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How To Identify A Real Manufacturing Company?

Are you importing goods from China? Trading with Chinese manufacturing or trading company can be tricky and sometimes, quite challenging. This is especially true for importers with small and medium sized businesses. For some, it can even turn into a daunting and a draining drill to deal with the suppliers in China.

A worker at a manufacturing comppany
A worker at a factory

A Difference Between a Manufacturing and a Trading Company

A manufacturing company typically owns a factory where their specialized workers design and manufacture their own products for customers. This is why, establishing a manufacturing company usually requires large capital investment to start with.

On the other hand, a trading company does not own a factory themselves. Instead, they have relationship with one or more manufacturers, and work more like an agent for those manufacturing companies.

Do You Prefer Importing Directly from a Manufacturer or Through a Trading Company?

Most importers do not care if they work with a manufacturer or a trading company, as long as the price and quality meet their expectations. But there are still many importers who want to work directly with a manufacturer when importing goods from China. Mainly because they think the manufacturers can offer the best prices, which can be true, but not in every case.

Almost every other company on buying platforms, such as Alibaba, Made in China or Global Sources, claim themselves as manufacturer. In reality, they are the trading companies listed as manufacturers. So how can you tell if they are a manufacturing company, or a trading company under the skin of a manufacturer?

There are several ways to make a good guess about the company you are dealing with. Off course, not all methods apply in every scenario, but most of them do work in most cases.

In this article we will discusses the tactics that you can use to distinguish between a manufacturing and a trading company.

So How to Tell if the Supplier is a Manufacturing or a Trading Company?

The only method that works much better than any other tactic is visiting the company personally. (We will cover this a little later in this article.) But this is the privilege that many small business owners find difficult to enjoy. Also, the coronavirus pandemic situation is still unclear globally and traveling to China also has its own difficulties during pandemic. Therefore, investigating the supplier remotely need some deliberations and efforts.

Some of the tactics work better than others, but you can still use them to make your analysis better.

1.      Be straight and just ask them the simple question

There is no harm in asking them if they are a manufacturer or a trading company. Most of the times, you will hear that they are manufacturer, as most of them tell this anyways. But still there are some companies, who would tell you the truth that they are in fact a trading company. You may like to respect them for their honesty, and thank them for not wasting your and their own time.

If they tell you that they are a manufacturing company, then keep going with your tactics.

2.      Pay attention to the lead time and the quality of their response

Pay attention to the conversation with the company’s sales representative. Analyze their communication. The way they communicate with you, can give you some clues about them.

The manufacturing company’s sales representative usually have much better knowledge of the product and the manufacturing processes. On the other hand, the trading company’s sales representative could be specialized in sales, but depends on the actual manufacturer for some technical and low level details. That is why the sales person of a manufacturing company usually responds quickly and with more details than that of a trading company. The trading company may also respond to you quickly, but without enough details that you are looking for. For the detailed reply, they may take time.

Exceptions

The above mentioned analysis based on quick responses may not work in some cases. For example: if you are looking for a generalized or a hot selling product, and you stumble upon a trading company by chance. The sales representative of the trading company may have years of experience in dealing with customers like you. He or she could have heard most of the questions you may have to ask, and therefore could be well prepared with the answers in advance. To push them a little, you can ask more questions of the technical nature unique to their product or your query. If they are a trading company, then it may take some extra time for them to find out the required details for you. This is because they may have to contact the manufacturer for the answers.

On the other hand, there are also chances that the person at the sales desk is new at this manufacturing company or at this role. He or she may not have the complete information readily available that you are looking for. So you may have to get back and forth with them to get enough information about the product.

Therefore, it is recommended not to rely too much on this method.

3.      Judge them by the size of their product catalog

A manufacturing company is usually specialized in one or only several kinds of products. If there are lots of different kinds of products in the company’s catalog, then it is more likely to be a trading company.

A typical trading company starts with one or two products at the beginning. As they build their relationships with other manufacturers with time, they keep adding products to their own catalog. Therefore, it is a good idea to check how long they have been in the business. If they are in business for several years, and have many products in their catalog, then chances are good that they are a trading company.

As several other methods, this method may also not give you the clearer picture about the company’s business nature. A trading company that is relatively new, and having only a few products can be mistaken as a manufacturing company. On the other hand, a trading company active in business for many years, yet might stay content with the few products they are dealing in.

