How to Scupper a Scammer

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A lot of people are facing the highs and lows of the China Buyer Scam (which I reported on last year). I have a steady stream of clients coming to me with great hopes of a big sale…alongside niggling doubts that it all seems too good to be true. And it usually is!

It goes something like this:

    1. International company (big or small) receives a big enquiry for their wonderful widgets. (Nice, but a bit strange these people appeared a bit randomly via the website, and that nobody has come across them before. Still, China is a new market, and things are all big and fast-moving…).

    2. The enquiry rapidly turns into a firm order. (These guys seem really keen! It’s also pretty impressive that they seem to have answers for all those boring technical questions. What’s more, there was hardly any negotiation, which is great for the margin, but a bit of a surprise, as everyone says the Chinese are hard or price….).

    3. The Chinese “buyer” invites the foreign firm to China to sign the contract on a tight schedule. (My, these guys are really moving fast. Better get the trip sorted out. But it would be good to know a bit more about them before I go …)

    4. The unwary seller flies in to China – Yunnan, Guangdong and Hainan are among the favorites – for the signing and a big dinner. (It is bloody cheeky that the buyer wants some cash for the event and / or a “commission” payment to get the deal through in face of some internal politics – or whatever…)

    5. The seller either then leaves in a strop, feeling it was a wasted trip or, worse, goes to the bank to get the money to ensure the deal goes through, and hands it over. (Where did everyone go?! Where is the money? What about the contract? Help!!).

Luckily many people listen to the inner voice that says “is this for real?”, and we usually get called in at step 2 or 3 to do some due diligence. Not a bad idea in any case, as it can uncover a lot about a company and its performance (which can be usefully applied to negotiations) as well as its registration, history, credit, legal issues, and all the rest.

Often the buyers do turn out to be from real (well, really registered) companies, but there are still red warning flags waving:

    • Just a few months old?
    • Ready to spend up to several million dollars?
    • No trade references?
    • Good on technical questions, but shaky on market knowledge?
    • Odd location?
    • Business scope does not match the current deal?
    • No website (or a suspicious one)?
    • No online listings to promote sales?
    • When Googled, questions from other potential suppliers appear on BBs?
    • And so on…

Still, when head office is suddenly keen to break into the China market (where have then been looking until now?), it is easy to overlook these things. And maybe the deal IS real! What then!?

In a recent case, a client was scheduled to leave for China in a few days. Our quick-fire report (there is never much time) on the buyer confirmed it was a real company, but also raised a number of the issues referred to above. It is difficult to give certain advice in an uncertain world (and stranger things have happened than an order arriving from a new Chinese company), however there were clearly risks here (and in the worst-case scenario these could include personal security risks) and we cautioned against the trip.

Rather than just calling things off, we also suggested a number of tactics – actions that might be usefully employed by anyone facing the dual pressures of temptation and trepidation:

    • Delay the trip on a suitable pretext – Chairman is making a sudden visit? In bed with avian flu? (Expect a request for commission payment).

    • Invite the buyer to visit the overseas factory instead – and promise a good time. Of course, if they ask, the costs can be taken off the contract price as a sign of good faith. (No, sorry, the FD will not release any payment in advance.)

    • Pass on a “request” from the overseas bank, which wants to speak with the buyer’s bank on some boring procedural issues. (For some reason the Chinese bank will not respond).

With a little poetic license, I rather cheekily also got the client to propose that the official contract signing ceremony would be held at the British Embassy, with high-ranking officials in attendance. The response? The buyer emailed right back to say they had just signed the deal with another supplier. Given that the client was meant to be flying out the next day, for a deal worth in excess of US$10 million, it was clearly a scam. One that was thankfully avoided!

In another case, we were bought in after visa invitation letters had been issued by a client to the Chinese “buyers”, but before they arrived in the country for negotiations. In that case it turned out the whole scam was just to get the visas…

As is often repeated, it is a good idea to maintain healthy skepticism, treat China like other markets, ask questions and see if the answers make sense, and do some due diligence.

And, if everyone in the company is so excited about China all of a sudden – as a result of a random enquiry – take the opportunity to leverage that interest and do some structured market research. If there is a market opportunity it will be confirmed, and a sensible strategy can be agreed to take advantage of it. That route offers a much better chance of success (and employee-of-the-year awards) than jumping on a plane and parting company with a few thousand dollars.

One Response to “How to Scupper a Scammer”

  1. Avoiding the China Buyer Scam Says:

    […] Blog just posted on how to avoid getting scammed by purported Chinese buyers, entitled, “How to Scupper a Scammer.“  “Scupper” is Brit-speak for destroy.  Quick summary: 1) If it seems too good […]

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