Many importers notice that some of their suppliers change their company names. Many see it as “one of these Chinese things–don’t try understand it”, and I think it is a mistake.

There are basically two situations where the purchaser is given different company names.

1. The salesperson diverts his customer portfolio to another company

This happens all the time. You are probably in contact with one or two English-speaking employees in each of your suppliers. And many of them use their personal email addresses, right?

Once they see repeat orders coming in, the temptation is strong for them to set up their own company and sub-contract production to another factory. They can do this while keeping their full-time job, so there is no risk.

I was told numerous stories of entrepreneurial salespeople who went on to launch their own successful trading companies. It is considered a smart move. Those who stay loyal to their employers are stupid (that’s how they are seen, anyway).

Should the buyer deliberately overlook this situation? I don’t think so. There are serious risks to deal with.

First, the transition can be quite rocky. Your orders are followed by one non-technical person, without the usual back-office support of an established manufacturer (material purchasing, quality control, etc). And they are made in a new workshop that was probably selected based on price. Be prepared for bad surprises.

Sometimes the transition is quite smooth. I heard of salespeople in large state-owned companies that diverted most of the new business to another company managed by their wives/cousins. Orders are often placed in the same factories–only the intermediary changes.

But sometimes the lone salesperson does a few bad transactions and simply disappears. Even his former employer cannot find him. Suddenly, the importer’s emails and phone calls are not answered, and orders have to be cancelled.

Second, in the mid-to-long term, your supplier contact person might never admit the situation openly. You might have audited a factory and made it clear that subcontracting was forbidden, but your new supplier does not care about it. You switched to a rogue trading company and you don’t even know it…

How to avoid this situation? By having a presence in the factory, at least 1 day during each production run. If you can’t do it yourself, send an inspector during production.

2. The supplier simply wants the payment to go through another company

Sometimes this is legitimate. Let’s say you open a letter of credit: the supplier might prefer the payment to go through another firm (presumably also controlled by the same owner or his close family), to get a cash advance more easily.

In that case, you should ask for a letter (signed and, most importantly, chopped by both firms) that certifies that the two companies should be considered the same entity and will assume the same responsibility.

Other situations are clearly unhealthy. If you pay by bank wire and they give you the owner’s personal account number in Hong Kong, you should refuse it flat out!