Tuesday 12 Dec 2017

Conflict of Interest?

We know that an Alibaba.com Gold Supplier membership gives suppliers greater access to potential buyers, but what exactly is the benefit of this program to buyers?  Does it really prevent fraud?  Does it ensure greater quality?  To answer these questions, let’s take a closer look at the Gold Supplier program itself.

Alibaba.com makes its money by selling Gold Supplier memberships to suppliers for around $5000 a year.  The site makes relatively little money from buyers, since buyers get to use the site for free.  Therefore, to increase profits, Alibaba.com has to sell more and more Gold Supplier memberships every year, while trying to retain existing members.

To accomplish this, Alibaba.com can’t make it too difficult for a company to become a Gold Supplier.  And it has to keep existing members happy.  Otherwise, its membership base will decrease, bringing down revenues and profits.

It’s true that to obtain a Gold Supplier membership, a supplier has to be authenticated and verified by an independent third-party inspection company.  But this authentication and verification process does not weed out all scammers – nor does it ensure quality.  The idea of a background check might sound nice to inexperienced Alibaba.com buyers, but it won’t necessarily protect them from scammers or bad suppliers.

The problem for buyers is that it doesn’t take much for a supplier to pass Alibaba.com’s authentication and verification test.  For suppliers outside of China, all they have to show is that they’re actually registered in their jurisdiction – not exactly a high barrier to entry.  The bar is set a little higher for suppliers inside of China.  An Alibaba.com employee actually has to visit the applicant company’s premises.  But there are no minimum quality thresholds.  So any Chinese supplier with any kind of facilities in any kind of working condition can obtain a Gold Supplier membership – as long as he pays the membership fee, of course.

These fairly low barriers to entry make it easy for anyone to buy an Alibaba.com Gold Supplier membership.  Naturally, some of these people will be scammers and crooks.  At any given time, there are over 100,000 Gold Suppliers on the site.  Alibaba.com can’t possibly vouch for every Gold Supplier’s business practices or quality level.  And, legally, it doesn’t even try – as it simply passes on that risk to buyers, in accordance with the Transaction Services Agreement.

Furthermore, in order to retain its existing members, Alibaba.com has to keep Gold Suppliers happy.  This means in dispute cases, Alibaba.com is always incentivized to favor Gold Suppliers over buyers.  (And remember: Alibaba.com by default gets to settle all disputes between users, unless the users specifically agree otherwise.)  Only when a Gold Supplier’s actions are egregiously fraudulent does Alibaba.com have no choice but to rule in the buyer’s favor.  This is because the site wants to retain as many Gold Supplier members as possible – so that they’ll keep paying their annual membership fees.

So while Alibaba.com wants buyers to believe that Gold Suppliers are trustworthy, just remember: the site really exists in order to sell memberships to suppliers.  And quite often, it doesn’t have the means or inclination to thoroughly vet these suppliers’ trustworthiness – and quality levels.  In other words, as long as a supplier is willing to pay for an annual Gold Supplier membership, it can pretty easily obtain one.

 

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