China sourcing ultimate guide part 2 - screen suppliers

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2. Screen and verify China supplier

Screen and verify supplier is just like dating. Someone you will lose interest at first sight, someone 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 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 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 out 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 counterfeited products and scammer in China to find out why)
b. those don’t have website, only register on free B2B website. Even if they are real company, then they are badly outdated company, a company live in seventies
of last century. You can image the service and follow-up from them when you place an order.
c. company that use personal account and western union to accept payment only. (check another article china company inspection guide to find out more of this issue)

Note: company from Canton fair and East China fair normally are trustworthy but pay attention that some scrap companies who are not qualified to attend Canton fair rent booth from big companies. Also big company in Canton fair 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 industry association are always trustworthy.

Another note: As we mentioned in china sourcing ultimate guide part 1, gold supplier from Alibaba, made-in-china, tradekey don’t necessarily mean they are trustworthy.

2) compare price and service level to furtherly 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 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 lie(judging by the raw material 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. In yesterday’s CCTV news, it talked about car price, the steel price are almost doubled, so some car maker 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 this efforts, a proper verification is necessary, a proper verification normally include:
a. visit the company
b. visit local government
c. online background check

Site visit 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 have 300,000 CNY registered capital and fixed asset. In that case, if there is any contractual dispute, your supplier can easily file a bankruptcy, they are not able to compensate 1/10 of your loss.

After site visit, you need to visit 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 online background check to see if there is any complaint/discussion towards the company.

 

Related articles:

China sourcing ultimate guide part 1 - find suppliers

China sourcing ultimate guide part 3 - price negotiation


Chinawhy provide China sourcing service and company verification service to foreign small and medium sized companies. Please make sure to check it out. Please call us at 0086 451 8333 0781 or email us at support@chinawhy.net for further inquiry, or you can simply place the order here.

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