Manufacturers vs Trading Companies: Who Are You Actually Buying From?

When you find a supplier on Alibaba, you don’t automatically know whether you’re talking to the company that makes the product or a middleman who buys it and resells it. This distinction matters. It affects your price, your ability to customize products, your quality control access, and who you can actually hold accountable when things go wrong.

Here’s how to figure out which one you’re dealing with, and when each type actually makes sense.

What’s the Difference?

Manufacturers (also called factories) make the product themselves. They have production equipment, workers on an assembly line, and raw materials flowing through a facility. When you place an order, they build it. You’re the buyer. They’re the maker.

Trading companies don’t make anything. They buy finished goods from one or more factories and resell them to buyers like you. They act as intermediaries. Their value is in aggregating products from multiple sources, managing communication in English, and sometimes handling quality checks and logistics on your behalf.

The core price difference: trading companies typically mark up factory prices by 15-30%. Sometimes more. That markup is their business model.

This doesn’t make trading companies bad. It makes them a different kind of supplier with different strengths and weaknesses.

Why “Factory Price” Claims Are Often Lies

Almost every supplier on Alibaba claims to be a factory. “We are professional manufacturer with 15 years experience” appears in roughly 90% of supplier profiles. Many of those are trading companies.

Why do they claim to be factories? Because buyers prefer factories. Buyers believe factories mean lower prices and more control. So trading companies mimic factory language.

Some signs you’re probably talking to a trading company, not a factory:

Extremely wide product range. A factory that makes Bluetooth speakers doesn’t also make kitchen appliances, LED lights, and power tools. A trading company that sources from many factories does.
Vague answers to manufacturing questions. Ask about their production process, their machinery, their worker count. A factory person answers specifically. A trading company person deflects.
Address is a commercial office building. Check their address on Google Maps or Baidu Maps. Factories are in industrial zones or on the outskirts of cities. If their address is a high-rise office in a city center, they’re not a factory.
They list multiple factories as their “partners.” This is a trading company being semi-transparent about their model.
No factory photos, or stock photo factory images. Real factories have real photos.

You can also ask directly: “Are you a trading company or a manufacturer?” Watch the response carefully. A factory says “we are the factory.” A trading company typically hedges: “We work closely with factories,” or “We have our own production line for some products.”

How to Tell for Sure

A few methods that give you reliable answers:

Check the business registration. The company’s registration at China’s SAMR database (gsxt.gov.cn) shows their business scope. A manufacturer’s scope includes production. A trading company’s scope is typically “wholesale and retail trade” or “import/export.”

Request the factory’s ISO certification. Manufacturers often hold ISO 9001 (quality management) certificates. These list the certified company’s name and address. If the certificate name doesn’t match the supplier you’re talking to, you’re talking to a trading company.

Compare addresses. Ask for the company address and the factory address. A manufacturer gives the same address for both. A trading company’s company address and “factory” address will be different, because the factory they source from is a different company.

Ask for a video factory tour. Request a live walkthrough of their production floor. A factory can do this on short notice. A trading company either can’t, or has to coordinate with a factory that may or may not cooperate.

The Case for Trading Companies

Before you conclude that trading companies are always worse, understand where they actually add value.

Small orders. Most factories have MOQs that don’t work for small buyers. A trading company can aggregate orders from multiple buyers to meet factory MOQs, making smaller purchases possible. If you want 100 units of a product whose factory MOQ is 1,000, a trading company is often your only option.

Product variety. A trading company can source multiple products from multiple factories and ship them together. If you’re testing several different products or need small quantities of several items, a trading company handles that more efficiently than managing 5-8 factory relationships yourself.

Language and communication. Many factories have minimal English-speaking staff. A trading company’s job is to manage buyer relationships in English. Communication is often smoother.

Experience with logistics. Trading companies often have more experience with documentation, customs procedures, and export logistics than small factories.

Established relationships. A good trading company has vetted their factory sources and has ongoing leverage to maintain quality. This can actually work in your favor.