4.      Check their minimum order quantity (MOQ)

Most manufacturing companies have higher MOQs than a trading company. For example, a manufacturer can have an MOQ of, say, 20,000 pieces of electrical bulbs. But, a trading company may be able to provide you 5000 pieces of the same bulb. You may ask them to sell lower quantities to see if they can. Compare the MOQs of your required product from different suppliers. Most of the manufacturers usually have similar MOQs for a product on most buying platforms.

5.      Ask for their ISO 9001:2015 Certification

Usually, if a company holds the ISO 9001 certification, then chances are good that they are a manufacturing company. Still, not every manufacturer holds the ISO 9001 certification, and not any company holding this certification is a manufacturer. Many companies find ISO 9001 certification requirements difficult to fulfill, and therefore and not able to obtain this certification. On the other hand, some trading companies obtain this certification as well. In this case, they usually have solid relationship with manufacturing companies. Therefore, they are usually equally competitive as any other manufacturer, even on price.

However, be aware that it is relatively easy to fake the ISO 9001 certificate because they know that you may require some time and efforts to verify the certificate. Check the following databases to verify the certificate:

6.      Check their factory audit report

As one of the checks to classify a company is to ask the company for their factory audit report. If they send you this report, then check the company name on the report. The name on the audit report should match with the one on the business license. If it is so, then they are a manufacturing company.

One thing to note here is that, some companies may have separate names for the office and their factory. If this is a case, then they must have a separate business license for the factory. You should ask them for the factory business license as well, and perform the verification steps. Check for the business scope and other vital information on the license. They would also mention the name of their factory on their website. Basically, they would not want to hide the fact, and provide you all the information you need.

Also, not all manufacturers would necessarily have a factory audit report. So if they are not able to provide you the report, then this does not automatically classify them as a trading company.

7.      Ask for their factory’s pictures

The factory pictures that they send you will give you some idea of their capacity. But don’t take these pictures too seriously, as these pictures can be fake as well. However, when you ask for their factory’s pictures, do not forget to ask for the name block outside the factory, with the factory building in the background. Check and match the characters of the factory name with that on the business license. If they are a legit manufacturer, the name should be same.

8.      Ask for the relevant company documents to see if they are even a legit company

To investigate them further, you should ask for their documents related to their company and business. It is important to know them better for your safety as well. We have covered the list of documents in this article that you should seek before you settle into a contract with your supplier.

9.      Check their business scope on company’s business license

The business scope on the company’s license includes the most important information about the company. In their business scope, look for the characters like 制造 (manufacture),生产 (produce),加工 (process) and so on. You will find these words on the manufacturer’s license, but not on that of the trading company.

You can scan the QR-code on the business license to go directly to the relevant webpage of the company in the National Enterprise Credit Information Publicity System (NECIPS) database. It is almost impossible for a company to fudge this information, as the same information is available publicly on government’s official NECIPS database. Therefore, checking their business scope is one of the easiest methods to tell if they are a manufacturer or not.

10.   Visit their factory and see their manufacturing operations

This is by far the most reliable method to tell if your supplier is a manufacturing or a trading company. If you plan to visit China, you must visit your supplier’s factory to see their manufacturing operations. However, if you cannot travel to China by yourself, you can seek someone’s help who is living locally to make this visit instead of you. Another option is to hire a professional sourcing or an auditing firm for this reason. After all, the sourcing agency or the auditing firm will charge you much less than what you would spend on traveling to China by yourself.

If not anything else, then you should at least ask them for their factory address. Ask them how and when you or anyone on your behalf can visit their factory. Tell them that when you visit the factory, you will be checking their manufacturing areas as well. Observe how they respond. A genuine manufacturer should welcome your visit happily, and would be keen in making all the arrangements for you.

Conclusion

There are several different ways you can judge your supplier to know if they are a manufacturing or a trading company. However, no method is foolproof and can give you the 100% guarantee on your judgment. But the visit to the factory personally would provide the most knowledge and the best judgment about the supplier. So if you are not able to visit the factory personally, we recommend doing as many checks as you can to stay safe at your end of the business.

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How to Identify a Legit Chinese Supplier

China is the fastest growing economy and considered the “factory of the world”. According to a United Nations report, about 28.7% or the global production is done here. Not just that, most of the production done here is more economical as compared to the other parts of the world. Therefore, importing products from China for the business is usually a natural choice for many people around the globe. However, it is often challenging to choose the right Chinese supplier from thousands of them for your business.

