We are regularly contacted by clients to conduct due diligence on their Chinese suppliers in Shenzhen, Guangzhou and Dongguan in the Guangdong Province. After a few years of doing business with their supplier, they start to wonder — are we really dealing with the factory here or are we dealing with some middleman who is charging us a premium and may not be a reliable company in the future and as our business grows?
As an example, one of the lawyers in our firm out of our office in the Futian District in Shenzhen, who previously worked for the largest law firm in China focused on foreign clients, yesterday conducted a due diligence for our California-based client.
It seems that after doing 2 plus years of steady business with their Ningbo based supplier who claimed to be a manufacturer of plastic injected mold products, our client became concerned with repeated and recent supply disruptions.
A few hours of work by Mr. Zhang of our firm confirmed:
“As assumed by ——, there is no evidence to show that ————– Co Ltd. has any qualification on manufacturing. It seems to only be a front trade company.
I have searched the shareholding structure, there is no evidence to show that the shareholders of ————— Co Ltd. has invested in any factory, at least in China. The employment information of ————– Co Ltd. only shows that they are hiring sales manager instead of any position related to manufacturing. It shows that ——————– Co Ltd. has only been granted the license related to import and export. In China, a factory will have at least an environment report filed with the government and available to the public. However, there is no evidence to show that —————- Co Ltd. has submitted such environment report.
Enclosed please find the Due Diligence report in Chinese and translated into English for our client.”
Now that the client has their suspicions confirmed (who wants to do business with a middle-man?) we can provide secure sourcing services to help the client find a factory to do business with and Mr. Danan of our firm can arrange for them to tour several good factories that specialize in their type of product for the client to do direct business with. Obviously, a TM should be filed in China for their company name and product, and an NNN should be entered into. Since our client does millions of dollars of sales on Amazon, they will be relieved to have a more reliable footprint in China for their future business needs.