Buying from Alibaba has become easy and convenient if it all works as expected. This guide covers some pitfalls and tips so you can be successful with your China sourcing.
This blog article was first published on www.sourcingallies.com
If you’re familiar with e-commerce in the slightest, you’ve heard of Alibaba. This Chinese company is one of the world’s largest e-commerce platforms, connecting millions of buyers and sellers worldwide and dealing in almost every product conceivable. And if you’re in the process of setting up an online business or scaling up, there is a high chance you’ll look to source your products from Alibaba. The company had 779 million active consumers across its online shopping properties at the end of December 2020.
Given Alibaba’s dominance in the fast-growing e-commerce space, this piece offers insights into how you should manage your Alibaba experience. Read on to know:
- What is Alibaba?
- How does it work?
- Advantages and disadvantages of buying on Alibaba
- Dos and don’ts
- Sourcing agent option
Open Sesame! The Alibaba story
In 1999, a former tourist guide-turned-English teacher, Jack Ma, founded Alibaba in Hangzhou, China. The company facilitated trade between small businesses. Ma was inspired to name his company after the Arabic folktale Ali Baba and The Forty Thieves and its popular catch phrase “Open Sesame”, which opened up a treasure trove. “Ali Baba is a kind, smart businessperson,” Ma said in a 2006 interview. He felt the name resonated with people across the world. “People from India, people from Germany, people from Tokyo and China… They all knew about Alibaba,” he said.
Alibaba’s journey was no less fairytale-like. It rose quickly. In 2005, American Internet company Yahoo! paid $1 billion to acquire a 40% stake in the Chinese firm. Less than 10 years later, Alibaba’s IPO at the New York Stock Exchange raised $25 billion, the world’s biggest public stock offering at the time. Ma — who bought his first computer when he was 33 — has regularly been voted China’s richest man. It’s not uncommon to hear of Ma being called the “Steve Jobs of China” and Alibaba the “Amazon of China”.
Today, the Alibaba Group houses cloud computing and digital media and entertainment brands along with its core e-commerce businesses. Its main e-commerce platforms are:
- Alibaba.com — A wholesale B2B platform and the group’s first venture, Alibaba.com started off with seven employees and, in 2020, by the company’s own account, had more than 20 million buyers from 190 countries.
- Taobao — Continuing with the Alibaba theme, the word “taobao” roughly translates to “searching for treasure”. It is Alibaba’s business-to-consumer (B2C) shopping site where the merchants are primarily small retailers and individuals.
- Tmall — Another B2C platform from Alibaba’s stables, it targets consumers looking for luxury branded products. Unlike Taobao’s small retailers, Tmall hosts multinationals and large companies.
Alibaba has several other businesses under its umbrella, including:
- AliExpress — This B2C platform is similar to Taobao and sells similar products. But there’s one difference. Taobao is entirely in Chinese and ships within China. AliExpress ships globally and is available in 17 languages, including English, Russian, Spanish and French.
- Alibaba Cloud — It is the world’s fourth largest cloud infrastructure market by revenue, trailing Amazon, Microsoft and Google but outpacing IBM.
- Youku — Acquired by Alibaba in 2016, Youku is a popular video platform that helps users search, view and share video content. Alibaba uses Youku to drive customer loyalty towards its e-commerce business.
- South China Morning Post (SCMP) — The Hong Kong-based English language newspaper was acquired by Alibaba in 2016 along with its magazine, digital media arm and all its events.
How does Alibaba work?
Here, we’re talking about the B2B platform and not the Alibaba Group. Sellers on Alibaba.com are suppliers and manufacturers of raw material and manufactured goods in China and elsewhere. Buyers are retailers, wholesalers, manufacturers buying raw material to make finished products, small businesses and sourcing agents. Alibaba serves as the middleman, connecting the two. Unlike Amazon, it doesn’t hold inventory and doesn’t own warehouses. When you sell/buy on Alibaba, it takes care of:
- Sourcing — You can choose from a huge range of products, buy in bulk directly from the manufacturer/supplier and at highly affordable rates. You can also work directly with a manufacturer and build a custom product based on your design.
- Fully digital transaction — You can complete the entire sourcing process online, from searching for a product, comparing and verifying suppliers, communicating/negotiating with the supplier to ordering samples, placing the final order and paying for it. Alibaba also provides logistics support (air and ocean freight, air express, etc) in select regions.
- Online marketing solutions — Free listing of items, paid advertisement, data-driven consumer insights, secure digital payment, messaging and media services are some of its offerings.
- Digital supply chain fulfilment — Cainiao Network, an Alibaba business, partners with logistics service providers to offer local (China) and international logistics and supply chain management solutions. It aims to fulfil orders within 24 hours in China and 72 hours elsewhere.
- Financial services — You can pay for your purchases on Alipay, the group’s consumer finance app that claims to have 1.3 billion global users. Alibaba also has a Pay Later plan, which offers small businesses a line of credit of $500-$150,000 for six months at an interest rate of 3.5%.
5 Advantages of buying on Alibaba
- Affordable — Alibaba’s wholesale prices are among the lowest you’ll find anywhere
- Wide product range — It carries millions of products. A search for “cotton towel”, for example, returns 70,203 results. You can use the filters to narrow down your options
- Easy to use — The Alibaba portal has a user-friendly interface and supports 16 languages. To buy, you simply:
- Create an Alibaba account (it’s free)
- Search for products
- Search for suppliers and contact them
- Negotiate a deal, including price and payment method
- Order samples and verify their quality
- Place your order and pay for it
- Receive your goods (and start selling)
- Verified suppliers — Alibaba runs a verification program for its suppliers. There are three levels of checks — authentication and verification (A&V), onsite checks and supplier assessment. These are carried out by Alibaba personnel and/or third-party inspection companies. Suppliers who opt for verification are categorized as “Gold Suppliers” or Verified Suppliers”.
