Is Your Factory Even Real?:Working with Chinese Factories

How Could My Factory NOT be Real?!

This is a question that may have never even crossed your mind: is the factory that you're talking to real?

Now before you start questioning the authenticity of everything including your own existence, let me say this: this is only a real problem within China. If you are not working with a factory in China, it's less of an issue, but you should still be vigilant. 

Let me tell a story about an Australian couple that I met by chance in China:

One night I am enjoying drinks with friends at a hotel bar in Shenzhen. They stopped one of my friends (an American) and asked her, almost off the bat, "Are there any factories in Shenzhen?"

A little baffled, she responded, "What do you mean?"

They said, "Oh, well, a long time ago we used to have a line of purses manufactured here, but we're afraid all the factories have moved out of the city. Everyone we've talked to has said we should go to Guangzhou."

"Maybe," she replied, "but we have plenty of factories within the city and in Dongguan, too. Who have you been talking to?"

"Oh, different people who say they work for factories or their uncle owns a factory." She rolled her eyes and motioned for me to come over.

I walked up and asked, "Hi, can I help you?" They explained the situation to me. Oh boy. They were accepting business cards and instructions from every person they met along the way that could speak English.. just like they were doing right now.

What could they assume my friend would know about factories and purse manufacturing? They were entirely too vulnerable and accepting everyone's--excuse my French--bullshit as fact. They weren't in Australia anymore, but they had no idea where they had landed.

As the couple continued to tell their story, it came to light that they had manufactured purses in China decades ago, but the landscape had since changed a lot (or so they thought).

"Why don't you want to work with your previous factory?" I asked.

They explained that they had worked with an agent, who they had met online. He helped them connect with factories for 5 years or so, until one day he just up and ran off with the money. "Did you ever meet him?" I asked. "Did you ever visit China, visit your factory?"

"No.." 

"Well what did you expect?!" This agent had ran off with $3M AUS Dollars of their money. No purses, and their money vanished. No recourse. They had never even met then man. Who's to say that he was using his real name?

Are you freaked out now? I know my friend was.

She had done plenty of deals online through Alibaba before we met. Every time she was taking a huge chance that her manufacturers would walk away with her money. The more she spilled to me, the more I realized the mistakes that most foreigners make when they work with Chinese factories:

1. Trusting Too Soon

Did someone email you? Out of the blue, right? Did they say their name was Sally Wang? Oh yeah, there's 100 Million Sally Wangs in China (no joke, there are). 

Did you call them? Did you Skype them? Are you sure this person is real? Did you see the factory or office? No? There's your red flag.

Don’t be too vulnerable, people. China is no-mans-land, it's not America or Australia.

2.  Sending money on 100/0 terms

Some factories, especially on smaller orders, want all the money up front. 100% upfront, no questions asked. They say it's too much of a hassle to Western Union or Paypal two different payments, because the order is so small for them. Red flag #2. Kiss your cash goodbye.

A real factory with good intentions will negotiate terms with you. If it's a small order, they'll at least do 50/50 terms. Larger orders and long-standing relationships can achieve a 30/70 split or better.

3. Assuming Reputation Management is Important: a.k.a. there's a "Yelp" for Factories

Yeah, right. Did you think Alibaba ratings mean anything? They sure don't, and factories are happy to keep it that way. There's no Yelp for factories. 

Reputation management is not the same in China, because the Chinese do not believe in the value of transparency. They believe in saving face, but you can save a lot of face by ripping off a foreigner and never letting a soul outside the company know. Your company is still A-OK in China.

Don't assume that there will be repercussions for the factory's bad actions.

They only way to ensure that the factory sticks to their agreement is by signing a purchase order with them--which IS binding in China--and ensuring that everything goes according to that purchase order BEFORE the goods leave the factory.

The purchase order is only enforceable IN China and only BEFORE the goods have left the factory.

4. Assuming there's such a thing as "Free Breakfast"

As we say in China, 天下没有免费的"早餐", which translates to: "There's no such thing as free breakfast in the whole world". 

The meaning is, don't expect anyone to give you anything for free. There's never such a thing as no strings attached. Do your research to try to find a reputable factory or a reputable agent. If you don't want to go to China yourself (or cannot), let someone else do the heavy lifting for you. But for the love of god, don't go into manufacturing blind.

Build a relationship, keep in constant communication, and understand that there's always some risk in manufacturing. Everyone's happy to steal your money; make sure you're working with the right people. Work with a reputable agent, not some guy you meet on the street in Shenzhen. 

Be a Wolf! 

So what became of our lovely Australian couple? I have no idea.

I gave them my card and well wishes, but I knew I wouldn't hear from them. Another guy was walking up to their table as I left, talking about his Uncle's factory in Dongmen.

Those poor people. 

There are sheep and there are wolves. Which one are you?

Remember: THERE'S NO SUCH THING AS FREE BREAKFAST!