How a trading company works
A trading company buys from factories at a wholesale price and resells to you at a marked-up price, taking on inventory risk in exchange for margin. You typically won't know which factory actually made your order, and negotiating leverage sits with the trading company, not you.
How a sourcing agent works
A sourcing agent represents your interests directly with the factory, usually charging a transparent fee or percentage on top of the factory's own FOB price. You see the real factory cost, and the agent's incentive is aligned with getting you a good outcome, not maximizing their own resale margin.
Where each model makes sense
Trading companies can work well for smaller, standardized orders where speed matters more than unit cost. Sourcing agents tend to make more sense for custom specifications, larger volumes, or ongoing relationships where quality control and factory-direct pricing matter over time.
What to ask before committing to either
Ask directly: will I see the factory's FOB price, or only your resale price? Who inspects the goods, and who do they report to? Who's responsible if the shipment fails inspection? The answers tend to make the trading-company-versus-agent decision obvious fairly quickly.
Who carries the risk — and why that sets the price
The margin a trading company earns is not simply a markup for doing paperwork. It is payment for risk it has taken on: buying inventory before it has a buyer, extending credit terms to customers, absorbing currency movement between purchase and resale, and carrying the loss if a product does not sell. Those costs are real, and they are inside the number you are quoted.
An agent carries almost none of that. It is paid for work rather than for risk, which is why the fee can be far smaller than a trading margin while the factory price stays visible. Understanding which risks you are buying out and which you are retaining is the more useful way to compare the two models than comparing headline percentages.
The hybrid models you will actually encounter
Real suppliers rarely sit at one extreme. Many factories run their own trading arm for export customers, which means you are dealing with the factory but through a structure that adds margin. Some agents operate a small trading capability for clients who want one invoice, and some "commission agents" are paid by the factory rather than by you — which is worth establishing early, because it is difficult to represent a buyer's interest while being paid by the seller.
The question that separates them in practice is simple: is this party paid by me, by the factory, or by a margin on the goods? Any of the three can be legitimate, but only the first two are transparent, and only the first has an unambiguous incentive to hold cost down.
Which model suits design-sensitive products
Where your products carry your own design, the difference becomes material. A trading company sourcing on your behalf may place your product with whichever factory can produce it, and may in principle place the same design elsewhere. An agent working to your brief is more naturally aligned with keeping a design with one supplier.
Whichever route is used, exclusivity and design ownership need to be agreed in writing before production rather than assumed. If a custom mould or tooling is involved, establish who owns it — that single question determines whether you can move the product to another factory later or whether you are tied to the original one indefinitely.
Common questions
How does a trading company make money?
It buys from factories at wholesale and resells to you at a markup, taking on inventory risk, credit terms and unsold stock. Those real risk costs sit inside your quoted price — which is why its margin exceeds an agent's transparent fee.
When is a trading company the better choice?
For smaller, standardized orders where speed matters more than unit cost — they can be efficient for simple buys. A sourcing agent fits better where unit cost, specification control and independent verification of the factory matter more than speed.
How do I tell if a supplier is an agent or a trading company?
Ask: is this party paid by me, by the factory, or by a margin on the goods? And will I see the factory's FOB price, only your resale price? Many factories run export trading arms, so hybrids are common — the payment model is what defines the relationship.
Which model suits products with my own design?
Where products carry your own design, exclusivity and design ownership must be agreed in writing before production either way — but a trading company sourcing on your behalf sits between you and the factory that holds your drawings, adding a party to a relationship that needs to be direct.