There are many ways to start a business these days, both in physical locations and on the internet. But if you’re interested in tapping into the B2B market, you’ll soon find yourself wondering if you’re best served with starting a trading or manufacturing company.
For many people who want to buy goods for retail trade or drop shipping, there’s often a debate about which of these types of companies is better. People want to know which one will fulfill their needs best and where they can get the best prices.
But when you’re on the other side of this debate, the considerations you’ll need to keep in mind will be far different. For instance, there are questions of cost, operations, product sourcing and the options you’ll have for distribution.
Will starting a trading company be more profitable for you over beginning a manufacturing business? What can you expect when doing business with either one of these entities?
If you’re not entirely certain which is right for you or what to expect, there are no worries. In this article, we’ll explain all you should know about trading companies and manufacturing companies, and how they compare to each other.
Trading companies are typically engaged as “middlemen” in the production and distribution of goods and services. They usually buy, sell, and deliver goods to retailers in other geographical areas or even to a final consumer that wishes to buy wholesale.
Trading companies are usually located at or around areas of high manufacturing activities, or have offices close by. As a result, they are typically engaged in wholesale trade which involves buying from manufacturers and handling eventual sale through their distribution channels.
If you have ever bought anything on global ecommerce marketplaces such as Alibaba.com, then you must have dealt with trading companies. Apart from maintaining online storefronts on digital platforms, trading companies usually have physical locations too.
Many of these locations are devoted to retailing products from multiple manufacturers. In some instances, they may even become licensed distributors for specific manufacturers in a geographical area.
As with starting any other business, there are important things to keep in mind when starting a trading company. Some of these include:
Unlike trading companies, manufacturing companies are actually involved in the creation of tangible products from raw or partly finished materials. These companies use a combination of computers, machines and skilled workers to create products, sometimes from scratch.
There are several types of manufacturing companies. Some are involved in producing consumer goods, while others manufacture chemicals, machinery, pharmaceuticals, and a range of other products.
These companies typically hire a lot of workers and use a lot of equipment. They also typically require a large amount of real estate in order to properly fulfill their production needs and also to maintain safe distance from people.
Manufacturing companies are constantly tweaking their production processes to ensure they can deliver quality products without hurting their bottom line. Some of the production models these companies use include:
But it’s not in all cases that you have to actually produce goods from scratch as a manufacturing company. Some companies outsource aspects of the production process, like buying computer chips from another company, to make their manufacturing process shorter.
Compared to trading companies, manufacturing companies can be much more capital-intensive. It can take a lot of money to establish these companies, leading to questions about whether you would need to seek financing. Some other key considerations include:
As you have seen, trading and manufacturing companies can be quite different, even though they both focus on producing and distributing tangible goods.
Trading companies may require a potentially lower capital outlay than manufacturing companies. But this can vary, depending on whether you choose to outsource some parts of the production process, and the size of the manufacturing company in relation to the trading company.
Despite their differences, trading and manufacturing companies enjoy a complementary relationship. While one produces the goods, the other can be key in getting them shipped to consumers in markets all around the world.
Ultimately, regardless of which entity you pick, you’ll still be just as instrumental to presenting quality products to buyers in global markets.
As the leading online B2B marketplace for businesses from all over the world, Alibaba.com provides the right platform for global trade. Whether your goal is to export products from one country or bring them into another country through imports, we help you reach millions of B2B buyers globally.
So, regardless of your decision to go with a manufacturing business or a trading business, you can easily create a storefront, post products, and sell to millions of B2B buyers on Alibaba.com.
Interested in finding out more? Learn how selling on Alibaba.com works.