Business Risk Control in China: Part of the List of Runaway Chinese bosses from 2011 to 2014

Police begin to arrest “runaway bosses” : Police have begun arresting entrepreneurs who have gone into hiding to avoid repaying bank and informal high-interest loans. One of our UK client’s largest suppliers --a big factory in Zhejiang, China, went bankcrupt suddenly in November, 2013 and lot of foreign clients suffered a lot, indicating that more and more big companies are involved in the excessisve investment on real restate industry in China. A long list of Chinese runaway bosses from 2011 to 2014 is already listed online. Evaluating business risks becomes especially precarious in volatile information-poor emerging markets where issue-based isolated models of risk assessment no longer seem to apply. In particular, multinational corporations seem not to use more established models for evaluating business risks in the second largest market for foreign direct investment (FDI), China. Company Verification, Factory Auditing and Business Investigation service etc are playing a more and more important role in doing business in China at present. Containing financial risks and avoiding further stimulus measures should be the main priorities for policymakers in China, as they contemplate fresh strategies for sustained economic growth, the International Monetary Fund said on Thursday. "We consider that vulnerabilities have risen to the point where containing them should be a priority. Therefore, additional stimulus should only be deployed if growth slows significantly below this year's target," David Lipton, first deputy managing director of IMF, told a news conference in Beijing. China has become too dependent on credit and investment, including in real estate, since the global financial crisis (in 2008), the IMF said in a statement after two weeks of talks with Chinese officials for its annual assessment of the nation's economy. "Continuing reliance on credit-fueled growth means that risks are still rising, and although the government still has sufficient buffers to prevent a disorderly adjustment and sharp growth slowdown in the near term, more sustained efforts to reduce vulnerabilities are necessary," the statement said. Although there are many negative news regarding doing business in China, but China is still the third largest exporter in the world – proof that there are plenty of serious and high quality suppliers. So all what you have to do is work with a qualified local expert in China and do enough Due Diligence work before payment.

How to Safely and Smoothly Purchase from China ?

As an international buyer, you must have experienced following cases and suffered from: late delivery, lower-level quality of products received with defects, quantity received was NOT the same as the order quantity, the supplier did not offer after-sale service and honor the contract at all etc... 　　

Do you have good ways to stop you from above risks in doing business?
Here are some tips for your safe and smooth import business in China: 　　

1. Due Diligence work before placing any orders:
i. Basic Verification (Checking out their Business License and Export License) Every factory or trade company has their own Business License in China, from their real business license, you will be able to find out all their registered information like full company name, registered capital, registration date, legal representative, business scope, company type etc. There are lot of fake business licenses online in China, this is why you have to contact local officials for verification before placing any orders, if you know nothing about Chinese, you can also try STIN Basic Verification service.

ii. Factory Inspection and Auditing
 If your order is very large or if you’re looking for a long term or OEM factory in China, you’d better visit and audit their qualifications first before placing any order. Factory Inspection or Auditing Service is a kind of detailed verification service. Around 85% of the Chinese trade companies or agents online or at local trade fairs would disguise as a real factory in order to obtain big orders. The purpose of any factory auditing or inspection services is to disclose following information regarding their supplier: The full registered information; Management level;Facilities; Export experience or qualifications; Staff; Quality control measures; R &D;After-sale service measures; Bank credit etc;Typical audits can range from verifying simple business transactions, to full inspection or surveillance of a process or corporate social responsibility etc. If you’d like to save more time, cost and energy etc in China, you can try STIN factory inspection service.

iii. Sampling
  No matter how big your order it is, confirming the quality of samples is a safe way to do business in China. With the sample at hand, you can easily check out their quality levels, raw materials, labels, package, technical specifications, descriptions, application etc, but for some professional scammers, they will use ‘high quality samples’, then use worse raw materials and produce the lower-level quality products during the mass production. This is rare but many cases did happen before.This is why more and more big buyers asking STIN to check the sample, keep the sample and inspect the order quality with the samples confirmed in China in person. Here is the link: http://www.chinabizservices.com/service/Management/Sampling_Inspection_Service/ 

iv. Formal Contract Draft
 China is not an English speaking country and all the legal documents shall be presented in Chinese, so when your order is very large, you’d better use bilingual Purchase or Sales Contract in China. All the order details, package, payment terms, lead time and after-sale services etc shall be clearly stipulated in the contract for any large orders. Also please note that some professional scammers use ‘fake’ company chop or seal in the contract, so you’re suggested to ask an local Chinese expert to proofread and translate the contract first before any signature.

