Tag: Due Diligence

  • Gresham’s Law and the Sourcing Industry: Why the Best Agents Are the Hardest to Find

    Gresham’s Law and the Sourcing Industry: Why the Best Agents Are the Hardest to Find

    There’s a principle in economics called Gresham’s Law: bad money drives out good.

    The original observation was about currency — when two forms of money circulate at the same face value but different intrinsic worth, people hoard the valuable one and spend the inferior one. The inferior money dominates circulation. The good money disappears from the market.

    The same dynamic plays out far beyond currency. It shows up in job markets, in second-hand goods, in commodities — anywhere that buyers struggle to distinguish quality before they commit to a purchase.

    And it shows up, persistently and visibly, in the China sourcing industry.

    The Zipper Problem

    Consider something as ordinary as the hardware on a bag — zipper pulls, clasps, buckles.

    Most of what circulates in the general market is unbranded, standardized, and adequate. Adequate enough that most buyers don’t think twice about it. And adequate enough that most manufacturers, chasing cost efficiency, use it without a second thought.

    Until the zipper breaks three months after purchase.

    The brands that don’t want that outcome — the ones that understand their product’s longevity is their reputation — take a different approach. They commission custom hardware with their own tooling. They specify YKK zippers, the industry’s recognized quality benchmark, at a meaningful price premium. They treat hardware as a brand decision, not a cost line.

    But here’s the market reality: the custom hardware and the YKK zipper are not what circulates. They’re what gets specified, sourced through established relationships, and used by brands that already know what they’re doing. The general market is full of the unbranded alternative.

    The good product exists. It’s just not in general circulation.

    The Screw Analogy

    Hardware screws follow the same logic.

    Walk into any hardware supply shop and you’ll find standard fasteners in abundance — the ones that move fast, that everyone buys, that sit in high-turnover bins because their repurchase rate justifies the inventory cost.

    Higher-grade fasteners exist. Precision tolerances, superior alloys, specifications that matter in demanding applications. But they move slowly. And slow-moving inventory has a capital cost — money tied up in stock that isn’t turning over. So the merchant charges more, stocks less, and the premium product becomes harder to find precisely because fewer people are looking for it.

    The economics of inventory turnover select for the mediocre. Not because quality doesn’t exist, but because quality doesn’t circulate the same way.

    How This Plays Out in Sourcing

    The sourcing industry has a low barrier to entry. A laptop, a phone, some familiarity with Alibaba and WeChat, and a willingness to present oneself as an expert — that’s the starting kit. No certification required. No track record necessary. No physical presence demanded.

    The result is a market saturated with new entrants: low-price operators with no office, no warehouse, no legal entity, and no years of accumulated relationships and hard-won experience. They’re visible, accessible, and cheap. They’re in general circulation.

    The experienced operator — the one who has spent a decade navigating factory floors, resolving disputes, building supplier relationships, developing an instinct for which problems are fixable and which are catastrophic — is something different.

    Think about how a factory’s chief engineer operates. Or a founder who has been running a serious manufacturing operation for fifteen years. They are not sitting at a computer refreshing inquiry platforms. They are not available on demand for whoever sends a message. Their time is finite, their attention is limited, and their value is concentrated in the problems that actually require their expertise.

    The same is true of a genuinely experienced sourcing professional.

    Which means they are not the ones you find most easily. They are not flooding LinkedIn with posts. They are not responding to every platform inquiry. They are engaged — with clients whose work is substantive enough to warrant their time, through relationships built over years rather than acquired through a cold message.

    The good sourcing partner is not in general circulation. That’s not a coincidence. It’s the same logic as the YKK zipper and the precision fastener: quality that’s worth having tends not to be sitting on the shelf waiting for anyone who passes by.

    What This Means When You’re Looking

    If you’ve searched for a sourcing partner and found mostly low-price operators with polished websites and fast response times — you’ve experienced this dynamic firsthand.

    The ease of finding them is not a signal of their quality. It’s closer to the opposite.

    Here’s what actually correlates with a sourcing partner worth working with:

    They have a physical presence. An office. A warehouse. A registered legal entity in China. Infrastructure that exists because the operation is real and has been real for long enough to justify it.

    They have a track record that spans years. Not months. Not a series of rebranded attempts. Continuous operation, through market cycles, through difficult clients, through the problems that test whether a business is built on substance or on sales ability.

    Their founder or principal has direct, senior-level experience. Not delegated to a team of recent graduates. The person whose judgment you’re relying on has actually exercised that judgment — in factories, in disputes, in the decisions that don’t have clean answers.

    They are selective about what they take on. An experienced sourcing partner who will work with anyone, on any project, at any scale, for any price is not exercising the judgment that makes experience valuable. Selectivity is a feature, not a limitation.

    They are not the easiest to find. This is perhaps the most counterintuitive signal of all. The operators who are most visible — most active on platforms, most responsive to cold inquiries, most available — are often the ones with the most time on their hands. Draw your own conclusions.

    Who We Are

    Tom Sourcing has been operating since 2020. We are registered in the United States and maintain our own office and warehouse in China. Our co-founder Thomas brings over 20 years of direct experience in international trade, factory auditing, quality control, and supply chain management — built inside multinational corporations before being applied to the work we do for clients today.

    We are not the cheapest option. We are not the most visible option. We work with brands and businesses whose sourcing requirements are substantive enough that the difference between an experienced partner and an available one actually matters.

