Contribution by Raúl Hidalgo, MBA, General Manager, Annex Asia Business Solutions
China, known as the world’s factory for many reasons, one of those being because all of the worlds biggest players have established their factories there because of the low production cost. However, as individuals continue to venture independently seeking the gold mine that is China they become victims of scams. Anyone looking for a Chinese long-distance provider without a representative in that country or without being knowledgeable, is an easy prey so watch out!
After being attracted by the idea of importing cheap goods from China to sell in Peru, Fernando Escobedo, a law student at the Peruvian University “San Ignacio de Loyola”, contacted a Chinese company through the B2B portal Alibaba. This website known famously now for its owner Jack Ma is dedicated mainly to connecting entrepreneurs around the world with Chinese suppliers. Fernando wanted to try his luck, so he bought a TV and Nintendo WII. « I contacted a company from Alibaba, which offered products like mobile phones, mp4, TVs, laptops and more. The company told me to make the payment through bank transfer and that’s what I did. The next day I ran to the bank to make the payment expecting that the products will come to me in no less than 5 days. I waited the 5 days, and nothing. I contacted the company again through their trade manager, and they told me to wait, that due to the upcoming holidays, the service has a can be delayed. I waited for five more days, and nothing, not a single sign of my shipment; again I proceed to contact the company and asked them to solve my problem. I requested a shipping number or tracking number to check where my package was. Took nearly two weeks for them to provide me with the number in the end it turned out to be a false number. Tells Fernando in his blog called « Alibaba greatest scams « .
After his efforts of trying to track down the company and trying to get his money back failed. He realized that, the company didn’t exist, and that he effectively had been a victim of a scam, Fernando lost all his money. Even though he filed a claim to Alibaba the company that housed the scammer his complaints went unheard and at the end Fernando had no product or money, and nothing to show from his first experience in the Chinese market.
Ghost companies commit one of the four most common frauds that occur in sourcing projects in China, either through lack of clear information, validation of the supplier or attracted by low margins and high profitability.
Ghost Enterprises
Virtual companies that exist only on the Internet, and are characterized by:
- Having only foreign names: This is a detail to consider as most firms in China have names that, by law, must indicate the city or county in which they are located. For example Shenzhen Bin Xin Yan Electronic Co., Ltd.; Shantou Xinyu Industry Co., Ltd.; y Dongguan Yongfang Electronic Technology Co., Ltd. The first word of all the names of these companies is the city where they are established, ie, Shenzhen, Shantou and Dongguan.
- Content in a foreign language: It is important to mention that, in case of a Chinese factory, more often than not find information in Chinese and then in a second or third language. Just think about it: If your company has a website, you only publish information in a foreign language and not the language of the country where you work? This is a sign to be suspicious of.
- Limited or residential address Information: If within the website is only one cell phone or an email, beware. Also pay attention to the address of the factory. It’s hard to tell whether the address is residential or a commercial area. For that you should be familiar with the area.
Paper Businesses
They consist of companies that legally exist, but only for illicit activities. Usually are newly formed or have had less than one year of operations. The best way to detect them is to check the address of where they are established. This information can be found on the business license. If your provider is not open to a visit or asks a prepayment before visiting, beware and evaluate other options.
Imposters or hacking of email accounts
Today, the most common type of fraud, and most difficult to prove, is that in which companies that the dealer has already visited and even done business with. This type of fraud takes the form of ‘hacking’ of email accounts or email accounts created with the domain of the company with extra characters or numbers, these companies request the dealer to deposit money into a personal account or third company other than the one mentioned in the purchased order
Brands
This is another common online scam. It consists in offering name brand products at very low cost, which appeals to the importer by profitability that could be generated and also led by the stereotype that, if manufactured in China, then surely it is much cheaper. The truth of the matter is that it is likely that it is pirated products, which in the future may lead to problems with the customs authorities.
Note that the name brands usually have established distribution channels and dealers. If you find online a name brand item at very low cost, do not think they are original, also do not believe that these products are from the rejections from factories that specialize in making name brands, this is very rare.