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Scams Exposed and Why Suppliers Send Defects ON PURPOSE

Q2 2018 China Business & Law Update for Busy Executives

Topic 1:  Buying from China. What could possibly go wrong? A lot. Let’s learn from these buyers’ mistakes as posted at www.SupplierBlackList.com.

An ounce of due diligence would have avoided this mess. Don’t make the same mistake.

  • This HongZhan supplier does the old “get the deposit and disappear” trick. Sad that so many buyers fall for it.

Check out “loss prevention” to learn how to avoid the pitfalls.

  • This Australian buyer can’t figure out why his supplier shipped the wrong stuff after agreeing on the number of units and price of the shipment.

Read “Topic 2” to learn the behind-the-scenes reasons why Chinese suppliers ship defects and short orders ON PURPOSE.
Have you been let you down? Go here to expose the scam or under-performing suppliers!

Topic 2: Why in the world would my supplier ship the wrong amount of the wrong stuff?

During my 20 years in China, I’ve seen quite a few tricks that suppliers use to manipulate buyers.  Most buyers don’t even know it was a set up all along.

Here is what is really happening:

Because the margins are tight, the seller wants to lock in the buyer for multiple orders. But most buyers are smart enough not to commit to future orders until the first one arrives.  Many suppliers will even take a loss on the first order to get in the door. Here is how they lock in buyers:

  • When the seller ships out the order, the “make a mistake” and under-ship the number of units and/or they make sure a certain percentage are defects.
  • Since many inexperienced buyers don’t bother to have proper bilingual contracts with China as the jurisdiction, the seller has all the leverage and can set the terms on how to fix this “honest mistake”.  Guess what, they never offer to refund the money but they will offer to run a 2nd order at a discount.  Once the buyer agrees to the 2nd order, they then turn their attention to making up reasons why they can no longer hold the original price for future orders.

Good news!  It’s easy to avoid this kind of drama.

  1. Do your research and know what the going rate for the given product at the desired quality level. If the price is too low, there is a good reason.
  2. Have a well written, bilingual contract, under official chop with a pre-agreed penalty clause for defects and late shipments. A custom contract can be done up by an English speaking Chinese lawyer for hundreds not thousands of USD. So in my opinion, a buyer is just plain crazy to skip this important step.
  3. Apply a level of independent QC at the factory or consider having the product inspected 100% at an assembly/inspection facility.

Content related to contract, payments and purchase orders:
http://www.psschina.com/2014/05/negotiation-contracts-and-payments-the-ultimate-guide/


Coming up next:

Some of you wrote in asking for additional ways to protect yourself and over the next few updates I’ll offer the following:

  1. Avoiding Scams:  5 Red Flags the pros know + 5 Red Flags the pros sometimes miss
  2. Avoiding Quality Fade: 10 ways to prevent a good supplier going bad
  3. 10 Essential Terms to have in your contracts with Chinese suppliers

Let me know what other topics you want to me to cover and I’ll be happy to build them into the 2018 content calendar.

I hope you enjoyed this update.

Best Regards,

Mike Bellamy (LinkedIn Profile)
Celebrating 20 years in Asia!

P.S. – BTW, if you didn’t get last quarter’s update, you can find the library online here.

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