- Quality control — Alibaba offers buyers “Product Monitoring” and “Inspection” services for a fee. Under Product Monitoring, an Alibaba service team tracks the production process and provides regular updates to the buyer. Inspection services are carried out by a third-party company, which checks for quantity, conformity (with style, color, label, packing, etc), workmanship and functionality. Additionally, Alibaba’s “Trade Assurance” program ensures your products meet stated quality standards and are shipped on time. If these conditions are not met, you can claim a refund.
And 5 disadvantages
- Quality issues — The products you receive might be of an inferior quality. Don’t go solely by display images or “premium quality” tags. Ask for a sample before you place your order.
- Quantity versus price — While it is possible to buy in small quantities on Alibaba, you might not receive the deep discount you expect unless you place a large order. Make sure to ask your supplier clearly about their Minimum Order Quantity (MOQ).
- Scams — Given the sheer scale of Alibaba’s business, it is impossible to root out dishonest suppliers or counterfeit goods.
- Middlemen — Quite often, a manufacturer who claims to be a manufacturer is actually a middleman. A middleman will mark up the price, so you will not be getting the best deal.
- Regional differences — Beware of geographical differences, especially for some products. If you’re buying apparel from a Chinese supplier, for example, you might be expecting American or European sizes but might get Asian sizes.
Dos and Don’ts: Tips for buying safe
It’s totally safe to buy on Alibaba, if you take the following precautions:
- Verify your supplier — Buy from Alibaba’s verified suppliers. Check customer reviews and feedback. Don’t hesitate to call the supplier’s offices, set up a Skype meeting, ask for a copy of their business license or photographs of their factory. By spending a little extra money, you can also hire a third-party inspection company to pay them a visit. Make sure you know if you’re dealing with a manufacturer or a trading company.
- Verify quality — Ask for samples before you place an order. You can also buy the product from AliExpress first to check for quality.
- Communicate — Ask your supplier for information regarding MOQ, production time, sample pricing and payment options. Send a request for quotation (RFQ). You can use the AliSourcePro service to request a quote and use its comparison tool to check quotation details and supplier backgrounds.
- Pay securely — While you can pay for your purchase in many ways, some methods are safer than others. Alipay and Escrow are considered among the safest. You can also use Trade Assurance, which sends your money to an Alibaba designated bank account and holds it there till you have received your product. Often, a supplier might encourage you to take the payment outside the Alibaba platform, which might not be a good idea.
- Watch out for red flags — Some common warning signs are suppliers who offer unbelievably low prices, suppliers who demand upfront payment or who seem more interested in the payment process than on anything else. Avoid them as much as possible.
- Keep off branded goods — These are illegal to sell without a license and could result in legal action. On the flip side, they could also be counterfeits.
In the words of Alibaba
From the piece this far, you would have noticed some common terms used on Alibaba, such as Gold Supplier, Verified Supplier, Trade Assurance and MOQ. There are a few acronyms as well you might want to familiarize yourself with to make your time on the e-commerce platform smoother:
- OEM — Original Equipment Manufacturing means manufacturing to order. An OEM factory makes the product based on the buyer’s design and specifications. You want to look for OEM on Alibaba if you’re interested in an original product of your own design.
- ODM — Original Design Manufacturing is where the product is of the manufacturer’s own design. The buyer simply picks the product out of the manufacturer’s catalogue.
- FOB — Free on Board means the supplier pays to deliver the goods to the nearest port while the buyer is responsible for transporting the goods from there onwards till their final destination.
- CIF — Cost, Insurance and Freight means the supplier pays to have the goods delivered to the buyer’s chosen port.
- QC — This means quality control and there are several types of quality control processes on Alibaba. There’s IQC (incoming quality control) relating to quality checks of raw material used to manufacture the product, OQC (outgoing quality control) for the finished product, IPQC (in process quality control) for activities conducted during the production process, and QA (quality assurance).
Your sourcing agent can help
While the process of buying on Alibaba itself is fairly simple, sourcing goods from an unfamiliar foreign country can still be a challenge, especially for a first-time buyer. Here’s where a sourcing agent can be a big help. As mentioned earlier, buyers on Alibaba are often sourcing agents. A sourcing agent, whether an individual or company, can take care of some or all aspects of the sourcing process, including:
- Identifying /verifying suppliers
- Negotiating the price
- Setting payment terms
- Assessing samples
- Monitoring production
- Arranging quality control inspections
- Facilitating communication between the buyer and supplier
- Taking care of documentation
- Making shipping arrangements
- Troubleshooting when required
Because suppliers on Alibaba are primarily based in China, a trusted China sourcing agent can be helpful in many more ways:
- They speak the local language (Mandarin is the most spoken language in China), which considerably lowers your chances of being lost in translation
- They know how things work in China and will help you navigate cultural differences and quirks
- They specialize in the products you wish to buy
- They have a local presence in China and can visit your supplier in person for verification, monitoring and inspection
All said and done, buying on Alibaba is simple. With some due diligence and a few safeguards, it can be a rewarding prospect and help you become a successful online entrepreneur.