How to Avoid Scams, Middle-Men, and Fraud on Alibaba

If you’ve been taking action on the previous importing articles, you already know that Alibaba is the world’s biggest B2B marketplace. In fact, it may be a little too big…

There are millions of suppliers listing millions of products on Alibaba. Finding suppliers is easy, the hard part is selecting the right one.

The most dangerous obstacle in your path to the perfect supplier are the ocean of scammers and middle-men.

Luckily, it’s not too difficult to avoid these low lives.

Below, you’ll find a step-by-step guide on avoiding scams, middle-men, and fraud on Alibaba.

Step 1 – Review the Company Profile

The Company Profile consists of information both verified and unverified  by Alibaba.com. For an untrained eye, this short list of information might seem to be completely irrelevant to the purpose of the visit, which is to find the right products. However, you can get a good idea about whether this company is worthy to include in your sourcing process by analyzing the points listed below:

Company name

(Note - Applies to companies registered in Mainland China only)

• City: Small and medium-sized companies have the city they are located in as part of their company name. For example, “Ningbo Everbright Trading Co., Limited”.
• Province: Larger companies can be named after the province where they are located. For example “Zhejiang Everbright Trading Co., Limited”.

Business Type

• Manufacturer: This indicates that the supplier is only selling products it manufactures. A manufacturer is limited by its production line, set-up and tooling. For this reason, manufacturers tend to be highly specialized in their field of products.

• Trading Company: Some Trading Companies are independent while others own, or are owned by, a manufacturing company. While everybody wants to cut out the middleman, one has to keep in mind that many factories in Asia have neither the knowledge nor resources for exporting their produce. This function can then be filled by a Trading Company. On the other hand, some Trading Companies offer no added value and will only raise your costs.
• Manufacturer & Trading Company: Many factories have expanded their operation by not only selling and marketing products made in their own facilities, but also by trading similar products manufactured by other factories. While this Business Type indicates that the company is indeed a manufacturer, you cannot be sure whether they are manufacturing or subcontracting your products. So it’s tough to be sure if this supplier is a good choice or not.

Management Certification

Quality issues is a serious risk when importing from China. In fact, you’re more likely to lose money due to quality issues then getting scammed. Quality issues can  never be completely eliminated, but they can be minimized if the supplier applies a Quality Management System (QMS) such as ISO9001.

• Even multinationals such as Boeing and Toyota have quality issues. A “good manufacturer” is not a manufacturer that is completely free of quality issues, but one that is continuously monitoring quality during production. You know it’s time to walk away from a Chinese supplier when they claim to be completely free of defective and damaged products.
• When a defective product is discovered, the supplier should have a routine for how it should be managed. Some suppliers remake, others repair. The most important thing is not how they deal with defective products, but that their employees know exactly what do to when something goes wrong.
• ISO compliance require more than having a quick check up before the products are packed and shipped. The supplier is required to inspect incoming raw materials and components before production, set up inspection stations during productions and do final inspections after production.
• Some products require stricter quality assurance than others. These products have a low error tolerance and a mistake at one production stage can ruin a whole order. If you are importing “complex products” such as electronics or mechanical equipment, a Management Certification should be a basic supplier requirement.

Registered Address

• City, Province: Many cities in China are highly specialized in one or more industries. If you are sourcing consumer electronics for example, you will discover that Shenzhen, Guangdong, is very dominant. A manufacturer is dependent on the surrounding support industries such as logistics, component suppliers, raw material suppliers and labor. For this reason, a supplier that is based in an industrial cluster is likely to be more competitive than a supplier that is not.

Legal Representative

The Legal Representative is the only employee who can sign agreements on behalf of the company. Make sure that he or she writes a signature on any Invoice or Sales Agreement, along with the company stamp.

Registered capital

• Indication of company size: Companies with less than RMB 500.000 [around US$ 80,000] should be avoided if possible. This is the strongest indicator of the supplier’s scale of operations. The more capital they have, the more likely they are to care about their reputation. Also keep in mind that even the most reliable supplier cannot compensate you for defective or damaged products if they don’t have the resources (money) to do so.
• Foreign Currency Capital: Indicates that the company have foreign investors, which usually is a mark of quality. The currency invested can also give a hint about where the investor comes from;
  • Hong Kong Dollar (HKD) indicates that the investors are from Hong Kong. These guys has been exposed to international trade since the place was founded by the Brits back in the 19th century.
  • United States Dollars (USD) indicates that the foreign investors are… well, foreign. European, Asian and Latin American investors also tend to stick to the dollar for their investments in Chinese companies.
  • Taiwan New Dollar (TWD)

Step 2 – Review Other Company Certifications

First, why this is important…

Some products need to be compliant with a predetermined national and/or market standard. Different standards apply to different products, and it’s always the buyer’s responsibility to ensure that the imported products are compliant. Most products won’t require this; but if you’re thinking about buying a product in bulk, you might want to research and make sure.