Carefully check your supplier's information to know if they are legit or not before closing a deal

Before 2020 arrived, if anyone wanted to do business with Chinese companies, they would buy an air ticket, and land in China to find an appropriate supplier/manufacturer/source and secure a deal. However, traveling anywhere, and similarly to China these days, is not fun.

Even though the pandemic situation in China is largely under control, and most businesses are back to their normal, but internationally, it is still not so easy to travel right now.

Now when your situation does not allow traveling to China, you have to deal with suppliers without physically meeting them. Therefore, it becomes quite challenging to identify if they are a legit supplier/company/manufacturer for the business or not.

In this article, we will discuss how you can identify a genuine supplier among a million others in China.

So What Choices Do You Have in Choosing a Chinese Supplier?

Many small and medium business owners like to import goods from China. However, they lack in confidence in dealing with the Chinese suppliers and companies. There could be several reasons, including the language barrier, complicated international trading process, scams, or bad quality products.

There are some golden rules that apply to doing business with any Chinese supplier, regardless of the situation worldwide. To avoid being cheated, it is necessary to evaluate the company for their standing before making a deal.

If you are short on time, and have a little bit extra budget at your disposal, it is always recommended to hire a local agency for your help in business with Chinese companies.

However, if you have more time than money, then some hard work and extensive research could potentially do the job just as well.

How Can You Identify a Genuine Chinese Company or Supplier?

There are a number of methods you can use to identify potentially a genuine supplier among the not so trustworthy ones. Beware that no method actually guarantees 100% authenticity on any company’s legal standing or reputation. However, by keeping your sensors on during your conversation with the supplier, and using multiple methods, you can have a good idea if it seems safe enough to go ahead with the supplier for your business or not.

Method 1: Request Your Supplier for Chinese Business License and Other Certificates

There are several certificates that you should be asking for whenever you are engaging with a Chinese company or supplier.

1 – Check Their Business License (营业执照)

Every company in China needs to have a business license issued by the government. This is not a secret document. In fact, the law requires every company to display their business license at a prominent location at their business place. To verify if your supplier is legit, it is a good idea to ask them about their business license. Verifying the business license is usually the first step when doing due diligence on a Chinese supplier. You may often find a company who is reluctant to show their business license upon your request. If this is the case, then probably something is not right.

The business license in China gives you some basic, yet official information about the company. As such, it allows you to check that your supplier is registered and operates legally. Let’s discuss this in a bit detail.

Here it is what a China business license looks like:

China business license

The China business license is only issued in Chinese language. You may use the “Google Translator” or the “Baidu Translator” application on your mobile phone to translate the content on the image of the business license to English. Beware that this machine translation may give you good enough information, but may not be accurate. To make sure about the license content, you may make use of a human translation service for more accuracy.

Chinese government usually issues business license in both “Portrait” (vertical) and “Landscape” (horizontal) orientation. However, both copies contain the same information. Different companies may show you license in different orientation.

The business license provides the most important data, which includes:

18-Digit Chinese Business Registration Number:

This unified business registration number provides useful information about the company:

  • First digit: Registering authority
  • Second digit: Entity type
  • Digit 3-8: Registering region
  • Digit 9-17: Organization code
  • Last digit: Check digit
Official Company Name:

When registering, a company may choose only a Chinese name or both Chinese and English names. Most companies in China are registered with their Chinese names only. They do not officially register an English name. A lot of English company names you may find on buying platforms, such as Alibaba, are using their unofficial names.

Type of entity
Official Address:

This is the registered address of the company, which can be different from their factory address.

Legal Representative:

This is the name of a person who is legally representing the company. This is typically the owner or the co-owner of the company.

Registered Capital:

Depending on the type of a company, the registered capital can be as low as 10,000 CNY or as high as 20 million CNY or above. For example, a small trading company may register for relatively a low capital, but big manufacturing companies may register with large amounts in capital.

Date of Incorporation:

It is generally good to do business with a Chinese supplier who has been in the market for at least 2-3 years.

Expiration Date
Business Scope:

The business scope defined on the business license covers exactly what a company is legally permitted to do. The business scope is typically very specific. Anything not mentioned on the business scope is deemed illegal. For example, it may include “manufacturing and trading of electrical equipment” and “no trade of items subject to license approval”. However, if the company is offering services outside this business scope, then you should obviously see this as a red flag.

QR Code:

You may scan the QR code to see the details of the company on government’s official database: National Enterprise Credit Information Publicity System (NECIPS). Cross check all the details on the database to see if they are same as mentioned on the business license you received from the company.

Verifying business license is a good document to good to start with, but checking other documents can also come in handy.

2 – Bank Account Certificate (开户许可证)

If they have this certificate, it proves that they are a genuine holder of the bank account, and your money actually goes to the company.

However, a company may operate more than one bank account, for example, to handle different currencies or different modes of business. Nevertheless, the take away here is that, always transfer money to company’s back account, and not to any personal accounts.

3 – ISO 9001 Certificate (ISO9001质量管理体系证书)

Requesting for ISO9001 certificate is usually a good measure to ensure that the organization’s quality management system is certified. Cross check the details on the certificate, and also verify the certification authority.

4 – Test Reports (测试报告)

Request for the test reports of the items to confirm that the goods are being produced to the standard you require. Make sure the test reports are of the same items that you are interested in. Check the details of the report to see if the report actually contains the information that you need. Some supplier’s may show you the test reports of other items that you are not looking for.

5 – Purchase Invoice or Proforma Invoice (形式发票)

This is the invoice your supplier should provide you against the products you are buying. Carefully check all the details on the invoice, including product detail, price, name of the company, bank account information, and so on.

6 – Foreign Trade Registration Certificate (对外贸易经营者备案登记表)

This certificate is only required for the companies which are directly engaged in foreign trading. If a company does not possess this certificate, then they are possibly using a trading company to export their goods. If they posses this certificate, then it is good. Otherwise, check and confirm with them if they are using a third party to ship goods outside China.

7 – Customs Registration Certificate (进出口货物收发货人报关注册登记证书)

The Chinese companies who possess this certificate are registered with China Customs to make custom declarations. Not every company who is engaged in foreign trading possess this certificate, as they may use another broker for this process. Nevertheless, it is a good method to understand their capabilities.

Method 2: Ask Your Supplier for Reference

Ask you supplier for their bank’s reference letters to verify their credit worthiness.

You may also ask for their previous or other current customers as a reference, and do not hesitate to contact them. This will give you a great insight on supplier’s track record in producing the required items.

But, here is a catch. Many good manufacturers want to keep their customer list private, except when they work with some big customers that everybody knows. They may refuse, for the fear that their competitors may try to contact the customers and underbid them. So, this also may not be a fruitful method, but it is good if they provide you any reference to vet their claims.

Method 3: Use Search Engines to Find Out Their Reputation in the Market

Use Google, Bing and Baidu search engines to run a quick background check. Open a search engine, and type the company name and their phone number in the search field and hit search. The search results may display some useful information about the company. Such as, any exhibition or a trade show they might have attended recently, or an award that they have received from some reputed organization, and so on.

Now run the search for their negative reputation. Open a search engine, and search for “[company name] + fraud”, “[company name] + scam” and some other similar variations.

Use these helpful tips when performing search:

  • Run these search queries with their English name as well as Chinese names (with Chinese characters).
  • Use Google Chrome to perform these search queries. The search results may display references to some Chinese websites. The Google Chrome browser usually translates the Chinese websites to English automatically. If the browser does not translate these websites automatically, you can configure it to do so when required.
  • If they have provided you some images of their factory or manufacturing unit, use Google Images, Bing Images or Baidu Images to see if anyone else is using these images or not. There are chances they might have provided you images of some other factory that does not belong to them.

Method 4: Request for a Sample

Regardless of what you are buying, it is good to ask for their sample—even if you have to pay for it. When you have the sample in your hands, you can check the quality of the product to see it if fulfills your requirements. You may also know about their service and attitude.

If you have to pay for it, tell them that you want to wire transfer the payment directly into their company’s bank account. If they cannot provide you their account information, then the things are fishy.

Conclusion:

Doing business with Chinese company or a supplier requires due diligence. You should perform a proper check and verification for the companies to know that they are what they claim to be. Check all the details in the documents they provide to you very carefully. They may provide you a different document than what you requested, or the document that does not contain the relevant or complete information.

You would definitely not want to work with a supplier that is non reliable, often provides inferior quality products, or delays shipments. In this article, we introduced some tips that you can use to vet your supplier before making a final decision.

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