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Swedish companies fall in the wrath of fraud in China - a common way of doing business there

Wednesday, 27 February 2013
As attractive as China is to many Western companies seeking to benefit from its cheap labour, access to ease to reverse engineering of other brands, as well as operate in a less regulated environment compared to the western markets, many companies end up loosing lots of money on fraud. Fraud is common in China, and many foreign businesspersons have gone through such bitter experiences.

One instance of that came to the fore in a report on Swedish business daily, Dagens Industri in which it report that two Swedish manufacturing company have quickly sought legal help in China after being cheated of "many millions" in China.

Last year, 65 percent of all companies doing business in China suffered some form of fraud, according to a study by the consulting firm Kroll Advisory. Over a quarter of the entrepreneurs stated that local government officials were behind the scams and that the offender was known, reports Dagens industri.

In October, a Swedish manufacturer contacted the law firm Mannheimer Swartling in Hong Kong to fight a case in which they paid and purchased inputs for their production from China, but when the containers arrived in Sweden the containers contained debris. Two months later the law firm received an almost identical case.

"This is a major problem that could affect many entrepreneurs, "says the firm's co-owner Ulf Ohrling, for reasons of confidentiality, the paper could not name the companies involved.

The information on the Chinese companies' websites impressed the Swedish companies and the response via email was nice and exhibited deep knowledge of the product. The payment of "several million" of Krona were made, but deliveries contained only useless and unrelated goods.

The goods are said to have been sent out at all, probably due in part to China's currency policy, which makes it difficult to receive money from abroad without presenting a real commodity transactions.

One of the Chinese companies - which turned out not to be a factory but claimed to be an intermediary - has now gone underground, while others are reported to offered a fraction of the value of the original amount that was paid.

Despite severe penalties, fraud continues to increase in association with Chinese companies, especially online. Around one in three Internet shoppers were victims of such crime on the Internet last year, according to a new report from a police study known as PPSUC, Dagens industri reports though not giving the meaning of the PPSUC and whether he study was done by a Swedish police or ...?

Ulf Öhrlings advice to companies doing business in China is not to trust websites, always ensure that it reaches an agreement with the manufacturer directly, require references and inquire among other foreign companies that have purchased from them.
For larger businesses hire someone on the spot in China that can control the products both in the negotiations and when the goods are shipped.
"Chinese businessmen would never buy something without references and never from an intermediary. They go directly to the factory, "says Ulf Ohrling.
by Scancomark.com Team

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