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Fraud is an inherent risk in any business transaction, when trading either online or offline. While sourcing a supplier, the best way for buyers and sellers to reduce the potential for fraud is to conduct proper due diligence before entering into any transaction.
“Due diligence should not be forgotten when dealing with manufacturers and middlemen on Alibaba and other similar sites. You will also have to deal with different cultural perceptions of business and a language barrier.”
When sourcing a supplier, you can do lots of things to better your chances of having a good experience, but it does take work. I have compiled the following tips from my experiences, friends’ experiences and from researching message boards. If you feel I have missed out one something, please let me know.
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 the manufacturer’s margins, 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 disappeared.
2. Many “manufacturers” are actually middlemen sellers. Keep in mind that you won’t always be dealing with the actual manufacturer.
3. If one person is selling it on Alibaba, Aliexpress, Taobao or Indiamart, there is probably 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 a product to your specifications, ten will say yes. The reality is maybe one of those actually can. Never take their word for it. Always ask to see examples and ask for references. If you have concerns, there are services available which enable you to can hire someone in the native country to tour the factory floor on your behalf.
5. Most, if not all, sellers/manufacturers have a minimum order quantity (MOQ). This is negotiable, although you may have to pay more per unit for a lower MOQ. You need to decide what is more important: getting the product more cheaperly or limiting your risk by reducing your inventory. The outcomes from you product testing 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.
While researching for sourcing a supplier, someone else suggested using Google Translate to convert the product name to Chinese and using the Chinese term to search e-commerce sites. My acquaintance reported that the list price in Chinese often worked out cheaper.
For example, the English price listing for a basketball kit was $30, whereas the Chinese listing was $10. Always do your research.
Be Clear in your Communication
The language barrier is very real. Sourcing a supplier on sites like Alibaba, Aliexpress, Taobao and Indiamart, you will mostly be dealing with manufacturers and middlemen from China and India. They speak little, if any English and frequently use translation programs to translate (or mis-translate) e-mails.
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.
When sourcing a supplier, keep your initial contact email concise and clear. Tell manufacturer/seller the exact product you are looking for, your expectations of quality, ask for pricing details (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 so 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, I had another sample sent to ensure quality before having my 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
As with 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, it’s not unheard of to get an email from them a few days later with a better price.
1. Check the manufacturers company information. Do they have valid address, telephone, website?
2. Does their e-mail 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 on Alibaba? (Or equivalent on other sites)
4. Can they provide references in your country? Are they willing to hand over contact information for those references? When you do get contact details for referees, follow through and actually contact them! Make sure you ask your referees:
1. If they had any problems with the trade
2. What price they paid
3. How long have they been a customer
4. If they would recommend the manufacturer
Check the legitimacy of referees for 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 the manufacturer has a license to sell those products. Int’s often the case they won’t have one. I would caution against buying licensed products from manufacturers in China. 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 really isn’t an option for many people, try to visit manufacturer’s factory and 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.
7. Invoices should be clear, written in English and specify 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 the manufacturer’s name mentioned at all?
9. What are the payment terms? Does the manufacturer accept Escrow or PayPal? Neither of these services are perfect protection, 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 are sealed. This provides me 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 the manufacturer to resell my products if they have my logo on them.
11. Use a tool like http://whois.domaintools.com/ to look up the manufacterer’s website registration information. When was the website registered? By whom? What is the phone number connected to the account?
12. Call the phone number when the manufacturer gives you one. 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 you have a good business experience and avoid being scammed. Remember, there is no replacement for common sense. If something feels weird, walk away. If a deal seems too good to be true, it probably is.
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