Let’s say you found a potential supplier, you communicated a bit with them, you vetted their company’s legitimacy and reputation, and you want to move forward.
Generally, the next step is to ask them a number of questions that will disqualify them if they are a poor fit for your needs — and that will warn you if you are a poor fit for them.
I’ll assume you already asked about their minimum order quantity, lead times, port of loading and distance from that port, payment terms, and maybe an indication of the price.
(If you want to develop a new-to-the-world product and you don’t want to show your design too easily, at this stage you should get the supplier to quote on a relatively similar product that necessitates the same production processes.)
What other questions can you ask?
1. Complement to the background check
If they have at least 1 good English speaker, call them. Ensure that person has worked there for a few years (otherwise you’ll get many “I am not sure” and you won’t be able to dig deep enough), and cross-check the information you collected so far:
- Basic facts such as number of employees in the factory, whether they have an export license, etc.: is it consistent with their Alibaba / Global Sources account information?
- Customer references: do they cite the same companies, or do they make stuff up on the fly?
- Familiarity with export standards: do they know the basics about the regulations & tests applicable for your product in your market?
If you are purposefully trying to work with a small/medium size factory, some of them won’t have a good English speaker. They will be much more comfortable Skyping/Wechating with you. But it’s not good.
Why? We have observed a couple of things:
- Chinese suppliers seldom lie on the phone. Even the bad ones. They are more likely to distort reality when writing (an email, a response on Skype…).
- Some suppliers who are lying get on the defensive, and their body language (including their tone on the phone) screams “who is this nosy guy/gal, I don’t like that and I will hang up soon if they keep at it”. You might miss that on Skype — after all, they might be slow in responding because you don’t have 100% of their attention.
That’s why we always advocate doing this over the phone. When we do this for a client, we call them in Chinese and then we note our findings and feelings. Non-verbal communication is important. Many red flags are uncovered this way.
2. Other information you should collect about every supplier
Here are a few simple questions that you can ask their sales & marketing staff:
- Owner(s)’ family name, origin, and previous job (before he started this company) — this is often quite revealing.
- Number of employees, total
- Number of employees, in production workshops
- Sales amount, on domestic market vs. export markets
- Main product line
- Main processes (when they walk in the workshops, what are the main operations?)
- What is made in-house, what is half-made (they can handle the new product development, they do final assembly, and they work with suppliers to complete the puzzle), what is entirely subcontracted?
- The product to be purchased corresponds to what % of production? For example, you buy socks and they have 5 machines to make socks, but their 200 other machines make seamless garments, so their main focus and expertise is not in socks.
- In case you have selected a product in their showroom/booth, was it made before for other customers? From which countries? Was it based on their design (big potential intellectual property issue)? Do they have exclusive agreements not to sell to other companies in certain geographical areas?
- Do they often sign contracts with customers? Do they even accept to sign legally-binding contracts? (Better to know this as early as possible!)
3. Documents check
There are at least 2 documents you should check. This will require Chinese reading abilities, but there is no shortage of people who can help you with it.
a) The supplier’s business license
You should ask your supplier for that document, and check if it is the same company they mention in their email signature and in their pro forma invoices.
You can glean some useful information, such as the invested capital and the scope. Dan Harris wrote a great overview on this topic here (on the China Law Blog).
b) the ISO 9001 certificate
Naturally, ask for it only if they claim to be ISO 9001 certified. And, if they don’t have such a certificate, don’t conclude that they are unreliable.
There are some fake ISO 9001 certificates, of course, but not that many. What happens more often is that they got certified once, and then didn’t renew… and yet they still mention it on their website, brochures, etc.
An even more common risk is a certificate that was duly issued by an authorized registrar… based on an audit that was not conducted properly. Actually you should start from the assumption that this is true of all ISO 9001, ISO 14001, etc. certifications in China.
I wrote some tips for checking an ISO 9001 certificate at the bottom of this article.
4. Drawing a conclusion
If you followed all the steps listed above, hopefully you raised a few red flags and eliminated some shady candidates.
You will have a subjective feeling — do you want to work with them? Do they seem to be a good fit for your needs?
The concept of “fit” is extremely important. Make sure you work with a factory of the right size!