By Hank Sheller

Most companies that need help sourcing from China prefer to work with someone they know or someone recommended by someone they know. If “Joe in accounting” has a cousin in China, then Joe’s cousin becomes the company’s starting point. When a company doesn’t know anyone in China, or know anyone who knows anyone in China, they often turn to the Internet. But by then they’re not searching for someone that can find the perfect supplier for their needs, they’re searching for someone that has an existing relationship with the perfect supplier for their needs.

China produces almost everything, and a good China sourcing professional can source almost anything, given enough time and money. But that’s not what most clients want. If a client wants to make their widget in China, they want a sourcing firm that knows widgets and has existing relationships with the best widget factories. When you have a relationship with a supplier, you get competitive pricing, good information and good after-sale support. The firm that has relationships with widget factories has a distinct advantage over the firm that needs to go out and find a widget factory.

Some China sourcing firms pick a niche such as widgets, plush toys, or shoes, develop a core group of suppliers in that product category, and devise and implement marketing strategies to target and acquire the right clients. Others take the “source-whatever-the-client needs” approach, cast a broad marketing net, learn each product category as they go, and develop vendor relationships and competencies along the way. But sooner or later, either to survive or to grow, the niche sourcing firms tend to drift outside their areas of core competency while the generalists tend to become increasingly niche as they develop core competencies of their own.

Regardless of which way a sourcing firm chooses to go, clients view the firm’s core competencies in terms of the core competencies of the factories with which the firm has good relationships. The ability to “source any product” is of less value to the client. You wouldn’t want a proctologist to do an obstetrician’s job, and you wouldn’t want an IP attorney defending you against murder charges. Similarly, clients don’t want just any sourcing firm. They want a sourcing firm that specializes in their particular product category and has existing relationships with the right suppliers for their specific needs. But if your client was introduced by Cousin Joe in accounting, it’s often a different story.

When the client knows you and trusts you, or when you are introduced by someone the client knows and trusts, the client is more likely to work with you even though you don’t know any widget factories. Now, your ability to “source any product” might be enough. The client will probably afford you reasonable time to find widget factories and get a quote and samples. They probably won’t shop your quote around to see who gives them the best price, or use your quote to demand a better price from their current supplier.

They might even give you a target price. Clearly the ideal is to have an existing relationship with both the client and the supplier. But no China sourcing firm can have existing relationships with suppliers of every product under the sun. Nor can they afford to depend solely on people they already know to give them business.

For these reasons, an association of China sourcing professionals makes sense – if I get an inquiry about widgets, and I don’t know any widget suppliers but I know that Steve of Steve’s Sourcing works with some great widget suppliers in China, then I have a choice: I can (1) decline to quote; (2) try to find a widget supplier and respond to the quote request by myself (with a low likelihood of converting the quote to an order); or (3) call Steve.

In some cases I might simply refer the client to Steve, and Steve could pay me a referral fee or a commission if he gets business from the referral. But if there were some value I could add by staying involved, then Steve and I would need to discuss and agree how to partner up to serve the client’s needs and each earn money in the process.

“But,” you say, “there is barely any room for my own commission, much less a second layer of pricing.” In fact, there should be room. Steve’s relationships with widget suppliers enable him to get a better price, leaving more room for profit. My opportunity costs and operating costs are lower by working with Steve than by trying to source the widget on my own, so I don’t need as high a profit margin. Steve should be willing to share profit with me because the client found me, not Steve. He wouldn’t have had the opportunity if I hadn’t brought it to him. Similarly, without Steve I probably wouldn’t be able to convert this quote into an order.

There could be other benefits to working together. For example, maybe the client is willing to pay a down payment but wants his sourcing provider to finance the balance for 30 days, and my company can offer the financing but Steve’s company cannot. Or maybe the client needs design help and Steve has designers but I don’t. Maybe the client will only do business with a company that has a China office, and I do but Steve doesn’t, or vice-versa.

“But,” you ask again, “aren’t you and Steve technically competitors?” The reality is that Steve and I are no more competitors than a proctologist and an obstetrician are competitors. Each China sourcing firm has its own core competencies and comparative advantage based on its unique vendor relationships. The factories I know and have worked with are different from the factories Steve knows and has worked with. We are both China sourcing professionals, but our specializations are different.

Some China sourcing firms focus on specific engineering and manufacturing capabilities such as metal stamping, plastic injection molding, or electromechanical assembly. It is possible for multiple firms to specialize in the same manufacturing capabilities and be considered as “competitors”. But even then there could be opportunities for synergistic cooperation. Each firm ostensibly maintains relationships with different factories in China, and no two factories are exactly alike. Moreover, every engineered part and custom product is unique and has its own learning curve associated with it. Depending on the item to be produced, the needs and expectations of the client, and the specific knowledge, experience, resources and factory relationships of the sourcing firms it might make sense for two firms to collaborate.

China sourcing professionals who find it difficult to get more of the right kinds of RFQs and improve their conversion rate could benefit from joining an association with other China sourcing professionals. A formal association of China sourcing professionals could have a web site, accessible only to members, where each member lists their core competencies by answering the question “what are the manufactured products and manufacturing capabilities of the factories with which I have the best relationships?” When one association member gets a quote request for a product or manufacturing competency outside their own scope of expertise, they can go straight to the association web site to see if another member has this competency.

This is infinitely better than searching Alibaba.com or GlobalSources.com and getting a list of names of 1,000 advertisers claiming to have what you need. Aside from the fact that your client can do this, 1,000 search results only means you have to weed out and reject 999 advertisers before you possibly find the supplier you need. This is a costly process with uncertain results.

Besides improving the odds of the right quotes going to the right firms, there could be additional benefits of a formal association of China sourcing professionals. For example, the Association could collectively appoint a single freight forwarder to serve all of its members, and negotiate far better freight rates than any individual member could get on its own.

Numerous China sourcing professionals read and contribute to this forum. This post is meant as a conversation starter. Does a formal association of China sourcing professionals make sense? Why or why not? What other benefits or drawbacks could there be to such an Association? What is the first step to establishing such an Association?

Hank Sheller is a partner in the New York-based firm Chinatown Sourcing. Hank is authorized by the New York State courts to interpret Mandarin.