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The best way to reduce fraud when trading either online or offline, is for buyers and sellers to conduct proper due-diligence before entering into any transaction. When dealing with manufactures and middlemen on Alibaba and similar sites, you are dealing with a market place plagued with fraud, different cultural perceptions of business and a language barrier.
There are a lot of things you can do to better your chances at having a good experience but it does take work. I have compiled the following from my experiences, friends’ experiences and from researching the message boards. If you feel I have missed out one something, please let me know in the comments. I hope to keep editing this post and making it as complete as possible to help as many people as possible.
Things to Keep in Mind…
1. Everything is negotiable with sellers from China and India. When negotiating with a seller/manufacturer, your goal should be to get a fair deal, not a good deal.
Both sides should walk away saying “That’s fair”. If you try to squeeze their margins too slim, you run the risk of starting out a partnership with one side feeling slighted. This has even been reported on the forums as one of the possible reasons for people getting scammed. The manufacturer couldn’t ship the product profitably so they disappear.
2. Many “Manufacturers” are actually middleman sellers – Many times you will find that you are actually dealing with a middleman. It’s just something to keep in mind that you are not always dealing with the actual manufacturer.
3. If one person is selling it on Alibaba, Aliexpress, Taobao or Indiamart, there is likely at least one other person selling the EXACT same product or very suitable substitutes. Search around and get a few prices and samples.
4. If you ask ten manufacturers if they can make produce a product to your specifications, ten will say yes. Maybe one actually can. Never take their word for it. Always ask to see examples, ask for references and if you have concerns, there are services where you can hire someone in the native country to tour the factory floor on behalf of you.
5. Most if not all sellers/manufacturers have a minimum order quantity (MOQ). This can be negotiated. You may have to pay more per unit for a lower MOQ. You need to decide what is more important. Getting the product for cheaper or limiting your risk of having too much inventory you may not be able to sell off. Depending how well your testing of the product went this may help you decide.
Here’s what to do:
Research the product, the market selling price, the varying levels of quality for that particular product, common substitutions of materials etc. You should know everything you can about the product before making a deal.
Researching for this post, someone else suggested using Google Translate to convert the product name to Chinese and using that Chinese name to search site like Alibaba, Aliexpress and Taobao. They reported that the list price in Chinese often worked out cheaper.
An example they gave was a basketball kit for $30 for the English listing the Chinese listing was $10.
Be Clear in your Communication
The Language barrier is very real – On Alibaba, Aliexpress, Taobao and Indiamart, you will mostly be dealing with manufacturers and middleman from China and India. They speak little English, if at all, and will mostly be using translation program to translate emails. This can sometimes cause a frustrating game of broken telephone. Always use simple, straightforward English. Make use of bullet points and numbers as they get translated with no problems.
In your initial contact email, keep it concise and clear. Tell them the exact product you are looking for, your expectations of quality, ask for pricing (to be negotiated later), and request the cost of a sample unit including shipping to your address.
Here is an example of an email I might send out:
Get Samples, Lots of em’
Talk to many suppliers and get samples. For my first online business, I got almost a dozen samples before choosing one. Sure it cost me a few hundred dollars but this is probably one of the most important decisions you will make for your business. I would go as far as to suggest that when you lock down on a supplier that meets your quality/price expectations, contact them from an anonymous account/email and have another sample sent to you to verify consistency. For my first business, after my manufacturing run was completed and the packaging had my logo and design, we had another sample sent to ensure quality before having our whole shipment imported into the US and paying the final 50%.
Make sure you put the samples through their paces. Test them and push them to the limits to get a true sense of quality.
Be Ready to Walk Away
Like any deal or negotiation, always be willing to walk away. If the price isn’t what you believe is fair, walk away. From my experience, Alibaba manufacturers and middlemen follow-up relentlessly, if you walk away, it wouldn’t be unheard of to get an email a few days later with a better price.
Tips for Researching a Manufacture
1. Check the manufacturers company information. Do they have a valid Address, Telephone, Website?
2. Does their email address match the company name? Would you or should you trust a “manufacturer” communicating with a Hotmail or Chinese equivalent email address?
3. Do they have GOLD Member status in Alibaba? (Or equivalent on other sites)
4. Can they provide reference in your country? Are they willing to hand over contact information for those references? When you do get references contacts, contact them! Make sure you ask them:
1. If they had any problems
2. What price they paid
3. How long have they been a customer
4. If they would recommend the manufacturer
Check the references for legitimacy as well. Make sure they have a valid website, contact information etc.
5. If you are buying something with licensed rights like a Disney plush toy, or Ray Ban Sunglasses, make sure they have a license to sell those products. In all likelihood they don’t. I would caution against buying licensed products from manufactures in China as China has a long reputation of selling many counterfeit products. Even if the product is original, but the brand already has a licensed distributor in your country, you could face import and legal challenges.
6. Although, this isn’t a reality for many people, try to visit their factory and do a tour of the factory floor. If you can’t do that, at least pretend that you are considering coming and ask if you can set up a time to come by. If they say no, it might be a red flag. There are also services online that will send an agent on behalf of you to inspect the factory and product for a price.
7. Invoices should be clear, and in English, with all clauses and guarantees. Does all the information on the invoice match the previous information you know and have collected about the company?
8. Check/search the forums on Alibaba, has anyone else been scammed? Is they name mentioned at all?
9. What are their payment terms? Do they accept Escrow or PayPal? None of these services are perfect for protecting you but they are safer than Western Union wire transfers.
10. Ask for photos. Ask for photos of the factory, the products, and when your manufacturing run is over, ask for photos of your finished products before making final payment. I always get detailed photos showing my shipment before the boxes as sealed. This provides you with a little more confidence that you’re not being scammed because I can see that my logo has been printed on 10,000 units. It would be hard for them to resell with my logo.
11. Use a tool like http://whois.domaintools.com/ to look up their website registration information. When was it registered? By who? What is the phone number connected to the account?
12. Call the phone number when they give you one. I remember I once got a phone call at 3am from a really strange number. I answered and it was my manufacturer checking to make sure my number was correct. It was the most difficult conversation I have ever had but it scored a point for them. Skype can also be a great asset.
Completing all these steps and point can help ensure you have a good business experience and don’t get scammed. Remember, there is no replacement for common sense. If something feels weird, walk away. If a deal is to good to be true, walk away.