AliBaba Experiencing Fraud in China and Why Sourcing a Tree Octopus is Still Possible

In 2010, the Dept. of Education funded a study by Dr. Donald Leu, which turned out a report claiming that school children were facing a learning crisis spawned by the internet.  The study highlighted an experiment of Dr. Leu’s, in which he asked his students to write a report on the Tree Octopus, “an allegedly endangered species roaming the treetops of the Pacific Northwest”.  The story goes:

Researchers on Leu’s team asked a group of students to hunt down information on the critter, which of course does not exist. But the same researchers pulled a bit of trickery on the students — they directed them to a website dedicated to saving the mythical tree octopus from extinction. And presto: the kids taking part in the study fell for the hoax and even continued to believe in the tree octopus after the study’s leaders explained that there was no such thing.

Here’s a sampling of the tree octopus factoids featured on the site:

Tree octopuses have eyesight comparable to humans. Besides allowing them to see their prey and environment, it helps them in inter-octopus relations. Although they are not social animals like us, they display to one-another their emotions through their ability to change the color of their skin: red indicates anger, white fear, while they normally maintain a mottled brown tone to blend in with the background.

According to Leu, the founder and director of the New Literacies Research Lab at the University of Connecticut, the moral of the exercise is simple: “anyone can publish anything on the Internet and today’s students are not prepared to critically evaluate the information they find there.”

The Yahoo article I read about this in points out that the root cause of the problem may lie less on the shoulders of the internet, and more on the ability of children to think critically.  It also seems to apply to some users of manufacturer directory websites like Alibaba as well.  Dan Harris of ChinaLawBlog, has written yet another post about the perils of Alibaba, prompted this time by a Time Magazine article which has uncovered fraud within Alibaba itself.  I often remark in my presentations, as well as previous blog posts, that Alibaba and similar websites have ONLY helped us with the tip of the iceberg in the sourcing and manufacturing process.  These listings of manufacturers are powerful in that they have made it far easier to connect with companies overseas.  However, I agree with Dan when he says that this has gotten a lot of SMEs into trouble because they don’t yet know that the connection is just the tip of the iceberg in sourcing and managing a good manufacturer, particularly in a low cost country like China.

When I lay out a sourcing and manufacturing schedule for a client, it quickly becomes apparent that finding the contact information for several potential suppliers and opening communications with them is…I don’t know, generally 1%-5% of the entire process!  There is quite a bit in the way of stages, decisions, negotiations, and analyses that has to take place before a company has product coming off the line.  Part of this is getting to know who you’re going to select as a supplier, and this surely can’t be gleaned from a website, even if Alibaba has awarded them a “gold” rating.  The scandal reported by Time Magazine in relation to these ratings being manipulated, just goes to show that even a 3rd party website and their purported audit, does not offer any assurance.  The article states:

An internal investigation by independent board member Savio Kwan revealed that beginning in late 2009, Alibaba had noticed an increase in fraud claims against sellers designated as “gold suppliers,” which means they had been vetted by an independent party as legitimate merchants. The investigation revealed that about 100 Alibaba sales people, out of a staff of 5,000, were responsible for letting fraudulent entities evade regular verification measures and establish online storefronts.

The company said it uncovered fraudulent transactions by 1,219 of the “gold suppliers” registered in 2009 and 1,107 of those in 2010, accounting for about 1% of the total number of gold suppliers during those years. It further said that “the vast majority of these storefronts were set up to intentionally defraud global buyers” by advertising consumer electronics at cheap prices with low minimum-order requirements. The average claim against fraudulent suppliers was less than $1,200.

I think the Times’ report of the fraud going on inside Alibaba is 1) not surprising given the fraud that has taken place in the factory audit industry itself, and 2) just another example of the Tree Octopus phenomenon.

Sourcing and managing a manufacturer, particularly one in China, is not something done well without leaving your chair.  You’ve got to do your due diligence and use common sense, no matter what on the internet implies that you don’t.  Oh, and if you’re intrigued by the Tree Octopus and disappointed it doesn’t exist, check out the Magnetic Octopus which can be domesticated and lives on refrigerators.  It’s awesome.  An Alibaba supplier swears it: