The Four Ways Professionals Verify Factories
Anyone can source a factory, and if your order size is less than 20 thousand dollars, there should not be a lot of fear when it comes to working with a factory for the first time. But what about if your order size is larger than 20 thousand dollars? What if it is 100 thousand or 1 million, then what do you do? Most businesses will opt to visit a factory before placing an order, but unless you know what to look for, visiting a factory as an untrained buyer in China is an easy way to get scammed.I recently took my wife to visit her first factory, when a close friend requested I look into a company he is about to do business with. My wife was born in Myanmar but grew up in Thailand, so apart from a rice processing plant and a tourist trap “silk factory” we went to years ago, this was her first time going deep into China on a factory visit with me. Her novice mindset compared to my jaded, unfazed attitude was not only refreshing, but it helped paint a new perspective on this visit.
From the moment we got off the airplane until the evening we departed, the factory we were scheduled to visit treated us to what could only be described as the royal treatment. Car service to and from our hotel, gift baskets and wine in the hotel room, a greeting party as we drove through the gates of the factory, and a photo session to document our supposed long journey to visit the factory. I noticed my friend who arranged the trip neglected to inform the factory that I live in China, am comfortable speaking Chinese and have inspected hundreds of factories all over Asia.
I could see how impressed my wife was in their whole charade, but the entire time we were meeting factory employees, having a tea ceremony with the owner, and reviewing samples they supposedly produced, not once were we given a tour of the production floor. It wasn’t until constant asking on my behalf were we able to view two out of the four levels dedicated to mass production.
At the end of the trip, in my wife’s eyes, the factory was lovely, friendly, welcoming and seemed genuinely interested in doing business. In my eyes, it was a disaster. Having created production lines in past, seen my fair share of factories and regularly studying quality management systems, I saw more things wrong in the three minutes of walking onto the production floor, than I’ve ever seen before. Combine that with the overly welcoming attitude of the factory, and the lengths they went to make us feel special, I knew this factory was more focused on buying customers and less focused on fixing the obvious issues they had with their production line.
My wife is incredibly intelligent, but when you’re tasked with visiting a factory for the first time, and you have little to no experience on what specifically to look for, it is easy to gravitate towards what you know. Some factories are incredibly skilled in portraying openness and professionalism, they talk the talk, share examples of success from previous productions, and go to great expense to shower their guests with luxury car service, gifts, meals, and booze. I like to believe my wife's perspective was similar to what a lot of first-time importers experience during their early factory tours. Had it not been for my jaded mindset and prior experience, that factory could have won me over too.
Every importer can benefit from taking time to perform due diligence. Visiting a factory is never enough, and nobody should waste their time meeting a factory unless they are confident the factory is a viable option.
With that being said, I have created a list of four tactics professionals use to verify a factories viability. All four of these tactics should be performed prior to engaging in any relationship with factory, regardless of the size of the order.
1. Verify the factory is listed in the local AIC database.
AIC stands for Administration for Industry and Commerce. In essence, it’s the national organization that governs all industry and commerce in China. Regarding the USA, think of it as the Federal Trade Commission and the Department of Commerce all in one.
AIC databases are broken down by region, so the first step is to identify the province where the factory is located, and then find the provinces local AIC database. These databases will give you a lot of information on the factory, such as, their registered address, registered capital, actual paid-up capital, annual returns, date of establishment, and much more. While this information is all in Chinese, you should be able to get by if your internet browser has a built-in translator.
The benefit of identifying this information is to see if the factory is not only legitimate, but is also in good standing with the state, and has enough money invested into it to prove it most likely is not a fly-by-night setup scamming people.
The national website can be found here: http://www.gsxt.gov.cn/, however, you may need to search specifically for the province or city website if you have a difficult time finding results.
2. Examine compliance certificates to spot fakes.
Most importers require at least one type of compliance certification confirming the factory is capable of producing their intended production. Once the product, factory, or material is certified, the certification entity sends the certificate as a .PDF file. This file can be printed and included in shipments, filed with the local customs agencies, and shared with logistics companies. To the untrained eye, all of these certificates look similar, and apart from the factory name, product information, and date, each type of certification looks virtually the same.
Because of this, factories will doctor these certificates, updating the information to match your requirements. Failing to ensure these documents are factual could result in a seized products at the border or hefty fines from the country of import. And all of that risk falls on the importer, and not the factory.
Anytime a factory sends a compliance certificate to you, you must verify it. Verifying certificates can take a couple of days, but it is entirely worth it. The steps to verify are rather straightforward; find the certifying entities website, find a place to enter the certificate number into their database, and cross-check the results with the document on hand.
In some instances, the information will not be available, which means you will have to reach out to the compliance company, and provide them with a copy of the certificate. It may take some time for them to get back to you, but when they do, you’ll have the results.
During your verification process, beware of unknown testing companies. If you’re ever unsure about a testing laboratory, you can always Google their name and see if they are ISO 17025 certified. You can also take a closer look and determine if their testing scope includes the product you had tested.
Real certificates will always be sent as .PDF files, if a factory sends a certificate that is a .jpeg, .png, .doc file, it is almost certain to be fake.
3. Cross-check the factories address with all your sources.
After searching the AIC database, obtaining compliance certificates, communicating with the factory and possibly receiving samples, you should have multiple sources of the factories address. Check these addresses to ensure they are consistent. Use Bing or Baidu maps to view satellite photos of the factory and the surrounding area. If you can get close enough on the images, try to see if the signs match your factory name.
Some factories have multiple locations, such as a sales office and the factory itself. If this is the case, request both addresses, and ensure these locations are owned by the same entity. There are times when a trading company will claim to own a factory, when they are in no way associated.
4. Review import records and the factories existing clients.
Using services such as Panjiva and ImportGenius, you can find information on the businesses the factory sells to. This can tell you a lot about the market they are focused on, the types of products they make, and their quality.
A lot of countries consider the bill of ladings and other import documents to be public information. Services such as the ones listed above organize this information into a searchable database you can use to verify suppliers.
Just as Ronald Regan use to love to say, “trust but verify.” The most important thing for all importers to understand is, YOU are always responsible. A factories job is to get you the products, but anything that happens after that is on you. Use your due diligence and take the time to ensure all safety requirements are covered, so you are at less of a risk.