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

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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

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

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

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

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

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

Legal-RepresentativeThe 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

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

supplier-search

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

guanghao

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.

xiamen

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.

Any other questions?

Feel free to comment if I’ve left anything unanswered!

by Fredrik Grönkvist

Fredrik Grönkvist is the Co-Founder and Limited Partner of ChinaImportal.com, a Shanghai based information services company who provides startups and small businesses with an online system for managing sourcing and production in China and other Asian countries. Connect with Fredrik Grönkvist on Google+

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41 comments… add one

  1. Super solid post, Fredrik! Glad the bros have a real expert to help avoid some serious importing problems!

    Reply
    1. Definitely! I’m just glad Fredrik emailed me. I didn’t even know most of this info!

      Reply
  2. Heck yes! Fredrik rocked it

    Reply
  3. The advice about checking their registered capital (and looking for RMB 500,000+) is solid. I almost bought from a supplier, until I saw they have less money in the bank than I do! And I’m not wealthy by any stretch of the imagination (yet).

    Reply
    1. Good to hear this article could help in a real way Odai! Definitely not a good sign :)

      Good luck in finding a better one…

      Reply
    2. Be aware that the registered capital does not indicate how much total capital a company has. It’s just the amount of capital that they chose to officially register during the registration process. They may well have other capital besides that, especially if they registered some time ago.

      Reply
      1. Thanks for the heads up!

        Reply
  4. Gosh darnnit. . .I love your articles! That is all.

    Reply
    1. Fredrik, have you ever thought of providing a vetting service? e.g, if I identify a few companies that stock the product I need, but don’t have the time / confidence to vet them myself, I’d pay you for the service. Would be great to know there was a legit agent to negotialte the minefield.
      Lucy

      Reply
      1. Hello Lucy,

        I’ve been working as a sourcing agent in China for more than 4 years. However, we are very busy at the moment. If you’d like I could still recommend a few American and European owned sourcing companies.

        Reply
    2. Haha – thanks Joanne! Glad they could help :-D

      Reply
  5. Howdy! Would you mind if I share your blog with my facebook group?
    There’s a lot of folks that I think would really appreciate your content. Please let me know. Many thanks

    Reply
    1. Of course!! Curious – what is the group?

      Reply
  6. Wow, this was a really nice post.
    I wonder if this same applies for aliexpress

    Reply
    1. Glad you liked it Fawad – I think it would be the same on AliExpress. Most of the people on AliExpress are also selling to Alibaba, so I’d imagine the same would apply. Hope this helps!

      Reply
      1. Sorry it took me some time to get back to this post, it’s been a busy year to say the least!

        Aliexpress is different since it doesnt provide much information about the company you’re purchasing from. However, unlike Alibaba.com you can get a pretty good idea about the supplier based on the feedback from other buyers.

        Reply
        1. Great to hear you’ve had a good year Fredrik :)

          Reply
  7. I do trust all the concepts you have offered to your post.
    They are really convincing and can definitely work.

    Still, the posts are too quick for novices. May just you please extend them a bit from subsequent time?
    Thank you for the post.

    Reply
  8. Hi
    Thanks for this article. Could you explain about gold membership, assessed suppliers, escrow and other buyer protection solutions?

    Reply
    1. Hello!

      I don’t have time to answer all those questions (would pretty much require me to write another 1000 words), but I’ll explain Gold Suppliers.

      A Gold Supplier is a membership and where Alibaba makes most of their money. It’s for Alibaba what Adwords is for Google basically.

      Alibaba makes a basic review of the Chinese supplier that applies to become a Gold Supplier. This is the data described in this article. In return the supplier gets a Golden Badge to put on their company site. The only thing you can tell from the golden badge itself is that the supplier is a legally registered company in China. It says nothing about product certification compliance or the overall quality of their products.

      Reply
      1. Thanks

        Reply
  9. I wish I had read this, and other sites before dealining with Shenzhen Umei Electronic, which runs a site at umeiusb.com. I purchase quite a few items from China and have never had any problems. However, I was recently approached by Elva (elva@umeiusb.com) in regards to micro SD cards. I ended up purshasing some cards from them, which turned out to be a bad decision. The cards were supposed to be 4GB microSD, and in windows properties they should that capacity. However, when you go over 114MB of data, they fail and lose the data. They have completely ignored my emails and calls after they scammed me. I suggest you do not pruchase anything from them because once they get your money, the product is a fake, and you’ll never hear from them again and they never answer the phone, no matter what time of day you call.

    Reply
    1. Don’t expect to here anything from these scammers again. Among all the scam infested industries, I’d say that electronics is the worst. While China is #1 for electronics assembly, importing electronics requires a very sophisticated manufacturer. Not a low end trader buying and selling products intended for the domestic Chinese market.