The Case for Going Direct to the Factory

When volume justifies it, buying directly from the manufacturer has real advantages.

Lower per-unit price. Cut out the 15-30% trading company markup and that goes to your margin or your price competitiveness.

Customization. You can modify the product, change components, add your branding, or request engineering changes. Trading companies often can’t do this because they don’t control the production process.

Quality control access. You can send an inspector directly to the factory floor. With a trading company, there’s always an intermediary layer between you and the production.

Direct accountability. When something goes wrong, you’re talking to the people responsible for making it, not a layer of management that will blame the factory.

The threshold where factory-direct usually makes sense is roughly 500-1,000 units per product. Below that, the trading company’s aggregation function often makes them the better option even with the markup.

Hybrid Factories: The In-Between Case

A third category exists that most importers don’t know about: factories that also act as trading companies.

A hybrid factory makes certain products themselves and sources others from partner factories. They present themselves as a one-stop solution. Their own products come at factory prices. Other products come with a markup.

These are very common in electronics hubs like Shenzhen and Dongguan. A factory that makes power banks might also sell you phone cases, cables, and chargers – some made in-house, some sourced elsewhere.

Hybrid factories aren’t inherently bad. But you need to know which products are made in-house and which are sourced, because that affects quality control, lead times, and your ability to customize.

Ask: “Which of these products do you make in your own facility, and which do you source from other factories?” A straight answer gives you a clear picture of what you’re working with.

Pros and Cons Summary

Manufacturers:

Pros: Lowest price, direct quality control access, customization possible
Cons: Higher MOQs, sometimes weaker English communication, limited product range

Trading Companies:

Pros: Low MOQs, broad product range, better English, easier logistics
Cons: 15-30% markup, one step removed from production, less customization control

Hybrid Factories:

Pros: Factory pricing on core products, broader range than a pure factory
Cons: Need to identify which products are in-house vs sourced

For your first order with any supplier, verify who you’re actually dealing with before committing money. The supplier verification guide walks through the specific checks to run. And when you’re comparing options across platforms, the Alibaba vs DHgate vs 1688 comparison shows how the mix of factories and trading companies differs across each platform.

Frequently Asked Questions

Does it matter if I buy from a trading company vs a manufacturer? Yes, significantly. Trading companies mark up prices 15-30% over factory cost. They also put a layer between you and quality control. For large or ongoing orders, that markup and reduced control add up. For small orders where you can’t meet factory MOQs, trading companies may be your only practical option.

How can I tell if a supplier on Alibaba is a factory or trading company? Check their product range (factories specialize, trading companies carry everything), ask manufacturing-specific questions, request a video factory tour, and check their business registration scope on gsxt.gov.cn. ISO certification certificates also list the certified entity’s name and address, which often reveals whether the supplier and manufacturer are the same company.

Are trading companies ever better than going direct to a factory? Yes. For orders below 500 units, trading companies often provide access to products with lower MOQs. They also handle multi-product sourcing, provide better English communication, and sometimes have stronger logistics expertise than small factories. For very small buyers or product testing phases, a trading company often makes more practical sense.

What markup do trading companies charge over factory price? Typically 15-30% over factory cost, though this varies by product category, order volume, and how competitive the market is. Some trading companies in less competitive niches charge even higher markups. Comparing quotes from identified factories on 1688 (China’s domestic wholesale platform) against Alibaba quotes gives you a real sense of the spread.

Can I ask a trading company to connect me directly with their factory? You can ask. Most trading companies won’t agree because their value and margin comes from being the intermediary. Some may agree to a factory visit as a transparency measure, especially for large orders. If a trading company connects you directly and the factory accepts direct orders, you’ve effectively bypassed the middleman – which is why most trading companies won’t do it.

What is a hybrid factory and how do I identify one? A hybrid factory manufactures some products in-house and sources others from partner factories. Ask specifically which products they make themselves versus which they source. Request the factory address for each product category and compare it to their registered address. Products sourced externally will come from a different location.