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Trading company or factory? These five pieces of information may tell

Trading company or factory? These five pieces of information may tell

Due diligence | 2023-12-06

A supplier’s salespeople and the company’s website always confidently tell the buyer that their factory is strong, production capacity is sufficient, and the quality is high. However, if you delve deeper into some background information about this company, you may discover that the actual situation might not be as the company claims.

1. Historical company names

Recently, while conducting background checks for our clients, we revealed that some companies are rebranding to eliminate trading elements from their names. They remove terms like “trade” or “international trade” from their company names.

For instance, we observed Company A, established in October 2021 under the original name “ABC International Trading Limited.” However, a year later, in November 2022, the company changed its name to “ABC Steel Group Limited.”

The deliberate removal of trade-related elements from their names suggests that these companies might aim to avoid revealing their actual nature as trading companies to clients.

2. Industry code in registration information

The change in company names often coincides with alterations in business scopes and other information. In the case of Company A mentioned above, we observed that while removing the “trade” characteristic from the company name, Company A added some manufacturing activities to its original business scope.

However, we also noticed that in the industry code attribute, Company A’s record shifted from “Other Wholesale” to “Metal and Metal Ore Wholesale,” indicating that its primary business activities remain.

3. Hiring jobs

In the case above, Company A claims to have factories in four locations in China. However, upon conducting searches on public information channels for Company A's recruitment records, information from multiple job recruitment websites indicates that Company A is hiring predominantly for procurement and sales roles. There's no evidence of recruiting for roles related to production, manufacturing, quality, or similar functions. Additionally, Company A mainly recruits from foreign language universities in the local area.

The job positions a company advertises can reflect its business activities to a certain extent. An investigation of recruitment records can reveal the actual business activities of the company.

4. Videos and pictures in marketing materials

We also conducted media searches, including Company A's own website, for publicly available materials such as images and videos. We discovered that the pictures used on A Company A's webpage purportedly depicting the interior of their factories might be downloaded images from the internet.

Furthermore, in a promotional video of Company A found in a WeChat article, the labels on the products within Company A's factory seemed to belong to another larger steel manufacturing company, suggesting that Company A is primarily involved in trading rather than production.

5. Conflicting information from different sources

Company A claims to have invested hundreds of millions of RMB to establish production facilities in four provinces in China. However, the situation contradicts this claim: Company A has zero employees contributing to social security, and its initial registered capital was only 1 million RMB. Although this later increased to 10 million RMB, no funds were paid into the equity, only a subscribed amount.

Contradictory information from various sources might explain the existence of misleading or exaggerated claims regarding the company's production capacity.

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