2. Due Diligence work during production
 i. During-production Quality Control Inspection
 The purpose of any During-production QC Inspection is mainly to check the raw material quality, raw material stock, production QC standards, semi-products and other potential QC risks at the factory for the clients worldwide, this work can be carried out when the order is 30-50% completed in order to avoid REWORK on the whole order later. With this inspection the buyer can trace the lead time on time in China, if you’re not able to do it in person, you can try STIN QC Inspection Service. 

 ii. Pre-shipment Quality Control Inspection
 After the during-production QC inspection, a Pre-shipment QC inspection service is very necessary for large order before delivery in China. The purpose of any Pre-production QC Inspection is mainly to check the finished product and all the order details (workmanship, quality, quantity, documents,labels, shipping marks etc.). Most of the buyers use ‘pre-shipment QC inspection’ service to protect their interests before delivery in China: http://www.chinabizservices.com/service/Management/Pre_production_QC_Inspection_Se/ 　　
Normally for 99% of the orders, you can only book ONE quality control inspection service, say, pre-shipment QC inspection service, to protect your interests in the factory and it is unnecessary to book two inspection services for one order but some very big orders are exceptional.

3. Due Diligence work after you pay the supplier
 i. On-site Loading Process Supervision
 In China most of the factories ask for full payment before loading the goods and sometimes there would be some goods missing during the loading process in China. So for some special orders, an on-site loading process supervision service is necessary, Loading Process Supervision Service means the inspector shall go to the factory's warehouse together with the shipper, overseeing the process of loading on behalf of the clients in China after they pay the factory. The purpose of a Supervision of Loading Process is to make sure the factory will deliver the right Quantity or Quality after the buyer pays the order.

 ii. After-sale Service (Order Follow-up) Some factories have no sense of after-sale services in China and in this case all the after-sale services have to be clearly stipulated in the contract before paying the deposit. Resources and copyright: STIN (CHINA) BUSINESS SERVICE CO.，LTD STIN CONSULTING SERVICE IS AIMING TO SAVE YOU MORE AND REDUCE THE RISKS IN YOUR BUSINESS IN CHINA! WWW.CHINABIZSERVICES.COM OR WWW.BIZINCHINA.CC

Basic Due Diligence Work for Sourcing from China

Below are some procurement recommendations :

1.Verify the name and address of the company, the manufacturing address, phone number and fax number. Cross-reference this information and the company name against other trade sites to ensure that the information is the same including contact names. Conduct a Google search on the company and their address to figure out if you could find additional information or additional suppliers that supposedly operate under the same contact information.You can also use a third-party company verification service to check them out in a professional way.

2.Refuse to deal with generic e-mail addresses like hotmail or yahoo. Only deal with specific company addresses. If the e-mail address is similar to sales01 or sales02 etc. I would assume that they are a reseller and not a manufacturer. Resellers tend to have offices of people surfing Alibaba etc, all day long trying to contact people. Conduct a whois search on the supplier's web-address. Verify the information.

3.Call the supplier at the provided phone number several times and inquire about the company and the person. Ask who is in charge and ask to speak with him. Ask your contact to send along information on the company including maps to their manufacturing site.

4.Ask for references in the USA or any other developed country, preferably the references from your own country. Require them to provide a contact name, company name, title, address and phone number. Follow-up with the references in person--not via e-mail. Ensure that they are valid references.

5.Inform the supplier that you will be visiting their location for a factory tour. Evaluate their response. It is best to hire someone to actually visit the company to verify the company's validity and business operations even if it costs you some money because it is better to minimize risk during the sourcing process. There are a few reputable companies out there that can conduct a background check for you. Contact these companies and buy the reports. It is well worth the money. Professional factory inspection or auditing service can be available from STIN group in Mainland China.

6.When procuring items for new suppliers request payment via L/C instead of T/T. Very few international manufacturers actually accept Paypal or Escrow. If you have placing a very, very large order then you might be able to get them to agree. Never pay the full balance up front.

7.Pre-shipment inspections are a must for new suppliers. You want to ensure that the goods are of adequate quality before accepting the order. Conducting a statistical sampling of goods is highly recommended. Also, if you are able to coordinate a pre-shipment inspection then you could arrange for payment of the balance upon successful completion of the inspection.

Notes:
If you are dealing with suppliers that pay brand name goods like Apple iPods, Nokia phones, please don't expect that these are manufacturers of these products. Brand name goods companies have tight controls over the manufacturing process. If the company is a manufacturer then these are most likely fake or imitation goods. If the company says they are authentic then they are either they are a reseller or possibly fraudulent.