Top 5 Red Flags When Dealing With a New Manufacturer

Done properly, working with Chinese manufacturers can be a major boon for your business. The low costs of parts and labour can singlehandedly make an operation viable. But buyer beware! Choosing the wrong manufacturer can spell disaster for your business. You can be left seriously out of pocket or worse, fail to meet delivery deadlines, tarnishing your reputation.

Choosing the right manufacturer can be especially tricky when there are geographic, linguistic and cultural barriers to consider. This article will give you a heads up on five red flags you can look out for when considering a new manufacturer.

Know the difference between a trading company and a manufacturer.

Before we dive in, you should first make sure that the company you are dealing with is in fact a manufacturer and not a trading company. This is an easy mistake to make, but it is important that you know how to tell the two apart. While manufacturers will produce a product direct to order, trading companies simply pass your order forwards to a factory, adding needless margin in the process. There are many reasons not to work with trading companies, and if you wish to learn more about it, see our article here.

For now, it’s enough to know that if they are selling a wide variety of goods across a wide variety of product categories, you are probably dealing with a trading company. Do yourself a favour and work directly with a manufacturer. You will save money and give yourself much more control over the whole process.

With that in mind, here is our first red flag…

1. Lack of transparency and poor communication

Poor communication is a major red flag. Communication is key when you are dealing with any manufacturer, especially when they are on the other side of the world. If your manufacturer is slow to reply, you won’t be able to respond swiftly to any unexpected challenges that arise.

Similarly, if your Chinese manufacturer refuses to give details about quality control procedures, pricing, lead times etc. that is a red flag. It is possible that they are not actually equipped to deal with your order, or are cutting corners to save money.

This is a difficult red flag to avoid as some manufacturers will be very responsive when obtaining a client and then communication will dry up once the contract is signed. To avoid this red flag, consider placing a small test order with the manufacturer first. This will give you a preview of how they communicate with clients. If that is not possible, the next best thing is to contact their references.

Which brings us to our next red flag…

2. Lack of references

A lack of good references is a red flag. When you are first considering a manufacturer, it is worth looking up feedback in the form of online reviews, industry forums etc. This should give you a rough sense of their reputation.

When you are seriously considering a manufacturer, you can go further and ask them to provide verifiable references from businesses they have worked with in the past. If the manufacturer has been operating for a while, they should have no problem presenting you with such references, attesting to their honesty and to the quality of their work. If they can’t provide those references, consider it a red flag.

3. ‘Too good to be true’ prices

One of the key draws of working with Chinese manufacturers is lower costs. However, if the prices are much lower than their Chinese competitors, ask yourself why. Are those savings coming from cutting corners? Using lower quality parts? Less rigorous quality control? If the prices seem to good to be true, they probably are.

4. Suspicious payment terms

A common payment arrangement in China is to pay a deposit upfront, and pay the rest of the cash after the goods are delivered. If your manufacturer is asking for all of the money upfront, or offering a large discount in exchange for paying upfront, alarm bells should be ringing. They may be looking to skip out on you without delivering your goods.

Similarly, if a manufacturer is asking you to pay in cash or via a suspicious payment platform, reconsider. If your goods are not delivered on time, or are not of sufficient quality, you will have very little in the way of buyer protection.

5. Failure to provide business credentials

There are certain credentials that all legitimate manufacturers in China should be able to provide. These include: business license, foreign trade registration (if they do business internationally), tax registration, and organization code.

Ask to see these credentials and get them verified by local authorities. If a manufacturer can’t provide these credentials, consider it a red flag. At best the manufacturer is extremely disorganized and at worst they may be operating illegally.

How to find trustworthy Chinese manufacturers

So we’ve explained what to watch out for, but how do you find suppliers that don’t throw up any of these red flags?

One option is to use e-commerce platforms such as Alibaba or Made in China. These platforms are useful because they make it easy to search for manufacturers that meet your specific needs. They can also work to filter out some of the lower quality manufacturers, thanks to schemes such as the ‘verified supplier’ scheme on Alibaba.

Another option is to attend tradeshows either in China or in the UK. There are tradeshows for almost every niche as well as generic import/export fairs. The biggest advantage of tradeshows is that you get to meet the manufacturers face-to-face. The most famous is the Canton fair, held twice a year in Guangzhou, China.

The final option is to use a sourcing company, such as Easy Imex. The advantage of using a sourcing company is that they can find manufacturers that are not listed on e-commerce platforms or present at tradeshows. Using a sourcing company also removes a lot of the stress of finding a manufacturer, as you know the options presented to you have already been vetted by professionals.

Finally, we can’t stress enough the importance of visiting the factory yourself, or getting a trustworthy third party (like a sourcing company) to do it for you. Not only is it a great way to check the quality of the manufacturer, it’s also a great opportunity for in-person negotiations and relationship building.

Conclusion

In conclusion, the five red flags that you should look out for when choosing a Chinese manufacturer are poor communication, lack of references, ‘too good to be true’ pricing, suspicious payment terms and a failure to provide business credentials. You should also make sure that the company you are dealing with is in fact a manufacturer and not a trading company.

There are several ways to source trustworthy Chinese manufacturers, but the easiest and most reliable is to work with a sourcing company.

About the Author: Adam

Adam Gilbourne is the Founder and Managing Director of Easy Imex. Since 2005, he has helped hundreds of companies worldwide to successfully import from China. He has a large expertise on product sourcing, quality assurance, and supply chain management.

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