The “Other Certification” link can be found under “Company Certification”.

Certification compliance is not mandatory for Alibaba suppliers, so don’t be surprised if many suppliers don’t have any “Other Certification” page at all.

Key Facts

• Compliance requires more than testing; products need to be produced with specific materials and components. If you don’t clearly specify that your products must comply with a certain standard before you place the order, the products will not be compliant.
• Far from all suppliers in Asia have the knowledge about which and where certain product standards apply, even less have the capability to actually manufacture products that comply with European and/or North American product standards.
• Many suppliers seldom update their Company Profiles. If you have a hard time to find suppliers with the right certification listed in the “Other Certification” page, then send out a message and ask them directly whether or not they can comply with the required certification standard. It’s quite common that suppliers can offer more than what’s shown in their Alibaba profile.
• An easy way to find compliant products is to type in the Product name and the certification standard in the Alibaba product search. [E.G. Mp4 player + CE]

Action List

1. Research which product standard is required for your product in your country and/or market.
2. Review the “Other Certification” page.
3. Are any of the product standards listed?
   - If not, review the product description and the company introduction. Some suppliers that have test reports available are not uploading them to the “Other Certification Page”.

Step 3 – Review Supplier’s Product Selection/Niche

There has been a lot of focus on paperwork in this article, but what you’re looking for is products.

An Alibaba suppliers product catalog can give you a lot of information, and it’s the most important factor when selecting a supplier. The golden rule is to find a supplier that is specialized in manufacturing or trading a certain product. Product specialization comes with a number of benefits that will have a large impact on your business.

Checklist

Is your product mentioned in the supplier’s company name?

This is a strong indication that the company was registered for the sole purpose of manufacturing the product you are sourcing. [E.G. Shenzhen Golden Watch Factory Co., Ltd].

Is your product making up the majority of the supplier’s product catalog on Alibaba.com?

It’s a strong indication that the supplier is highly specialized in manufacturing and/or trading the products you are searching. A supplier that is highly specialized in a certain product is more likely to be better at managing the quality standard and offer more customization options. It can also affect the pricing since they buy large volumes of materials, components and tooling that is used only for the manufacturing of your product.

You’ll also want to grow with your supplier and a supplier with only a limited product selection will prevent this from happening.

Is the supplier listing products that are completely different from the type you’re looking for? [e.g. Wrist Watches and iPhone cases]

The factories of the real world are not like Santa’s Workshop where anything imaginable is manufactured. You can’t use the same workforce or tooling for the manufacturing of both 3D Printers and Polyester Ties. This matters because you should not deal with a disorganized and opportunistic supplier selling a little bit of this and a little bit of that.

An “opportunistic” supplier is also more likely to discontinue products than a professional manufacturer. The result could be disastrous since you’re left without products to sell to your customers. This is especially dangerous if you’re selling products to retailers where reputation and reliability is everything.

How to use the Alibaba supplier search to identify specialized suppliers

Last year Alibaba.com introduced the suppliers search, a useful feature for finding highly specialized and professional manufacturers. In the beginning, all it did was presenting a list of suppliers with the product in the company  name. Now, it also searches the suppliers product catalog and shows the number of matching products each supplier have!

1. Go to Alibaba.com
2. Change the search box from “Products” to Suppliers
3. Enter the product name and search
4. Now you will get a long list of all suppliers selling the product you just searched for. This can save time when sourcing suppliers since you can skip the manual review of the product catalog.

Case Study

Guangzhou Guanghao Watch Co., Ltd is manufacturing and exporting LED watches. That’s in fact the only thing they do since they have listed 900 different models. When you work with this company, you can be sure about the following:

• All this supplier will ever care about is wristwatches, and certainly LED watches. They will develop new models and your company can grow your product selection together with Guangzhou Guanghao.
• 900 different models equals hundreds of thousands of different components. This supplier certainly know how these things work, and more importantly – what doesn’t work. Perhaps not today, but in the future you might want to create your own product its own unique design and features.

