Alibaba: How to Avoid Scams and Potential Disaster
As e-commerce platforms like Amazon, Shopify, and Jet continue to grow, third party sellers are looking for more products to source and sell online as well. By far, Alibaba is the largest available public database of potential suppliers in the world. But with this massive online "city of factories", comes potential risks and possible scams.
Alibaba, while still the 800 pound gorilla, has seen a bit of a decline in market share lately due to both competition and the fact that Taobao, an ecommerce platform owned by them was added to the “blacklist” by the United States Trade Representative arm of the government.
After being taken off the list 5 years ago, they were added back on in December of 2016 due to having an unacceptable level of counterfeit and pirated goods. This can be the kiss of death for many companies, but to Alibaba’s credit they are going all-in on trying to fix the problem. They are aware they have an authenticity problem, especially in the fashion niches, and they are spending tens of millions of dollars hiring specialized employees to combat this trend.
However, it has been a recurring theme with Alibaba, and when Jack Ma, Alibaba’s founder, boasted in 2014 that fakes were often “better quality and better price than the real names” — it didn’t exactly bode well for Alibaba’s chances of staying off the Blacklist
Considering all of this, many 3rd party sellers, especially the first-timers, want to give Alibaba a shot since it seems almost "too easy". Hopefully this quick list of things to consider when using Alibaba will help sellers avoid scams and potential disaster.
1. YOU are NOT the Main Alibaba's Main Customer
Alibaba is a B2B platform where the suppliers on their site pay to be listed. As such, the suppliers are Alibaba's main customer, not you. This can be important, since ideally you want a sourcing agency/supplier management company (SMC) to have the seller's (your) best interest in mind, not their own.
Recently, Alibaba has started offering sourcing services via their own agents. This has more of a feel of the traditional sourcing agent, but in fact is is an additional stream of revenue for Alibaba.
2. Avoid Non-Gold Member Suppliers
Yes, we're very aware that suppliers can outright purchase their Gold Member certification (with a few caveats). Regardless, if you see a supplier that is not willing to pay this fee, that should be a common-sense red flag.
If a factory is at all serious about wanting business from Alibaba, they will usually purchase the Gold Member status to lend legitimacy and trust to their name. Also, Gold Member suppliers may have to submit to an "Onsite Check" periodically from Alibaba to maintain their Gold status. Any supplier that is not a Gold Member, usually has no oversight at all.
3. Avoid Sourcing Electronics
While China is a great place to source electronics, it is a lot more involved than just finding a supplier on Alibaba and ordering the products. Any successful 3rd party seller of electronics will tell you that it can be a very work-intensive endeavor filled with potential pitfalls.
While it's not impossible to successfully source and sell electronics, it is infinitely more involved than other product categories. One of the main challenges that many sellers don't think about is end-user experience.
What does that mean?
After you sell the product to your customer, what will you do if they have a problem? Electronics are are usually less reliable than other products. They break down, they short circuit, they sometimes arrive broken. Now you have to have a warranty/replacement process in place not only with your customer, but also with your supplier. And what happens if the item causes an injury, blows up, starts a fire, etc? That's a liability that requires you to seriously plan for all of the "what if" scenarios.
Not to mention that if you're selling electronics you'll need to required certifications from the industry standards and regulations entities. This not only costs additional money, but if you don't get these (or don't get them right), they may even cause your shipment to be delayed or even seized in port.
Save your electronics sourcing until you find an actual sourcing agent with expertise in this area that is willing to work closely with you. Many of the best 3rd party sellers have their own electronics designs and also have a full-time presence in the factory itself to help ensure quality.
4. BEWARE: Alibaba Gold Member Status is for Purchase
We mentioned above that doing business with only Gold Member suppliers is a step in the right direction. However, just beware that any supplier can purchase this Gold status.
Yes, the cost is significant. But not prohibitive. This alone might help keep out "pop-up shops".
If you're going to use Alibaba, familiarize yourself with the suppliers and their "trust marks" (Gold Member, Onsite Check, Trade Assurance). While these are meant to give you a feeling of security, please do your own research on each supplier and beware what each of these trust marks really means, and how they are attained.
For example, we have a whole post on the Trade Assurance designation and how it plays out in a real life experience.
5. Do Your Own Research
Before you decide to do business with any supplier over Alibaba, it's in your best interest to do some research to ensure they are who they say they are. Here are some quick tips:
- Do they have a website? Is it their own website, or an extension of Alibaba?
- Do they have any social media presence? Does it matter?
- Where is their factory located? Can you Google Map/Street view it? Is it real?
- Is their factory location in an area that is known for manufacturing the product they offer? China is divided into manufacturing regions, and while not the end-all-be-all, this post is a good guide on which regions manufacture which goods.
Also, do a quick search for the supplier name on Google and make sure it doesn't come up on any of the various scam/fraud websites, forums, or lists. While one angry customer can result in a "scam post" or complaint, it's the trend that you want to look for. Do they have multiple complaints? If so, keep looking.
6. Do a Good Old Fashioned Reference Check
Ask the supplier for some references of satisfied buyers. Any legitimate supplier should be able to send you the information of a few happy customers. Some may balk at disclosing that information, but make it clear it's your standard operating procedure when sourcing new suppliers. You're not asking for product info, just satisfaction levels.
7. If Anything Feels "Off", Move on to Another Supplier
China is the "Wild West" of manufacturing. It is completely different from doing business in the USA, or Western Europe. Each deal is fraught with potential pitfalls, so if anything at all seems "not quite right", just move along to the next supplier on your list.
There are literally hundreds of factories that produce the same product, so finding a few others shouldn't be too difficult. Just make sure to vet your factory and decide whether or not they are suitable, fairly early on in your process. You don't want to spend a lot of time dealing with a supplier you won't be using.
8. Validate Your Product First
One way to help ensure supplier integrity, quality, and viability is to first validate your product. Guided Imports offers a very cost effective way to get a full cost analysis and validation report for your prospective product.
This will provide you with a full landed cost breakdown, allowing you to decide if the product will be worth it to manufacture, ship, and sell. It will also allow our account managers and sourcing experts to contact the factory for you, along with other similar factories so you can get an idea how they stack up with one another in terms of making your product.
It's FAR better to spend a little money on the front end to find out if your product will be successful, than it is to potentially lose thousands on the back end.
9. Hire Professional Help
As with most successful sellers, once they source and manufacture their first product, they usually hire a reputable service to handle the China side of their business for them. But going through the entire process at least one time can be very educational and valuable. You'll learn some of the challenges of doing business in China and will better appreciate the Chinese business acumen and cultural expertise that a professional service can bring to your business.
After spending dozens of hours just sourcing one product, many successful sellers realize one important fact: their time is money. They would rather spend that time building their brand and marketing their product than they would trying to figure out the Chinese sourcing, negotiating, manufacturing, and quality control puzzle. Thus, they hire a full service agency to handle every aspect of China.
Obviously, this is where we will recommend you give Guided Imports a chance to earn your business and prove to you why we are the #1 sourcing, manufacturing, and supplier management company in the commerce industry. But in all seriousness, there are a few good companies out there as well. Just make sure they are not working on commission, have transparent billing and communication, and most importantly, have your best interest at heart.
From your quality expectations to your price point range; chose your "partner" in China wisely. This is why our China office is staffed with U.S. managers--we want to make sure we have someone on the ground in China that understands your product, your goals, and your expectations. Guided Imports is one of the few U.S. sourcing & manufacturing companies with U.S. employees in our China office--that has proven invaluable over the past 5 years--let us show you why.