Sourcing on alibaba. Questions you need to ask

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“Your blog speaks to the many issues I have experience with when doing business in China”  –  a California company

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Just as I go to Walmart if I need a pair of cheap gardening gloves or some Tupperware, so if I really want to get some quick quotes on a low value added product I will look on alibaba. Alibaba can be very useful for getting an idea of how much a product costs. Even Chinese vendors use alibaba as one of my long-time Chinese friends/associates has told me ( much to my surprise). In fact I know now that if I ask a factory about a project, and one component of that product is outside their area of expertise, then they will most likely try to find a subcontractor, you guessed it, on alibaba.

I am sure there are good vendors on alibaba. But it seems there is a lot of carrot-dangling on alibaba as well. The prices that you see on alibaba are low, to be sure, but they are usually tied to very high MOQs. And my impression is that there are a lot of 3rd tier vendors on alibaba. These are very small vendors who sell primarily on alibaba and who do not attend big trade fairs abroad or in China. In other words, probably not vendors you would want to deal with.

I always think it is useful when you meet vendors on alibaba to ask them two questions:

1.) Do they attend trade fairs. Attending trade fairs is important because it tells you up front that the vendor is an established business with capital to invest, and very likely has some overseas customers. If they answer ‘yes” then ask them which shows. Then go to the websites of the shows they mention to see if they are listed on the exhibitor’s list. “Trust but verify.”

2.) Ask your alibaba vendor if they have a local website. If they do not or they tell you it is “under construction” then I would be wary about doing business with them.

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Outsourcing in China. Get used to it.

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Outsourcing is a paradox. It is a practice that is often necessary for the long-term health of a business or organization and at the same time it is a concept that engenders considerable animosity among electorates esp. in election years. When US companies send jobs overseas, for example, American jobs are lost. But many more jobs might be lost if a company refused to outsource, was unable to meet the high cost of US labor and went out of business. Like it or not, outsourcing is simply one of the realities of Globalization. It is unavoidable.

In China these days, some companies in provinces where the cost of labor and materials is high have begun to outsource orders to other areas within China where costs are lower. These outsourcing factories, usually in coastal provinces, simply cannot compete if their costs are too high. In fact if you do an order in Eastern China or South China and part of it is not outsourced, that is highly unusual. One vendor wrote to me:

“For the labor cost, because zhejiang is developed area in china, so the labor cost is not cheap,but will cheap than guangdong I think.And some factory now buy the material and send to west china workshop to handmade it, for the cost is much cheap. Like some jewelry order we have, we buy the material and send to our jiangxin workshop to make.”

Many US companies are uncomfortable with the practice of outsourcing in China because it renders their supply china less transparent. For some industries with strict safety standards, e.g. construction, pharmaceuticals, toys etc outsourcing can be a real headache because there is sometimes no way to know if subcontractors are qualified and are using parts and materials in accordance with international safety standards. Other industries where product safety is not so much an issue nevertheless worry about outsourcing because it may lead to inconsistent quality over production lots. At some point though you have to accept that outsourcing is normal and you should not be discouraged if you find out your vendor is outsourcing part of your order. What is important is to make sure your vendor has very strict procedures as regards subcontractors and is not accepting product into his factory that does not meet your company or order standards. A simple visit to your vendor’s factory is usually enough to determine this. Once again this is why getting on a plane and going to China to see for yourself is so important when you do business there.

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