By Steven Chow

Screen and verify China supplier

Screen and verify supplier is just like dating. Someone in who you will lose interest at first sight, someone of whom you will gradually find out that they don’t fit you, someone you can’t tell by appearance so you need to do some test/research to know if he/she is your Mr/Mrs. Right. If you do your homework properly, you will find a great partner, if you just chance your luck, you might be the lucky guy, but more likely, you will get a pain in your ass.

Many buyers have been scammed by “suppliers” or have a contractual dispute with “suppliers” due to the following reasons:
a. they don’t realize they should verify the supplier.
b. they know you need to verify, but they don’t verify them properly
c. they know they need to verify, but they don’t have resources to verify them properly.

The buyers need to verify the suppliers in the following aspects:
a. whether the supplier is real and legit company.
b. whether the supplier is financially strong/big enough to fulfil your order, and able to compensate your loss in case of any dispute.
c. whether the supplier is technically/practically capable of performing the contract.

Let us address the issue in the order of your sourcing flow (I figure you have compiled a list of supplier after reading “China Sourcing Ultimate Guide – Part 1“):

1.) Dump the following suppliers at the first sight:
a. they sell copy brand products at extremely low price (check our article “CounterfeitedProducts and Scammer in China” to find out why)
b. those that don’t have website, and only registered on a free B2B website. Even if they are a real company, then they are a badly outdated company, a company living in the seventies
of the last century. You can image the service and follow-up from them when you place an order.
c. companies that use a personal account and Western Union to accept payment only (check another article on “China Company Inspection Guide” to find out more of this issue).

Note: Companies from the Canton Fair and the East China fair normally are trustworthy but pay attention that some scrap companies who are not qualified to attend the Canton Fair rent a booth from big companies. Also, if big companies are on the Canton fair this doesn’t necessary mean they are the right supplier for you. First, big company are slow-responding to small buyers, second, you still need to check their production capacity, financial standing and service level. The supplier you met on the website of an industry association are always trustworthy.

Another note: As we mentioned in “China Sourcing Ultimate Guide – Part 1“, gold suppliers from Alibaba, Made-in-china, Tradekey aren’t necessarily mean they are trustworthy.

2.) Compare price and service level to further narrow down the list
The first impression can narrow down the supplier list, after that, by negotiating price and communicating with the supplier, you can cut the list to 3 suppliers:
a. cut the suppliers with high prices
b. cut the suppliers that you think have a communication barrier.

Note: There is a bottom price in every industry, actually a seasoned production expert or salesman can grossly estimate where the bottom line lies (judging by the raw material price, labour price, work procedures and energy price). You can also get an idea yourself by comparing a lot of suppliers. An extremely low price is fishy and risky, you need to worry about the quality in those cases. In August, CCTV news talked about car price. As the steel price is almost doubled, some car makers raise their price, some don’t. People find that the car makers that don’t raise price actually lower the product quality, some devices have been deducted.

3.) Sampling or placing a trial order to select the best supplier and verify this supplier officially.
Firstly, sampling and/or placing a trial order to choose the best supplier as now you have compared the price, quality, and service standard, so you know which one is the best.

When you find the best supplier after all these efforts, a proper verification is necessary.
A proper verification normally includes:
a. a visit to the company
b. a visit to the local government
c. an online background check

While visiting a site, you need to check:
a. whether the company exist in the address of its business license
b. the equipment of the company to estimate the monthly production capacity and technology level
c. the assets of the company, for example, how many building, how many cars, etc.
d. registered capital of the company

It will be risky if you sign a 10 million CNY contract with a company that only has 300,000 CNY registered capital and fixed asset. In that case, if there is any contractual dispute, your supplier can easily file a bankruptcy, because they are not able to compensate 1/10 of your loss.

After site visit, you need to visit a local governing body (administration of industry and commerce which is in charge of company registration) to confirm the company registration information. And then, do a brief background check online to see if there is any complaint/discussion towards the company.

Steven Chow, China Inspection Service

This is the second part of “China Sourcing Ultimate Guide”. Here you can find Part 1.