In our previous published China use case articles, we explained why and what we need to pay more attention to when dealing with Chinese manufacturers. The language barrier, cultural difference, and different approach towards business make it significantly important for any sourcing managers and buyers to do sufficient investigation before deciding to start a cooperation with a Chinese manufacturer. There lays risk behind the curtain if a Chinese company is in reality not the profile that it presents itself to be.

Dealing with a trading entity in China while you didn’t verify the Chinese supplier could lead you to a situation of disappointments and financial loss. You as an importer intend to be in favour of a long-term cooperation with a trustable supplier, while the importer would prefer his supplier the think the same way. Selecting the wrong manufacturer could lead to cheating, disappointments, and distrust. All leading to financial and operational loss in the end.

Working directly with a verified Chinese supplier you are looking will result in a constructive purchasing cooperation and less risk on losses.

Today, we are going to bring the topic “Verify Chinese suppliers” to the table again. insights that can help you solve and avoid making the wrong choices when finding yourself in a similar situation. Some key points below will guide you through the use case:

• Verify (Chinese) suppliers before cooperating with them.
• Verify suppliers based on the facts, such as registered files and your experience, but not on feelings or assumptions.
• Supplier verification helps you with the right judgements and decision–making.

Same as usual, we will share what we had helped our client with practical solutions to the problems. Let’s move on to the use-case scenario:

1．The use-case scenario: Chinese supplier verification

One of our clients had been sourcing for a reliable Chinese supplier (manufacturing entity) to produce several products for them. They searched and found suppliers on alibaba.com but weren’t sure whether those found were manufacturers or trading companies. The business pages looked trustworthy based on their feelings and assumptions. When business relations informed them of the possibility that Alibaba.com and its functions makes it able for companies to hide and publish misleading information, they concluded that they had to verify Chinese suppliers on this platform. However, they had no idea how to verify them professionally.

For example, Chinese suppliers (trading entities or factories) try to build a better image in front of potential clients.

Our client tried to verify the suppliers with the presented pictures, certificates, movies, or other information. By verifying those documents and information by themselves, they noticed their judgements being based on feeling and assumptions, not on facts or experience. Experience and facts which the client was lacking. Which would make their judgement not motivated well.

In order to select the right manufacturer efficiently, motivated by facts and experience, the client reached out to us for a knowledge-based Chinese supplier verification and investigation.

We investigate Chinese suppliers based on official registered data and our experience. The Chinese supplier verification process is based on official registered details that can’t be changed neither adjusted. Additionally, based on our experience we look at parameters and indicators that tells us more about the company itself, documents and challenges the published information by the supplier.

There are some common facts that a supplier can’t hide on Alibaba or other similar souring platforms. Facts such as official company registration information, certificates and documents published, and catalogues. Platforms like Alibaba did their best to make this information less accessible or to relocate it to less obvious locations on the website.

2．Problems encountered: Verify suppliers in China

– Not sure how to verify whether the Chinese suppliers were manufacturers or trading entities.
– Not confident the judgements of supplier online based on feeling and assumptions.
– Insufficient experience and knowledge to verify suppliers from distance.

3．Origin of the problems: Non-transparent sourcing platforms

Sourcing platforms, such as Alibaba, Global Sources, or Made in China, make it easier for small- and medium-sized Chinese enterprises to create a more professional image.

Take, for example; Alibaba doesn’t:

– fully provide transparent information about the suppliers (their customers) favouring its sales over importers’ expectations.
– take responsibility to verify suppliers’ documents or information.

Meanwhile, the client hadn’t gained enough China experience and knowledge to make objective judgements and decisions, resulting in a not being able to solidly substantiated make the decision of proceeding with a supplier.

4．A practical solution to a strategic sourcing plan: by IAAD China Working Method

(1) Interest – IAAD China Working Method

As mentioned in our earlier use cases, the financial interest is always the first weapon that makes your suppliers more willing to open-up about their real capabilities.

How to ensure your suppliers favour your benefits when that happens?

It’s the legal contract—legal interest—that will always protect you from ending up in a vulnerable position. It also pushes the supplier to commit to certain deliveries and responsibilities that they might not want to take if the reality they are not capable to commit. Introducing these contracts with challenging terms to their capabilities will let a supplier reveal or hide its real identity.

Financial interest:

Starting with a potential order would be a powerful incentive to the suppliers. To seize this cooperative opportunity, they will become more open to introducing their actual production capabilities and even more information you would like to know.

Legal interest: A legal interest is your shield.

Having everything you want written in black and white is essential in any business. When it comes to legitimacy and obligation, the suppliers are more careful with their communications and commitments. Proposing strict contract terms, responsibilities, and policies you trigger a supplier to think twice if they are not the kind of company that it pretends to be. Besides, it’s crucial to propose signing a detailed contract clarifying that a supplier is the original supplier, location of where the production will take place or who would produce the products etcetera.

Check out more details about the strategic terms and conditions for a contract here.

In addition, writing the registered address of the production location or the supplier in the agreement will make a Chinese supplier reconsider about if they “can” sign. Every promise or confirmation they make will become a legal commitment to you.

With these strategic terms, a Chinese supplier cannot outsource the products from other suppliers located at different addresses. When you verify Chinese suppliers by yourself, these tactics will usually lead to suppliers becoming more transparent about their company and capabilities.

(2) Agreement – IAAD China Working Method

In this case, the agreement wasn’t involved, but it was the knowledge-based experience that helps you dig out who the suppliers really are at the verification phase.

(3) Assessment – IAAD China Working Method

The Chinese supplier verification process is the assessment we needed to execute in this use case. Some of the following critical points we investigate in this process:

• Check official company registry files.
• Communicate critical questions to suppliers and for request proof for documents published online.
• Make logical judgements based on facts.
• Analyze communications with the supplier based on experience.
• Factual investigation and analysis of the supplier.

Examples of official company registered information (facts):

– Alibaba business registry page: reveals almost all company’s official registration information.
– Official Chinese company name
– Registered business scopes
– Registered name in Chinese
– Registered capital
– Business entity type (trading, industrial, technological, import & export, or service company (fúwù gōngsī 服务公司 / in Chinese).

And more.

Examples of non-registered information (experience):
– Product catalogue, the product ranges presented on the catalogue (a factory is usually not capable of producing all kinds of products by itself)
– CE, FDA, ROHS documents or similar certificates.
– Movies presented by suppliers on platforms. their factories (the “verified” one by Alibaba shows a “factory” or “cooperated factory” production line in the movie, indicating its actual business type).
And another 8+ indicators we analyze.

Conclusion:

When verifying a Chinese supplier, it’s always necessary to make conclusions based on the facts and knowledge rather than personal feelings and assumptions.

To learn more about our Chinese supplier verification services, contact us.
For more information about how we approach supply chain management in China? Read the book IAAD China Working Method.