Five years ago, when I was working in Hong Kong, one of my friends (who imports from France) asked me for help. I found a few potential suppliers for her, I arranged some meetings on a Saturday, and I accompanied her in the suppliers’ showrooms.
We didn’t really know how to explain our relationship to the vendors, so I told them I was “their agent here in HK”. I was very surprised when they asked me “what is your commission? We need to know it, for our quotations” (they always did it when my friend was busy look at samples or going to the washroom). And they also seemed surprised when I said “no commission for me, thanks.”
Since then, I understood that it is very, very common in China for sourcing agents to get a hidden commission (unknown by the importer). It is more than common: it is normal!!
I am not referring to Chinese trading companies, who buy and sell. These intermediaries give you an all-included price, and hopefully you don’t need a sourcing agent to communicate with them. What I have in mind is the local person who helps an importer in dealing with the supplier.
And it’s not just with Chinese agents. Foreigners have picked up this habit, too. Thousands of individuals are stationed in China for “managing production” for importers who cannot afford a real buying office. Many of them get paid by the factory, on top of the 3% or 5% or 6,000 RMB per month that are promised by the buyer.
Here are just a couple of examples, to illustrate my point:
Last year in Qingdao, I met with a French importer of garments who had several problems. Why wasn’t his agent (another French national, who “took care of production and did the liaison with the factory”) looking for another supplier? Why were prices rising by 15% year on year? My response: I am 95% sure his agent gets fat commissions and is quite happy with that factory.
Last month I talked with an American buyer of furniture, who was using a Chinese lady “on the side of her current job”. She worked for a previous supplier of this importer, so she knows his requirements well. This lady introduced factories to him, where of course nobody spoke English — hence making her indispensable. The buyer was told by a potential supplier that his “sourcing agent” was asking for 10% of all payments.
That’s why I won’t put my hand in the sourcing game. More and more importers are aware of hidden commissions in China, and I don’t want to be suspected.
I don’t even want to give contacts of “good factories”. There are basically three reasons for this:
- We should never use the information gathered when helping a client for the benefit of another client. (Imagine that we bring other buyers who saturate the production capacity: the first client will not be too happy…)
- A factory might be reliable when serving one of our clients, but disastrous for a new client (e.g. they subcontract the assembly, or they just don’t care about his orders).
- It would also be easy for me to get a 5% or 10% commission from the factory, and the importer might suspect me of that even if it’s not the case.
When necessary, we follow a transparent process from the start, rather than using our past contacts. We call it “supplier qualification“. For example, yesterday we helped a buyer by contacting 30+ candidates. He was just too busy to do it, before his upcoming trip to China.
So we wrote this note at the bottom of every email we sent:
We are helping this buyer for finding suitable factories. We will give all the information to him with our comments, and he will contact you for factory visit / price negotiations.
We will not be an agent for this production. We will not get any commission, from anybody. The buyer paid us for this service, based on the time we spend searching and contacting factories. We will probably not be in contact with you again after you respond to this questionnaire.
At the same time, the buyer has the list of the candidates and their full contact information. He can ask one of them about our communications. We encourage our clients to do this.
Does it make sense? Is there any other way of avoiding suspicions and conflicts of interest, while helping small importers who can’t afford a real buying office?