How to try and avoid fraud when dealing with Chinese Suppliers.

When you buy from a Chinese supplier, you have to do what is called due diligence or research about the supplier you want to do business with. Check out reviews from previous customers, request and analyze samples, and do everything possible to verify the manufacturer is reputable before placing your order. A visit to the factory is essential if you are going to be buying large quantities. Once you decide on the factory and place your order, arrange to hire an inspection service to do a QC check before shipment is made. If possible pay using a secure payment method like credit card or PayPal so you at least have a small chance of recovering your money if the deal goes bad.

These are some things you should be doing before you make any purchases, whether it is merchandise from a local supplier or an expensive item for your personal use. Do your Research!

Remember, it is your money you are spending and your customers that you are shipping the merchandise to.

Is it worth risking your money and your business reputation on an unknown supplier, just to save some money?

Now if you are worried about finding a supplier to build your patented product or IP product, that is a whole other set of concerns. As a new buyer from China all I can tell you is buyer beware. No amount of Non disclosure agreements or iron clad contracts will protect you if the factory chooses to defraud you. The distance you are from the factory, communication or language problems, and the differences in the legal systems will give you only a very small chance of success in resolving any patent or IP issues. Get everything in writing. Do not rely on any verbal agreements.

The two most common scenarios are as follows. I like to call them front door fraud and back door fraud.

Front door fraud. You are based in the USA. The factory is visited by a buyer from some other country, say South Africa, and sees your product on the production line. He asks for a quote. Now the proper way to handle this would be for the factory to refer him to you for a quote, but little Mary sales girl sees an opportunity to make a commission for herself or to reach her sales quota so she can get a bonus, so she quotes the South African buyer direct. She thinks since you, the patent owner is based in the USA, and the buyer is located far away, you will never know. If you ever find out about the sale, the factory owner will simply say, oh sorry, the sales girl is new and didn’t know better.

The second scenario is as follows. Back door fraud. Engineers from the factory, or management employees that have access to your files, steal your info and either sell the info to a different factory, or establish a production line themselves and manufacture and sell your product. In this situation, nobody knows nothing. The production line can be shutdown or renamed easily. you will probably never be able to find them. Or, if you do find them and try and sue, the cost of legal expenses makes this extremely difficult. You can spend a lot and sue, you may even win a judgement, but will you every be able to collect anything from a small factory?

So as a new company looking for a factory to produce your patented or IP product, preventing fraud requires extreme measures.

  1. Have different sub assemblies manufactured at different factories, them do final assembly in a different facility.
  2. Build the sub assemblies in China and bring them back to the USA for final assembly.

You may be able to save some money, sometimes even a lot of money, having a product manufactured in China, but if you’re not big enough to spend the money on security, quality control, and patent protection, will it be even worth it?

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