an intermediary who provides little value in the supply chain, perhaps only playing match maker but building in a margin. On the surface, in order to have more perceived value, they may claim an intimate relationship with the factory, but if they don’t allow you to communicate directly with the factory, then you are dealing with a middleman.
If the intermediary is providing legitimate value (for example logistics, project management or quality inspection) then perhaps there is a place for them in the supply chain. But if the intermediary is not transparent in where their margin lies, then most likely the actual value for their inspection or project management service has been greatly inflated. Before you sign up with an intermediary simply ask that they separate the costs for their “service” from the “production costs”. If they fight this, then you know their actual value to you is minimal.
Wishing you successful China sourcing!
About the blogger
Mike Bellamy is an Advisory Board Member & Featured Blogger at the not-for-profit China Sourcing Information Center (www.ChinaSourcingInfo.org). He is also the author of, “The Essential Reference Guide to China Sourcing” (chinasourcinginfo.org/book) and founder of PassageMaker Sourcing Solutions (www.PSSchina.com)