Businesses around the world are sourcing goods from China because of low manufacturing costs. Nevertheless, China has a reputation for manufacturing scams. Therefore, if you plan to import goods then it is essential to find a reliable supplier. Working directly with verified Chinese manufacturers will result in constructive long-term deals and fewer concerns about getting disappointed or cheated. So, how to verify Chinese sourcing companies? How to ensure you are partnering with a genuine Chinese factory?
The first step is to ensure that you work with the manufacturer and not the trading company. Trading companies don’t make the products but pretend to be manufacturers. They are the intermediaries that source products from the factories. It means the product they resell to you includes their commission. Working directly with a manufacturer means you have control over price negotiation, lead times, and product customization. Trading companies generally have fixed rates, which are higher than what the manufacturer will offer. You will not have control over production quality and process.
Besides trading companies, there are sourcing companies but they differ from trading companies. Sourcing companies offer services like supplier selection and vetting, manufacturer capability analysis & audits, negotiations & contracting, inspections & quality control, supply chain management, logistics & transportation, and supplier relationship management.
Trading companies concentrate on a specific product and have a vast catalogue but when details about processes and technology are involved, they are of no assistance. They represent your business and ensure that the contract is not compromised. Alternatively, a trading company performs a balancing act between you and the manufacturer. Generally, the trading company is partial to the manufacturers because they don’t desire to sacrifice their relationship with an established manufacturer for their clients.
You may come across a Chinese supplier claiming to be the manufacturer when in reality it is a trading company. It can be horrible if your requirement is for custom-made, high-precision metal products made in China. So, you will need to verify the china manufacturers and shortlist for further reviews.
• Company name, factory address, contact details, and email address. It will help to cross-check. It is discussed in detail below. Use the phone number and call. Write an email and send it. If you get a response, the business legitimately exists.
• Bank account details like beneficiary name, location, and account number will be helpful. The beneficiary name has to match with the company/manufacturer's name. If the bank is in Hong Kong, then the potential manufacturer is not a real manufacturer but a reseller or the manufacturer has opened an account in Hong Kong because the rules associated with financial transactions are easier than in China. This verification helps to avert payment frauds down the road.
• Check the manufacturer’s digital footprint. Verify contact details on their website, browse through their catalogue and even read consumer testimonials. Visit their social media profiles and read customer reviews. Many manufacturers are on popular B2B platforms like Alibaba, so double-check the details there. Detail consistency is essential!
• Ask for referrals. The easiest method of verifying the Chinese manufacturer is to ask for their customer references and contact them. It helps to get an idea of how committed the manufacturer is in terms of quality, lead times, and customer service. If they seem unwilling, then move to the next manufacturer on your list.
When you check search engines for China online suppliers and do some research. You get a peek at the pictures, information, videos, and documents presented on the website. It is not sufficient to judge them on feelings and assumptions that they are good. Facts and experience also matter. In China, all legal businesses need to get registered with the government. They receive a registration number of 18 digits. It is also called Unified Social Credit Code.
Every digit in the registration number has a specific meaning.
• The 1st digit shows the registering authority code and the number is generally 9.
• The 2nd digit reveals the entity type being registered. Number ‘1’ means enterprise, ‘2’ denotes ‘individually-owned’, and ‘3’ depicts professional farmer’s cooperatives.
• The 3rd to 8th digit denotes the administration division’s code showing the location where the company has been registered.
• The 9th to 17th digits represent the organization code.
• The 18th digit reveals the check digit. It can be a letter or a number that allows authorities to quickly check the registration.
Chinese business licenses design and look differ from one province to another. In the last two years, the business license design has changed a little. However, the important information is still the same.
• Registration number
• The Chinese company’s official name
• Company type
• Registration address
• Company’s legal representative
• The expiry date of the license
• Date of company establishment
• Date of the business license listed
• Business scope
• Registered capital
Before you sign a contract, request the potential Chinese sourcing company to share their business license copy. Look at the Chinese national database online to check the business registration validity. China records every official registration in the NECIPS [National Enterprise Credit Information Publicity System]. Enter the 18 digits’ registration number in the search bar on the NECIPS home page. In the results, you will see the details compare it with the business license copy shared by the manufacturer.
• Use unregistered name
• Change license’s date of issue to the stage that business is established a long time ago.
• Increase registered capital amount to appear financially strong.
• Expiry dates are changed to hide the invalidity of the license.
Another solution to your question on how to verify Chinese Sourcing companies is to check the AIC website.
AIC or Administration for Industry & Commerce is a national organization in China with local departments for every region. It is another way to verify the manufacturer's record details associated with the license.
Value-added Tax invoice – Chinese manufacturers have to issue a VAT invoice to avail government rebates. Importers need to request a copy of the VAT invoice. It is proof that the manufacturer’s factory in China is legitimate.