You’ll always be limited by the components and product knowledge a supplier can provide you with. If you would choose Xiamen Well Imp & Exp Co., Ltd**as your supplier, you will be very limited. They offer a staggering amount of 6 different LED watches to choose from. Then how can they be competitive? Why do they even bother to add a few watches on Alibaba when articles like this one clearly states that importers should stay away from these suppliers? Because few importers bother to read articles like this, thousands of importers fall for the trick of low prices and positive answers to every question. Don’t be one of these guys that think they’ve are smarter than everybody else – until they realize they just got what they paid for.

* We have no relation with Guangzhou Guanghao Watch Co., Ltd and they are mentioned for reference only. They do however have a nice selection of LED watches.

** We have no relation with Xiamen Well Imp & Exp Co., Ltd and they are mentioned for reference only. They are probably a great supplier, but maybe not for LED watches.


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How to Find and Work With Suppliers

Suppliers are essential to almost every business. Without raw materials to make what you sell or manufacturers to provide what you resell, you will have a tough time growing. There are also many supplies and services your business consumes as part of general overhead, from paper clips to Internet access.
Suppliers and vendors-the terms are used interchangeably here-can do much more than merely supply you with the materials and services you need to do business. They can also be important sources of information, helping you evaluate the potential of new products, track competitors' actions and identify promising opportunities. Vendors can turn into partners, helping you cut costs, improve product designs and even fund new marketing efforts. If you don't make selecting good suppliers and vendors a part of your growth plan, you're likely to regret it.
Evaluating Your Suppliers and Vendors
Suppliers can be divided into four general categories. They are:

1. Manufacturers. Most retailers buy through company salespeople or independent representatives who handle the wares of several different companies. Prices from these sources are usually lowest unless the retailer's location makes shipping freight costly.
2. Distributors. Also known as wholesalers, brokers or jobbers, distributors buy in quantity from several manufacturers and warehouse the goods for sale to retailers. Although their prices are higher than a manufacturer's, they can supply retailers with small orders from a variety of manufacturers. (Some manufacturers refuse to fill small orders.) A lower freight bill and quick delivery time from a nearby distributor often compensates for the higher per-item cost.
3. Independent craftspeople. Exclusive distribution of unique creations is frequently offered by independent craftspeople who sell through reps or at trade shows.
4. Import sources. Many retailers buy foreign goods from a domestic importer, who operates much like a domestic wholesaler. Or, depending on your familiarity with overseas sources, you may want to travel abroad to buy goods.

What Makes a Good Supplier?
A lot of growing companies focus on one trait of their suppliers: price. And price certainly is important when you are selecting suppliers to accompany you as you grow your business. But there's more to a supplier than an invoice-and more to the cost of doing business with a supplier than the amount on a purchase order. Remember, too, that suppliers are in business to make money. If you go to the mat with them on every bill, ask them to shave prices on everything they sell to you, or fail to pay your bills promptly, don't be surprised if they stop calling.
After price, reliability is probably the key factor to look for in suppliers. Good suppliers will ship the right number of items, as promised, on time so that they arrive in good shape. Sometimes you can get the best reliability from a large supplier. These companies have the resources to devote to backup systems and sources so that, if something goes wrong, they can still live up to their responsibilities to you. However, don't neglect small suppliers. If you're a large customer of a small company, you'll get more attention and possibly better service and reliability than if you are a small customer of a large supplier. You should also consider splitting your orders among two smaller firms. This can provide you with a backup as well as a high profile.
Stability is another key indicator. You'll want to sign up with vendors who have been in business a long time and have done so without changing businesses every few years. A company that has long-tenured senior executives is another good sign, and a solid reputation with other customers is a promising indicator that a company is stable. When it comes to your own experience, look for telltale signs of vendor trouble, such as shipments that arrive earlier than you requested them-this can be a sign of a vendor that is short on orders and needs to accelerate cash receipts.
Don't forget location. Merchandise ordered from a distant supplier can take a long time to get to you and generate added freight charges quickly. Find out how long a shipment will take to arrive at your loading dock. If you are likely to need something fast, a distant supplier could present a real problem. Also, determine supplier freight policies before you order. If you order a certain quantity, for instance, you may get free shipping. You may be able to combine two or more orders into one and save on freight. Even better, find a comparable supplier closer to home to preserve cost savings and ordering flexibility.
Finally, there's a grab bag of traits that could generally be termed competency. You'll want suppliers who can offer the latest, most advanced products and services. They'll need to have well-trained employees to sell and service their goods. They should be able to offer you a variety of attractive financial terms on purchases. And they should have a realistic attitude toward you, their customer, so that they're willing and eager to work with you to grow both your businesses.
Changing Your Supplier Relationships
You may not need to find new suppliers to get a new deal. You can usually get discounts, obtain improved service and receive other features you need by making a request of your current suppliers-although it may not be as simple as merely asking. Here are some of the options and negotiating strategies for turning mediocre suppliers into top-shelf ones.