    If that describes what you’re looking for, let’s talk.

    Tom Sourcing is a US-registered sourcing company with its own office and warehouse in China. We provide end-to-end sourcing, product development, quality control, and supply chain management for US and EU brands.

  • The “Factory” That Isn’t: How a TikTok Playbook Is Costing Importers Millions

    The “Factory” That Isn’t: How a TikTok Playbook Is Costing Importers Millions

    We recently came across a TikTok account teaching its followers how to pretend to be a factory.

    Not how to build one. Not how to partner with one. How to pretend to be one.

    The advice was detailed, practical, and apparently popular. Pick a company name that sounds like a manufacturer. Learn to speak like a factory owner. Visit a real factory once, film everything you can, and use that footage as your “proof” across social media. And if a buyer wants to visit — brief the actual factory in advance, show up as the “sales manager,” and let the factory play along.

    The final tip was the most telling: get the buyer to wire payment into the factory’s bank account, then collect your commission on the back end. The buyer thinks they’re paying the manufacturer directly. They’re not.

    We’ve been in this industry for over 20 years, combined. We weren’t shocked by the playbook. We were shocked that someone was teaching it openly on social media.

    This Is Not Rare. This Is the Norm.

    Here’s something most importers don’t know:

    The vast majority of suppliers you find on social media, on Alibaba, on sourcing platforms — are not factories.

    We’re not guessing. We visit factories as part of our work. In recent years, when e-commerce clients have asked us to audit a supplier they found online, the result has been consistent: almost without exception, what presents itself as a factory is a trading company. Sometimes a one-person trading company operating from a home office.

    Even among traditional trade suppliers — companies with websites, offices, and years of history — perhaps one or two in ten are actual manufacturers. The rest are intermediaries of varying quality, transparency, and reliability.

    We want to be clear: we are not saying trading companies are always bad partners. Some of our own suppliers are brand-authorized distributors. Trading companies serve legitimate functions in the supply chain.

    The problem is not what they are. The problem is when they lie about what they are.

    Why the Lie Matters

    Imagine you place an order with someone who tells you they’re the factory.

    They’re not. They’re a middleman. The actual factory is their supplier — a separate business with its own priorities, its own capacity constraints, and no contractual obligation to you whatsoever.

    Now something goes wrong. The product has a defect. The shipment is late. You go back to your “factory” contact. They go back to their actual supplier. The supplier says it’s not their problem. Your contact says it’s not their problem either. You are caught in the middle of a dispute between two parties who both have more incentive to protect themselves than to protect you.

    And here’s the part that matters most: a one-person trading company has almost nothing to lose.

    No factory equipment. No long-term workforce. No significant assets. If things get bad enough, they close the account, open a new one, and start again with a clean slate. Their cost of exit is nearly zero.

    Your cost? Potentially everything you paid.

    This is what information asymmetry looks like in practice. You don’t know who you’re actually dealing with. They know exactly what they’re doing. That gap — between what you know and what they know — is where the risk lives.

    The Foundation of Every Trade Relationship Is Identity

    We’ve been doing this long enough to have a simple rule:

    If a partner lies about who they are at the start of a relationship, everything that follows is built on that lie.

    You can negotiate a good price. You can get strong samples. You can agree on clear terms. But if the person across the table started the relationship with a fundamental deception about their own identity, you have no reliable baseline for anything they tell you afterward.

    Trust in business is built on understanding. You have to know who someone is before you can trust what they say. When that foundation is missing — when you genuinely don’t know whether you’re talking to a manufacturer or a middleman pretending to be one — you’re not building a business relationship. You’re building on sand.

    How to Break Through the Information Gap

    The good news is that this kind of deception rarely survives contact with an experienced third party.

    A trading company pretending to be a factory has constructed a story. That story holds up against buyers who don’t know what to look for. It falls apart quickly when someone who does know what to look for walks through the door.

    An experienced factory auditor can identify a trading company within minutes of an on-site visit. The tells are everywhere: the scale of the facility, the presence or absence of tooling and production equipment, the way staff respond to technical questions, the relationship between the contact person and the workers on the floor.

    The TikTok playbook we described at the start of this article specifically addresses how to handle factory visits — because the people running this scheme know that a real visit is the one thing that breaks their cover.

    So the most important thing you can do is send someone they can’t fool.

    When evaluating a third-party sourcing or inspection partner, look for:

    Registration and legal standing — Are they a registered business in China? Can they provide documentation? A legitimate operation has nothing to hide.

    A physical office — Not a virtual address. A real office with real staff. This is verifiable.

    Operational history — How long have they been running? Fly-by-night operations don’t survive long. Legitimate businesses do.

    Experienced leadership — Who founded the company? What is their background? Years of direct experience in factory auditing, quality control, and supply chain management are not easy to fake.

    Who We Are

    Tom Sourcing was founded in 2020. We are registered in both China and the United States, with physical offices and a warehouse in China.

    Our co-founder Thomas has over 20 years of experience across multinational corporations and international trade — including factory auditing, quality control, and project management across multiple industries and supply chains.

    When we visit a supplier on your behalf, we know what we’re looking at. We’ve seen the playbook. We know the tells. And we know how to find the truth before it becomes your problem.

    If you’re sourcing from China and want to know who you’re actually dealing with, let’s talk.