      You’re lucky though. If you would have started a business importing and selling these products, which are not in compliance with US or EU product certification regulations, you would’ve been liable for any personal or property damage caused by the product. (the insurance company would sue you)

      Stay away from electronics unless you have very clear product specifications and a well defined product concept. You also need to ensure that the supplier you’re buying from has the required certification documents and implement a quality assurance process.

      Reply
      1. Hi
        How can i know US or EU product certification to take it as a reference for good quality product for example if i want to buy bar code reader whats the certification i must ask for?

        Reply
        1. CE and RoHS for the EU and probably FCC for the USA. There may be additional standards required in the US, I’ll have to make some research on this.

          There are plans in the US and EU to settle on one set of standards sometime within this decade. This will certainly help a lot.

          Reply
          1. Thank you.
            You know maybe there is other some for electronics and others for auto parts, etc. maybe i will try to search.

            Reply
    2. Thanks for the heads-up on this.

      Reply
  10. Hi ! Good article. I can add that you go to the original web page, not the alibaba. There you might find the termination dot cn, like http://www.exampleco.com.cn That indicates that the company is real Chinese. Then pick product images and google image them. You might find really nice info following the threads of images. Right, my contribution. Now, I would like to ask how can I investigate commercial information to find the supplier of a certain company. Like accounting tax declarations. I am sure my supplier does not manufacture a product, so it comes it has to be buying somewhere. I am sure that information is submitted to their Tax organism. How can I reach that? These supplier is in Taiwan.

    Reply
  11. We absolutely love your blog and find most of your post’s to be exactly I’m looking for.
    Do you offer guest writers to write content for you
    personally? I wouldn’t mind composing a post or elaborating on a few of the subjects you write regarding here.

    Again, awesome blog!

    Reply
  12. I am looking to purchase 2 LED Message Billboards from China. 13′ Tall X 30′ wide, full color. Anyone know of a great company to deal with or of any bad ones to stay away from???

    Reply
    1. Hello Dan,

      I can’t give away supplier references here, but I suggest that you read our article on LED screens: http://www.chinaimportal.com/blog/importing-led-screens-china-guide/

      Reply
  13. Thank you, but can you please give me best website to buy electronics.

    Reply
  14. Excellent post!!!

    Reply
  15. Hi, i’ve been chatting with a supplier about my chosen product. I’ve checked out their factory online, looked at all the certificates etc and they are a gold supplier. They seem legit however when it came to the email address i had to give to make a paypal transaction for the freight of the sample they gave a ‘gmail’ address. I was just a bit skeptical about a company using a free email program. Am i just being prude? or should i be concerned… thanks!

    Reply
  16. Good day all,

    It was several years ago that i got scammed by one of the gold suppliers from alibaba, i sent money with W/U and then never got items or my money back and they never replied my messages any more.

    So i learned my lesson, about dealing with dishonest people.

    I was excited about my “new business” idea and wanted to believe in good prices. I later found out more about the electronics market, and how those prices at alibaba website dont exist.

    However i do see there is a great potential for a website like this.

    Back when this happen to me i was living in Montreal Canada, now a few years later due to my job. Im now located in Bangkok, Thailand.

    So i immediately thought about Alibaba, that now i can be a supplier and deal with real people wanting to start their own business, and i can be their provider.

    So i opened my account. As a seller, and users from the site believe that just because they are Gold Suppliers, with the verified logo on them, they are safe (which is not the case).

    So i decided to pay and apply for my Gold status i payed $399 usd for the initial fee & verification process.

    After now 3 months with emails back and forward, i still dont have my status as gold supplier, and i didnt get my refund either.

    I provided more than enough information about my company which is legally registered, together with a notary letter witnessed by a lawyer assigned by the government, copy of my 2 official IDs, the company registered address, a phone and billing statement with the same address under my company’s name and my bank account.

    They said that because the notary letter is not written on a specific format they can not validate my company.

    (So my official ID, an official stamped notary letter, witnessed by a lawyer, billing statement, legal registered company name etc. is not valid at all for them)

    They just sent me a supposed confirmation transfer from their HSBC account, where it doesnt even have my bank account details.

    So, the website and its sellers its all a Scam, such a shame because, it has really a good potential if they were legit.

    I am leaving my contact information if anybody is interested in making business.
    I am looking to take advantage of my position now that im located in Thailand, and merchandise prices are cheaper than in other markets around the world.

    I accept paypal and credit card payments, i also have an ebay account.

    So if you are interested please contact me.

    I wish you good luck with your business.

