Let’s say you would like to do business in China, because you’ve heard that it is the factory of the world. And yes, you are right. Everyone else is producing over there so why shouldn’t you?
After all, China is home to some of the biggest factories in the world including Foxconn and Huawei. So, going there would certainly not be a wrong move.
However, you do have to be careful. Over the past decades, there has been a great number of instances with fraudulent suppliers. And this, in combination with a completely different culture, can make it extremely difficult to find a good supplier.
Luckily, there are ways to separate the wheat from the chaff. And, one of those ways is to identify fraudulent behavior in advance. Because if you do so, you are able to choose the right supplier and head off your China adventure with a great start.
What is the Definition of a Fraudulent Supplier?
A fraudulent supplier is basically anyone who deliberately deviates from an agreement. And although fraud can take-up many forms, the most common scam is a major difference in quality.
For example, you have agreed upon a sound quality, but you receive a sloppy product. In fact, according to a study by the US Chamber of Commerce, Chinese suppliers earned a whopping $396 billion last year alone from trade in counterfeit goods.
Besides poor quality and fake products, other examples of frequently reported scams are:
- Fake company scam
- New bank account scam
- Paper tiger scam
In all of these cases, the objective is simple; to mislead you to either get a better deal or to simply take your money. Thus, the message is clear, be wary whom you partner with.
The 3 Ways to Uncover Fraud in Advance
So, what are the red flags? And, when exactly should you get suspicious and move on to the next supplier?
Well, in general you should get cautious when your partner starts acting out of the ordinary. For example, you have requested several documents for verification, but your partner makes up all kinds of excuses to not deliver them. In this case, common sense will probably tell you that something is not right.
Hereunder, I have listed 3 common situations, which happen quite frequently in China. If you come across anyone of these, your alarm bells should go off.
#1. They Say They Can Do Everything
A great deal of Chinese suppliers will tell you they can produce any product you want.
And this is, off course, impossible. Especially since we all know that most companies can just specialize in one or few things; namely their core business.
One possible explanation could be that the Chinese are afraid to say no. Another explanation could be that they just want the deal, or even worse, your money. In any case, if you will hear a Chinese say: ‘’sure, no problem. We can do that for you.’’ It should ring a bell.
Now, I can imagine that it is still hard to judge whether they are really specialized in that particular product or if it is just another person aiming for a quick buck.
A good way to reference this, is to ask a friend to call on that same supplier with the request to make something completely different. If the answer is yes, you will know what to do.
#2. Pushing You to Hurry Up
Many Chinese firms will rush you to close the deal quickly and transfer a prepayment immediately. Often, they will do so because they do not want you to conduct due diligence on them. Or at least, not before you have wired the initial allowance.
When this is the case, you should be wary too. It is possible that once you have transferred the money, you will somehow never receive your products. So, if you have the feeling that you are rushed in your decision making, you should be alert too.
A good thing to remember is that a good supplier is probably overloaded with work and therefore, it has no need to rush you.
#3 Hesitant to Show a Business License
A lot of Chinese companies are reluctant to show their business license at your request.
Nevertheless, they will often say: ‘’sure no problem we will send it to you.’’ But then, you will never actually receive anything.
If this is the case, surely something is not right too. Every legitimate Chinese company has a business license, which states their essential information. Therefore, it should be no problem for them to share those basic details with you.
So, if a company refuses to show their certificate, there must be a reason to hide those details. Probably, they are afraid that you will cross-reference the information on the license with the information stated on your contract or invoice.
No matter what the reason may be, not sharing basic details should be a clear sign to move on to the next supplier.
To conclude, if you can recognize fraudulent suppliers in advance, you are able to find a good partner in China. There are three common situations in which you can identify dishonest suppliers.
The first is a situation where a supplier tells you that they can produce any product you want. The second situation is where a supplier rushes you to close the deal quickly. And the last situation is where a supplier refuses to show its business license.
If you come across anyone of these situations, be wary. In these cases, it might be better for you to find someone else.
Did you like this article? Please help us by sharing it with your social network. Thanks!