Check their certificate for Quality Control System
The Quality Management system documents the details of procedures, processes, and responsibilities needed to comply with the quality policies and attain the goals. The quality Management system allows to organize and direct the manufacturing activities to fulfil regulatory and consumer needs. This helps to consistently enhance efficiency and effectiveness.
Common QMS certification is ISO 9001. More than 1million companies spread across 170 countries use it as a standard quality control system certification. Ask the manufacturer for ISO 9001 certification. How to verify Chinese sourcing companies' quality management system certification?
Aspects to watch out for….
• Issuing & expiry date – There is a possibility that the manufacturer may be using outdated QMS certification. It means they did have one at one point but failed in recent inspections.
• Product scope – The certification is valid for listed product categories. Sometimes the manufacturer can add different products to their certification that lacks QMS certification. The added products are not registered officially.
To verify, you can even contact the ISO 9001 certification issuer. The SAC and CNCA oversee the certification in China. Check their certificate to see if you can identify the issuer’s logo or certification mark.
Chinese businesses involved in the import and export of products need to have 2 crucial documents.
• China Customs Registration Certificate issued by Chinese Customs.
• Foreign Trade Operator Record allotted by the Ministry of Commerce.
With these two certificates, the manufacturer is allowed to import and export goods. Ask them for a copy of these certificates to verify the details with an official government database. Common scams associated with the import/export licenses are the manufacturer's claim to manufacture more than they really do.
The temptation to lock a deal can make a Chinese Manufacturer accept a huge order they are not capable of handling. So, how to verify Chinese Sourcing Companies production capacity? Importers will have to check the following –
• Establishment year – Find out the manufacturer’s company’s establishment year. No one desires to partner with a less experienced manufacturer. Expertise comes with experience!
• Turnover – You gain an idea of the manufacturer’s financial stability. Money matters! No one will wish to get stuck with a supplier whose business will collapse anytime.
• MOQ – Minimum Order Quantity means the minimum number of orders the manufacturer is willing to work with. There are a few, who work without MOQ. If you plan to place an order in bulk the manufacturer needs to have the production capacity to handle the volume. MOQ gives an idea of whether the factory is a trading company or a manufacturing entity. Manufacturers quote large MOQs, so if the MOQ is lower than they are resellers.
There are three things to bear in mind when you visit the trade shows in China or Hong Kong.
• Never feel impressed with the photos and facts displayed in the brochures.
• Never trust the sales rep blindly, check the facts.
• Never give prominence to ISO 9001 certification.
It is sensible not to visit the sourcing factory in China if your order is small. However, for large orders, it becomes essential to verify the supplier's claim or you are inviting trouble.
Visiting the factory in person gives you a chance to understand the situation. There are multiple things you will easily observe at the manufacturer's factory.
• Is the floor clean?
• Is the office organized?
• Do workers follow safety rules performing dangerous operations?
• Are the operators mostly old or young?
• Is the production process organized?
• Do they allow you to see their latest designs created for other customers?
You can even discuss product design, quality inspection, prices, and expected delivery time face-to-face with the manufacturer. If you cannot, then request a third-party quality audit.
Tell the potential Chinese manufacturer that you desire to have their factory audited before issuing a purchase order. Later, you want production reviewed before sanctioning the consignment. Discuss this in your email or first meeting. If the manufacturer refuses or makes excuses, then it is a red flag!
Factory audits help to verify the manufacturer’s claim about production capabilities. You can hire a professional 3rd party to do the audits. The audits will cover several aspects.
• Check their QMS certification.
• License verification.
• Overview of working conditions, situations, and HR policies.
• Factory profile checks like their official company name, contact details, and production capacity & capability.
• Business experience including trade history, previous client reviews, and available samples.
Sample request means you will get a perfect product but the sample will help you evaluate their professionalism and workmanship. You can identify if they can fulfil your quality standards. However, you can request a customized sample or one labelled in their catalogue, which is a simple way.
You will need to pay for the samples. You coincidentally get an opportunity to pay directly to their bank account. It will help to check their official company name with other business documents. In case they hesitate and ask for other payment methods then something is not right!
You can send a courier to their factory and directly pick the samples. It will help to verify their address against details on their documentation.
• Check Canton Fair exhibitors list. See if the potential Chinese manufacturer participates in the largest trade fair in China. Trade fair participation means experience in international trades.
• If you feel uncomfortable communicating with a potential Chinese manufacturer, move to the next on the list.
• Before placing a purchase order, request a sample.
• Addresses may not be the best way to verify manufacturers. Small manufacturers may be working from rented spaces. They moved to a different location and forgot to update their registered address. A few even have offices and workshops in different cities and localities. So, do more research before eliminating the manufacturer as his address doesn’t match.
The above tips are the answer to your question on how to verify Chinese sourcing companies. Do your due diligence and partner with an ideal one right from the start!