• Getting discounts. If you walk into a department store and purchase a pair of shoes, you'll pay the same price any other shopper would. But business-to-business commerce is more complicated. Businesses that sell to other businesses commonly have a whole range of quoted charges, offering discounts of 50 percent or more depending on the quantity purchased, the terms, the length of the relationship, and other considerations. You may be able to comfortably conform to some of these requirements, qualifying you for a lower price. To find out, ask about discounts and what is necessary to earn them. You may be able to get anything from an interest-free loan in the form of trade credit to a substantial discount for paying early.

• Improving service. It is the rare businessperson who knows exactly what is happening in all parts of his company at all times or what is going on with all his customers. You probably don't, and you shouldn't assume your suppliers do, either. If you have a service-related problem with a supplier, bring it to someone's attention. If you don't get satisfaction, move up the chain of command until you get what you want or are as high in management as you can get. Odds are, someone will be concerned and possess enough authority to remedy the situation. Only if you ask for better service and don't get it should you sever the relationship.

• A better relationship. Not every customer wants to buddy up to suppliers, so the fact that your suppliers aren't offering to work closely with you to improve quality, reduce defects and cut costs doesn't necessarily mean they don't want to. They may be under the impression that you are the reluctant one. So if you want a tighter working relationship with suppliers, let them know. You may also drop a hint that those who don't want to work with you may see some of their orders being diverted to those who are more agreeable. Either way, you'll know whether it's your supplier's reluctance, or their perception of your reluctance, that's getting in the way.

Making a Change
Having fewer vendors is usually better than having many vendors. Reducing the number of vendors you deal with cuts the administrative costs of working with many. Closer relationships with fewer vendors allow you to work together to control costs. Getting rid of troublesome vendors can quickly increase the efficiency of your purchasing and administrative staffs. So how do you decide when to change vendors? Here are keys areas to consider:

• Unreliability. When a vendor's shipments start arriving consistently late, incomplete, damaged or otherwise incorrectly, it's time to consider looking for a new one. Every company has problems from time to time, however, so check into the matter before dumping your vendor. Vendors can experience temporary difficulties as a result of implementing a new product line, shipping procedure or training program. If you stick with a vendor through a rugged interval, you may be glad you did. They might be more willing to see you through a future cash flow crunch.

• Lack of cost competitiveness. Sometimes vendors fail to change with their industries. When your vendor's rivals start coming in with bids for comparable goods that are lower than your existing supplier's, you need to investigate. Point out the issue to your existing supplier and ask for an explanation. If you don't like what you hear, it may be time to consider taking some of those offers from competing suppliers.

• Insularity. Some suppliers will let you visit their plants, talk to their workers, quiz their managers, obtain and interview references, and even examine their financial statements. These are the kinds of suppliers you should seek out. The more you know about your suppliers, the better you can evaluate whether you should continue to do business with them. If they shut you out, perhaps you should cut them off.

• Extra-sale costs. The number at the bottom of the invoice is only the beginning of the cost of dealing with suppliers. You have to lay out money beforehand to draw up specifications, issue request for proposals, evaluate them, check references, and otherwise qualify your suppliers. You have to place the order, negotiate the terms, inspect the goods when they arrive, and deal with any shortages, damage or other errors. Finally, you may have to train workers to use the newly arrived goods or purchase more equipment and material to make use of them. While some of these costs are inevitable, some are traceable to individual suppliers. If too many costs are being tacked onto the sale prices, check out some other suppliers.

Read more: http://www.entrepreneur.com/article/66028#ixzz2nKiMecR5

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