Since the official declarations about the fraud committed by some of Alibaba’s salespeople, everybody in the sourcing industry stresses the need for proper qualification and quality assurance. And they are right.
In my mind, the fraud uncovered by Alibaba’s board or directors is indicative of a lack of internal control — nothing unusual for a Chinese company. But it is negligible, compared to the intellectual fraud committed by Alibaba in its marketing promises.
Inexperienced buyers get on Alibaba, find a “gold” supplier, and feel they can trust him. That’s the heart of the problem.
Why is it called a “gold” status? Because this marketing is actually directed at a Chinese audience. Alibaba gets its revenue from the suppliers it lists.
Hense a conflict of interest. The tradeoff is: how to increase the number of paying suppliers, while guaranteeing a certain quality level?
Alibaba decided to welcome any supplier, as long as they were not outright scammers. Remember, they were the first mover in this supplier directory space, and they wanted to be the clear leader. It was probably a good financial decision, but it was not in the interest of importers.
Another online directory, Global Sources, decided to be more expensive. It tends to attracts larger suppliers, with a higher proportion of manufacturers. I am not sure whether it is the right place for small buyers to hang out, but at least it is safer than Alibaba.
Let’s get into the details of this fraud:
1. Approval of suppliers to display:
Here is their marketing promise:
To qualify for a Gold Supplier membership, a supplier must complete an authentication and verification process by a reputable third-party security service provider appointed by Alibaba.com.
It means two things:
- The suppliers without that “gold” status have not even been checked at all.
- I guess any company can get be a “gold supplier” as long as it pays. There is no checklist to pass. A third party collects information, which is posted on the supplier profile.
A terrible factory that increases prices at the last minute and delivers substandard quality can be listed on Alibaba. A couple of people setting up a trading company and renting an office can be listed on Alibaba.
2. Supplier presentation:
I just had a look at the Alibaba profiles of a few suppliers. They are all listed as “[ Manufacturer ]” in the search results, even when their registered capital is 100,000 RMB (example here). I don’t know how they can set up a factory with such a low investment.
And a Hong Kong company can also be listed as “manufacturer” without producing any evidence of ownership in any factory (example here). At least, none of this evidence is visible in the profile pages.
A small proportion of the gold suppliers have been audited by Intertek. That’s probably a way to ensure that they own a factory. But the audit only scratches the surface of the factory’s system. For example, there is no verification of the capacity of a production line. And there is no real assessment of the quality system!
3. Approval of products to show:
Once a supplier joins Alibaba, he has the right to publish a certain number of product pages. Of course, he wants to come up in the results for a maximum number of queries, so he is tempted to display products that he cannot even make.
Couldn’t a third-party visit a factory and write “they can only make such and such type of product, with such and such processes”? Well, that would require a specialized engineer. And it would eat in Alibaba’s margin…
For further reading: an article from Global Sources about what buyers should check before placing orders in China.