So you are looking for a supplier, you see some nice samples on Alibaba / Global Sources, and you would like to do a bit of research on the company before getting too deep into discussions.
This is wise. More and more people have developed tactics to scam buyers, especially those first-time buyers who hear of Alibaba and think it is as easy and safe as Amazon…
Fortunately, you can check the company’s legitimacy and reputation on the internet, in government databases, and through service providers.
As I wrote before, there are mainly 7 ways a Chinese supplier can cheat an importer. They can be sorted in two categories:
a. Bad behavior
- Disappearing after a deposit, or a fee for samples, is wired.
- Price increases after a deposit is transferred.
- Price increases from one order to the next, without relation to production cost increases.
- Lack of respect of IP rights (selling the buyer’s design to other customers).
- Lack of transparency (subcontracting outside of an approved facility, changing a component without notice, etc.).
b. Lack of competency/experience
- Lack of reliability: late deliveries, inconsistent communication…
- Inability/unwillingness to reach the desired quality standard.
How can you tell if a given supplier will cheat you? Not by asking them…
You might remember that New Yorker cartoon, back in 1993.
In China, it would be “with an Alibaba Gold Supplier account, nobody suspects we are 2 guys in an apartment“.
Even if you are the most hands-off buyer, you need to look out for frauds. And any little fraud (e.g. pretending they are a manufacturer when actually they are a trading company) IS a fraud. If they lie about this, they will lie about other things too.
So, how to check a Chinese company? Here are a few tips.
- Mention that you’ll have their factory audited by a third-party agency. See their reaction. If they want your business and they are a serious factory, they will welcome this suggestion.
- Mention that you’ll have their production inspected by a third-party agency before the final payment. Again, if they are confident in their abilities, they will say OK.
- Open Google and search for “[company name] scam”.
- Check several online directories (Alibaba, Global Sources, Global Market, Made In China…) and see if their profiles on those different directories are consistent. If the information shown is very different (phone number, exact address…), it is not a good sign.
- At the same time, look at the information that was independently verified by the directories. A lot of information can be collected and cross-checked this way.
- Did the supplier participate in a trade show? (They would appear in the exhibitor list which can usually be crawled by search engines.) That’s a positive sign.
- Look in the Chinese Supreme Court’s database (Chinese only). Some companies that were sentenced and haven’t paid the damages show up there.
- Request a sample, and request to pay for it on their company bank account. If this information is provided, it is a good sign. Then, ask them for the address for YOUR courier company to come and pick up the package. Does that address match that of their email signature etc.?
- Have an agency check the registration of the company, and check a few other things as well. More and more service companies and lawyers help importers do this.
If you follow these steps, you will reduce your chances of getting scammed significantly. In upcoming articles I will describe other ways to vet a potential supplier.
(And what if the supplier’s company is in Hong Kong? I wrote about this here.)