Join me in proving them wrong!
In a recent LinkedIn forum started by an European buyer of electronics looking for China sources, I added some words of caution about how buyers need to check out the legitimacy of supplier BEFORE placing an order. Researching some of the solicitors who responded to this buyer’s request, it was pretty clear that he was swimming in shark infested waters with many so-called qualified suppliers really just one-man bands fishing for buyers on LinkedIn. I will remove the names of the parties involved to be professional, but one of the traders even had the nerve to suggest that foreign buyers can’t do due diligence and should just trust sellers even if the seller is not licensed.
That really got me fired up. Here are some excerpts from my response. Hope this European buyer listens and doesn’t get added to the list of China sourcing casualties. The sad part is that the tools I suggest below are very affordable, too bad more buyers don’t think about these options.
The trading company’s comments in italics below.
“Nowadays, it is very hard to find out whether a Chinese company is legitimate or not.”
12 years ago when I first moved to China I would agree with that statement. But these days it is getting easier and easier to do due diligence. There are 3 options that I use on a regular basis. The first option is free and the 2nd option is only a few 100 USD and the 3rd option depends on how intense you want to look at the potential supplier.
1. FREE Simple DIY Check
Ask for references, call those references
Ask for a copy of the business license. Run away if they don’t want you to see it.
Run away if they won’t let you see the production site.
Make sure the address on the license matches the location of production. Beware of the bait and switch!
Those items don’t cost anything and have big impact.
2. LOW COST 3rd party Quality Audits
A Quality Audit should be conducted to confirm that the supplier has the ability to produce a given product to your desired level of quality. In China I have found people are very polite and never want to say “no”, even if you ask them if they can manufacturer something totally new to them. So as buyers we need to verify that the supplier can actual make the product we want to buy.
You can find tons of service providers by doing a google search of “china + quality + inspections”. For what it is worth, I’m comfortable recommending www.AsiaQualityFocus.com as they did good work for me and charge only a few 100 USD for this service.
3. AFFORDABLE 3rd party Due Diligence
The other type of verification is to check that the supplier has a good reputation among customers and is in a solid financial situation. In other words, they are not going t run away with my deposit and will be in business long enough to complete my order. There are different levels of intensity and detail among due diligence services. For your reference, I am a big fan of www.CBIconsulting.com.cn which is run by an American friend of mine who has some of the best stories among all the expats I know in China because he and his team gets to work undercover gathering marketing intelligence on suppliers. And he has come across some crazy happenings in the China supply chains.
Regardless of where you found the potential partner, do your due diligence. And you don’t need an office in China or Chinese language skills to do the 3 options above.
“ some foreign company is small one and cannot afford hire investigator.”
China sourcing is NOT for everybody. If you are two small to afford a few hundred bucks for QC and Due Diligence, you probably should NOT be buying direct from China.
Plus, it is the small buyers that the scam artist pray on. For an example, check out this article http://chinasourcinginfo.org/2011/02/24/alibaba/ to see how Alibaba staff worked with fake factories to trick small buyers!
“to be simple, a legitimate license is not that important.”
ARE YOU CRAZY!?
When I first came to China, I would agree with that point, but after taking a few suppliers to court because they broke contract and sold me poor quality, I soon came to realize that dealing with non-licensed entities in China is VERY dangerous because if things go bad:
a) It is hard to find them because and individual can disappear into the fog of Dongguan or Yiwu very easy and you will never see them again, let alone collect damages.
b) A real factory has assets. If you go to court, the lawyers can sink their teeth into the assets and more importantly the supplier will be more willing to negotiate. For example, if I sue a small unlicensed individual for 1000 USD he will probably just run away. If I sue a legit factory, they are more likely to negotiate a settlement as they can’t just run away.
“What I am using is that I will talk in-depth with that supplier to see whether he or she really knows all the detail about products. Is he or she professional?”
I fully agree with that statement that you need to check them out. But you are focused on checking out the individual. I suggest you focus on the business of the supplier as well as the individual people involved because in this economy, managers come and go from factory on a very high rate. A good factory with good management could turn very bad if the key people leave.
Some people online and even to your face will tell you some pretty crazy stuff about China sourcing. And unfortunately, if you don’t have experience in China, the buyers may believe some of the agent’s BS. So as a word of caution: BE CAREFUL and if the buyer is not an expert on how to conduct an ISO QC audit or dig up the reputation/financial situation/ licensing of the supplier, they should get 3rd party help. Which is now easy to find and very affordable compared to even a few years ago.
Wishing you all successful China Sourcing!
Author, “The Essential Reference Guide to China Sourcing” (ChinaSourcingInfo.org/book/)