By Steven Chow

Screening and verifying a supplier is just like dating.

There are those you will lose interest in at first sight.

Or those that you’ll gradually find out don’t fit you.

And those you can’t tell one way or the other by appearance (come on – Ugly Betties can have personality), so you’ll have to inquire further to find out if he or she is Mr. or Mrs. Right.

If you’re persistent and thorough, you will find a great partner. If you just roll the dice and sign a quickie Vegas-style contract, you might be the lucky guy or gal, but more likely, you will get a pain in your ass.

Many buyers have been scammed by “suppliers” or have contractual disputes with “suppliers” due to the following reasons:

A. They don’t realize they should verify the supplier.

B. They know they 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.

Nonetheless, any serious buyer should be able verify suppliers regarding:

A. Whether the supplier is real and legit company.

B. Whether the supplier is financially strong/big enough to fulfill 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 (we figure you have compiled a list of suppliers after reading “Ultimate China Sourcing Guide: Part 1.”

Dump the following suppliers at first sight if:

A. They sell copy brand products at an extremely low price (check our article, “Counterfeit Product and Scammer,” to find out why).

B. They don’t have a website, and only register on free B2B sourcing websites. Even if they have a real company, then they have a badly outdated company - a company living in the 70s (and no, in this case, bellbottoms are not hot). The service and follow-up from them when you place an order won’t be good.

C. They use personal accounts and Western Union to accept payment only. (Check another article, “Tips on China Company Verification Part 1,” to find out more on this issue). Note: Companies from Canton Fair and the East China Fair normally are trustworthy but understand that some poor companies that are not qualified to attend the Canton fair rent booths from big companies. Also big companies at the Canton Fair doesn’t necessary mean they are the right suppliers for you. First, big companies are slow-responding to small buyers. Second, you still need to check their production capacity, financial standing and service level.

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 in the following way:

A. Cut the suppliers with high prices. Note: There is a bottom price in every industry. A seasoned production expert or salesman can grossly estimate where the bottom line lies (judging by the raw materials price, labor price, work procedure and energy price). You also might have some idea by comparing a lot suppliers. An extremely low price is fishy and risky - you need to worry about the quality in those case. A recent episode of CCTV news talked about car prices. The steel price recently almost doubled, and some car makers raised their price, but some did not. As a result, consumers found that car makers that didn’t raise their prices actually lowered their product quality, as some auto devices had been eliminated.

B. Cut the suppliers that you think have communication barriers.

Sample or place a trial order to select the best supplier and verify this supplier officially.

Sample and/or place a trial order to choose the best supplier since now you have compared price, quality, and service standards.

When you find the best supplier after all these efforts, proper verification is necessary.

Proper verification normally includes:

A. Visiting the company.

B. Visiting the local government.

C. An online background check.

And a site visit needs to check:

A. Whether the company exists at 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 buildings, how many cars, etc.

D. Registered capital of the company.

It will be risky if you sign a 10 million RMB contract with a company that only has 300,000 RMB in registered capital and fixed assets. In that case, if there is any contractual dispute, your supplier can easily file for bankruptcy in which case they would not be able to compensate anywhere near your loss.

After a site visit, you need to visit the local governing body (an administration of industry and commerce which is in charge of company registration) to confirm the company registration information. And then, do a brief online background check to see if there are any complaints or other important discussions about the company.

By now, hopefully you’ve found much more than a humiliating one-night stand.

You’ve found a competent partner.

Editors’ note: Steven Chow is a Harbin-based business consultant and dear bizCult friend. You can ask Mr. Chow a China sourcing/business question here if you like. This article is reprinted with permission from Chinawhy.net.

    Channel: Vital News     |