    Regards.

    Sebastian.

    Reply
  17. Good day all,

    Alibaba is all a Scam, as well as their sellers.

    It was several years ago that i got scammed by one of the gold suppliers from alibaba, i sent money with W/U and then never got items or my money back and they never replied my messages any more.

    So i learned my lesson about dealing with dishonest people. I was so ready to start my own business, that i landed at a vulnerable state of believing what i was being told.

    However i do see there is a great potential for a website like this.

    Back when this happen to me i was living in Montreal Canada, now a few years later due to my job. Im now located in Bangkok, Thailand.

    So i immediately thought about Alibaba, that now i can be a supplier and deal with real people wanting to start their own business, and i can be their provider.

    So i opened my account. As a seller, and users from the site believe that just because they are Gold Suppliers they are safe (which is not the case). They set their parameters so that only Gold Suppliers can contact them.

    I decided to pay and apply for my Gold status i payed $499 usd for the initial “verification” fee.

    Now after 5 months with emails back and forward, i still dont have my status as gold supplier.

    I provided more than enough information about my company which is legally registered, together with a notary letter witnessed by 2 lawyers assigned by the government, copy of my 2 official ID’s, company’s registered address and bank account.

    They said that because the electricity bill receipt i sent as prof of address is not on my name or my company’s name, so because of this the verification department is denying my Gold Status membership, and they would give $379 usd refund as the $120 usd was the fee for the verification department.

    (Now just to clear that out, how can the electricity bill be on my name if I’m renting an apartment on a condominium building, So this is when i went and looked for a notary service that can verify and state that the registered address belongs to me, and is the same as my registered address for my company which is on my name, between the official notary fee, the 2 lawyers assigned by the government as witness, the stamp and the translation services i payed $800 usd.)

    The answer i got was, “we can not accept this letter as is not on the acceptable format for us”. We are talking about an Official International document that is not valid for them.
    Now thats the first time i hear this nonsense.

    But at least im getting my refund of $379 usd, or so i thought.

    They just sent me a supposed confirmation transfer from their HSBC account, where it doesnt even have my bank account details.

    This was 5 months ago now emails have stop, and when i email them i get a “email could not meet recipients address” message. And of course i don’t have my refund nor the Gold Status.

    So, the website and its sellers its all a Scam, such a shame because, it has really a good potential if they were legit.

    I am leaving my contact information if anybody is interested in making business.

    I am looking to take advantage of my position now that im located in Thailand.

    I accept paypal or credit card payments, i also have an ebay account.

    So if you are interested please contact me.

    Its been almost a year now that I’m in Thailand, don’t expect to get from me same prices as the Alibaba “sellers” as those prices don’t exist at all in the market.

    I have accounts directly with Apple, Sony, Samsung, and other big resellers in Thailand.

    I have done my research and i know the prices I’m able to get don’t work for certain products for certain markets, but is all a matter of finding which product work for your target market.

    Whether is electronics (which brand and which model), is it cloths you are after, beauty products, etc.

    You can expect real prices, for real merchandise.

    I wish you good luck with your business.

    ” If you dont give up, you cant lose”

    Regards.

    Sebastian.
    pelon_talo@hotmail.com

    Reply
  18. My company paid USD $2,000 for some garments and did not receive anything. Do not do business with this company: KW Winner Apparel. A man named Jerry was my contact but seems his email is bouncing now.

    Reply
    1. Hello Alan,

      Did you transfer money directly to a bank account owned by KW Winner Apparel? If you did, you might be able to report this to Alibaba. However, you’re out of luck in case you transferred money to a beneficiary that is not matching the company name “KW Winner Apparel”, a private account or by Western Union.

      Reply
  19. How good an indication is the “Verified by Alibaba and a third party” that a supplier is legitimate? I’m talking about avoiding complete scams where they may take your money and never ship the items. Also, how long do you think a supplier would stay listed on Alibaba if it was indeed a scam?

    Reply
    1. Hello Ben,

      No, the only thing they verify is that the company is legally registered. Well, that says nothing. Bernie Madoff also had a legally registered company and that didn’t really help anyone. Scams are more complicated that.

      The thing is that the scammers never use the company listed on Alibaba to defraud importers. Instead, they request the payment to another company account. When anyone complains, they can simply state that they didn’t receive any money and therefore have no responsibility for the fraud. Which is true, because they didn’t receive any money, another company (probably owned by an employee) did!

      Reply
  20. Thank you for sharing this info. Its really good. Most of the days I am ending up paying custom tax equal to my product worth. any idea how to cut short it. I am getting products via china post. if I opt for fedex or DHL, can i avoid custom tax?

    Reply

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