10 Horror Stories Buyers from China Face (and How to Overcome them)

Everyone has heard worrying stories about when things go wrong with Chinese suppliers, and they can be true. You could be affected if you’re just plain unlucky, but you can take steps to avoid the risks of being scammed, IP being misused, or ending up working with an unsuitable supplier, for example, and we’re going to discuss the risks and how to handle them right here.

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1. Your supplier refuses to ship the goods you paid for.

This could happen for several reasons. The supplier might be struggling financially so they use your deposit to pay suppliers, and staff salaries, or fund more pressing orders from customers who give them more business than you, for example, pushing your order to the back burner (sometimes with little intention to make it any time soon or even ever). This is especially likely if they have short-term cash pressure and have persuaded you to pay a large deposit like 70% or even 100%.

In some cases, this is a straight-up scam and the ‘supplier’ takes your money and then disappears. This is more common when they’re found online and you haven’t met them and they push for high deposits while offering a very low price to tempt you.

You need to do due diligence on the supplier to avoid being scammed and also do not send large initial deposits, stick to 30% maximum, perhaps even less if you are buying non-customized off-the-shelf products (which the supplier could potentially resell if your order fell through). (03:22)

2. Your manufacturer tries to force you to accept poor-quality products.

This is a common case and often happens when the buyer selects a factory online but doesn’t check their background, the types of products they specialize in, what customers they have, etc. This results in them working with a supplier who is not a good fit for their business and is really incapable of achieving their desired level of quality.

Did you clarify your quality standard to the supplier and is it documented with examples of what you can and cannot accept in terms of defects? If not, this makes it far more likely that they will struggle to reach your expectations because they don’t know what they are.

Price also has an effect. In China, if you pay low prices there will be an assumption that you are willing to accept lower quality, especially if you have not specified a quality standard. (09:40)

3. The supplier doesn’t prepare export packaging of your products in time for your scheduled quality inspection.

This is common when the buyer doesn’t have a plan for packaging. It’s dangerous to leave packaging up to the supplier as they may choose the cheapest option so they make more profit, and that could result in damage to your products during transit. The supplier needs guidance in advance about what packaging is required, and this probably means that it’s on the buyer to design and specify the necessary packaging before it’s time to ship the products and get feedback with photos, samples, and test results (for example, ensuring that it has passed ISTA testing) to ensure it will perform and can be, say, printed in time. (16:00)

4. Your supplier disappears with your tooling and/or inventory.

This can happen, especially when a supplier’s company goes bankrupt or loses a costly court case. They are not trying to steal your tooling or inventory, but you become collateral damage. There are scams though where a new ‘supplier’ is just scamming you. Also, it can happen when a long-term relationship goes south and the supplier is angry with you, the buyer, for some reason, and they just stop communicating, ad similarly if you are using a trading company as your supplier who falls out with the manufacturer resulting in the same situation (with you as collateral damage again). (21:41)

5. Your supplier keeps important supply chain information from you.

Transparency and visibility over supply chains, especially regarding the digital product passport for the EU, are increasing in importance for buyers. So if your supplier is not providing you with supply chain information, it could prevent your product from being imported as it is not compliant. The worst case is that products will be seized at the border and then later destroyed, a good example of this is if you fail to prove that your products being imported into the USA have no links to Xinjiang and suspected forced labor. Overall, you’re on shaky ground if you work with a supplier who cannot or will not let you know who and what is in your supply chain, as you really have little control over the products. (25:33)

6. Your supplier starts selling YOUR products behind your back.

A scary scenario is where you find your supplier selling your product in their emails, website, Alibab page, etc. This is a betrayal of your trust and means that the supplier is claiming your IP as their own. You can put in place NNN agreements and manufacturing contracts that protect you legally from this happening, but you will still need to prove wrongdoing by the supplier (which may be difficult to do). Protecting against this often comes down to sourcing carefully, doing due diligence on the supplier, and putting in place the right legal protections, as well as supervision of the supplier while production is underway. (29:30)

7. Your ‘factory’ turns out to be a trading company.

Businesses often develop a new product and look for an agent to help them find a factory, but it turns out that the agent uses their own company to invoice them (and pays the real factory themselves) claiming that they are the manufacturer, but insulating the customer from the real factory and therefore guaranteeing more profit for themselves. If you think about it, relying on a trading company that is NOT your actual manufacturer is risky for a number of reasons:

You don’t know the real price of your product
You do not know who is making the product or where
You may not know the BOM and its costs or the types of materials or components used
If your relationship sours you could be left with no way to transfer production to another factory
They may not even know if the manufacturer is producing compliant products, let alone you

These are just a few reasons, and there are more, but the point is that using a middleman is likely to cost more than going direct to a manufacturer and also leaves you with very little control. (34:59)

8. You get hit with an unexpected price rise.

This is most common when dealing with a supplier and having no manufacturing agreement that outlines the relationship and key points such as the price you will pay and when you also lack visibility into the material/component costs. They might come to you and state that costs need to rise by 20% because salary costs have also gone up by a similar amount. With no visibility over what they are doing, you may be able to haggle, but you cannot really argue against them. The lack of transparency in the relationship is they key here, so trading companies or suppliers that purposefully do not give you supply chain information are particularly prone to pulling stunts like this. (39:00)

9. Your current supplier won’t transfer your mold tooling to a new supplier.

Custom plastic parts like enclosures, for example, usually require specially-made mold tooling and buyers pay for this upfront (sharing the cost with your supplier may lead to issues down the line such as them claiming ownership of the IP as they also invested). However, tooling is expensive and typically stays at the supplier’s factory, so if the relationship breaks down to the point where you want to stop working with them and move to a new supplier, the tooling is a prime candidate to be held hostage. The old supplier might demand a payment to compensate them for designing the tooling, but really what they’re doing is trying to squeeze out some extra cash because by then they know that they are losing your business. (41:50)

10. You are worried that your sensitive product IP won’t be secure.

Your supplier may misuse your IP by manufacturing your product as their own, approaching your customers and undercutting you, and more. The remedy here is to implement legal protections such as NNN agreement and a manufacturing contract which are enforceable in China. However, non-legal protections include sourcing companies that have a business model focused on manufacturing others’ products and not a wide range of their own instead which is more open to abuse. (46:09)

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