Retailers, manufacturers, importer/exporters, wholesalers and trade agents, whether you source or sell products using the Alibaba ecosystem, it’s vital to know the risks.
You are responsible for the products you sell – even if you’re just running a home business selling products you bought through Alibaba on Kijiji, Amazon or eBay. If the product you sell causes injury, illness, property damage or is falsely advertised, your business could be facing expensive litigation.
It’s also important for the life of your business to know how to protect it in case of cyber breaches, delayed shipments or if your products don’t arrive as expected. In those situations, there may be little-to-no assistance from Alibaba.
The e-commerce experts at ALIGNED have put together this article to help you navigate the risks of using Alibaba for your business.
Tips for purchasing on Alibaba
- Refine your search to return results for “Gold Suppliers”, “Trade Assurance” and “Assessed Supplier” – While the “Gold Supplier” status only requires the supplier to pay a monthly fee, the fee can be considerable and is meant to weed out less-than-legitimate companies. A good idea is to choose Gold Suppliers with a long history and a good track record. Trade Assurance acts as a pre-purchase agreement of terms that can trigger a refund if the shipment doesn’t arrive on time or as agreed upon. Make sure the terms are extremely detailed or you risk losing a dispute, and your money. Assessed Suppliers are those that have been vetted by a third party that can provide you with an added layer of assurance of a supplier’s legitimacy.
- Avoid name brand products – to protect yourself from possible counterfeit or trademark issues.
- Ask for references – preferably from companies that you trust are legitimate and who you can ask questions of.
- Stipulate a pre-shipment quality inspection – having a third party perform a quality inspection adds another layer of protection and prevents an order from being shipped if the products are of poor quality.
- Do your due diligence – taking the time to investigate a company you intend on trusting with a large amount of money only makes sense. Whois.com is a good resource for getting background information on a company’s website.
- Pay with a credit card or PayPal – this allows you the option to dispute or refuse payment if your shipment doesn’t arrive as expected.
Alibaba Insurance Coverages
The following are basic coverages your business needs if it uses Alibaba as part of its operations. Click on the insurance title to be taken to the product page for each.
Commercial General Liability Insurance
No matter what type of industry you’re in, this is the standard coverage for every business. Whether you run a bricks and mortar operation, a home business or an online business, a Commercial General Liability plan provides basic protection to keep you in business and out of bankruptcy in case of a lawsuit by covering your legal expenses – including the costs of awards and settlements associated with bodily injury or property damage you could cause to others will operating your business.
A CGL policy is likely the only thing that can save your business, and your finances, if someone is injured because of a slip-and-fall on your business property, accuses your company of false advertising or is injured or experiences property damage because of your products or services. The last two scenarios are especially relevant for companies that buy parts or finished products through Alibaba from manufacturers or suppliers in countries with less stringent regulations. More on that below.
Of course, if you sell products (or services) on Alibaba or anywhere else, regardless of who manufactured them, staying in business means protecting your liabilities.
Like many users on the Alibaba platform, your business could be partially or wholly based on finding good prices on products to purchase in bulk for resale. While the prices may be right, the quality standards may not make them safe by North American standards.
Stories have made the news of products manufactured in China that contained chemicals or materials considered harmful in North American markets. It’s also not unheard of that a design flaw in a product manufactured overseas (or domestically) caused injuries or that a failure to warn of potential harm also led to injury.
Product Liability Insurance is usually part of a CGL policy but if your business includes reselling products found through Alibaba, make sure to notify your broker so that he or she gets the right amount of liability protection for your business. Having this type of coverage is, again, vital to protecting you from the overwhelming legal costs of potential lawsuits.
It’s also not uncommon that we hear of products being recalled for safety reasons. If you learn of a safety issue with a product you’ve purchased through Alibaba and re-sold, there’s a good chance you’ll have to issue a recall. When all is said and done, the costs of a recall could ruin any business.
Product Recall Insurance can provide coverage for the following expenses:
- Recall expense – which can include testing, public notification costs, disposal fees and extra payroll costs.
- Replacement expense – for replenishing inventory after a recall and can include materials, labour, overhead, etc.
- Lost profits – on both present and future sales of products that were withdrawn due to a recall.
- Brand rehabilitation – this can include PR, extra advertising, promotions and even the added costs to rush a new product to market.
When importing products found on Alibaba, there’s also the potential that those products won’t pass Canadian Customs inspections or will be held up at a border if exporting them elsewhere. Whether it’s due to a quality issue or political circumstances (especially respecting a country like China) a delayed or refused shipment can cause a cascade of extra expenses. Trade Disruption insurance can protect you from those costs – a vital coverage for importers/exporters using the Alibaba platform.
If you are an importer/exporter, whether your products are being bought or sold on Alibaba, you may also require a Commercial Surety Bond. Take a look at the bonds for wholesalers and importers/exporters and contact an ALIGNED advocate if any of the bonds pertain to your business.
Despite Alibaba’s sophisticated cybersecurity, Alibaba was still forced to shut down a server last year because of a massive data leak – the latest in a number of data breaches at Alibaba over the years. The platform is a major target for cyber-criminals because of the mostly B2B nature of the transactions. In fact, according to former executive chairman and Alibaba founder Jack Ma, the platform faces 300 million hack attempts per day.
Even if you feel secure enough using the platform, the cyber-crime risks don’t stop there. While your business is not the target that Alibaba is, Canadian small and medium-sized businesses are still targeted by hackers.
Approximately 1 in 5 small businesses and almost 1 in 3 medium-sized businesses experienced a cyber-crime in Canada during the last recorded year.
As a business that does business on Alibaba, Cyber Liability Insurance is a must and can cover the costs of:
- data and system restoration
- business interruption
- ransomware costs
- data breach notification costs