Red Flags of Alibaba Series: #1 Is Working With a Supplier That Hasn’t Been in Business Long

Mar 8, 2024 | 0 comments

Welcome to my new “Red Flags of Alibaba” series.

Read on for how to know the first red flag in product sourcing.

Red Flag 1: Working with a supplier that hasn’t been in business long.

Best practice: You want to look for a factory with at least 5 years of experience, but ideally 10+ years.

Or, you may face these challenges:

(A) Lack of experience

Suppliers with less experience may not be able to handle product complexities or deal with challenges as they surface.

Worse, they may subcontract parts of—or—your entire order to another partner factory. Meaning, even less control or transparency on quality and adherence to specs. Yikes!

(B) Financial stability concerns

They may lack the financial stability of established suppliers. This creates the risk of them going out of business suddenly. Think: losing your deposit on an order because your factory suddenly goes bankrupt.

(C) Inability to produce at scale

Sure, they may be able to manufacture a small order. But with larger volume expect possible challenges with fitting you into a limited production schedule.

The result? Delays and rushed, less-than-perfect orders.

(D) Less experience with international clients

Without enough export experience, factories may lack the staff or know-how to communicate quickly and clearly.

Also, possibly expect misunderstandings around product and packaging quality standards.

An experienced factory will be strong communicators and know the ins and out of what quality is needed for western markets. Including, packaging and labeling requirements for different marketplaces like Amazon and Walmart.

(E) Lower compliance and ethical standards

It takes time and money for factories to build up their compliance and labour conditions.

If they claim to have many certifications but are a “young” supplier, it could be worth auditing them to ensure the validity.

(F) Employee churn issues

Without a well established hiring and management system they may have difficulty finding and attracting workers. Or keeping them long term.

This could mean sudden changes to who is working on or overseeing your orders.

Overall, you always want to try to find a supplier with adequate experience.

But every situation is also unique and there may be reasons why you need to work with younger suppliers. Including:

➤ You have a very unique, niche product that greatly reduces the pool of prospective suppliers.

➤ You have a very low minimum order quantity (MOQ) requirement causing the bigger established factories to not want to work with you.

➤ Your overall order value is low. Even with a higher MOQ, if the per unit cost is low then factories may not bite. They have their own opportunity costs to consider.

Ultimately, every product situation is unique. With a larger order volume and higher product cost you have more leverage as a buyer.

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