How Does Alibaba Work? A Guide to Safe Dropshipping (2024)

In this guide, we’re going to look at what is Alibaba, how the wholesale marketplace works and how to safely buy from Alibaba. We’ll cover everything you need to know to effectively and safely source a supplier for your product idea using the popular business directory. We’ll introduce you to the pros and cons of going overseas and show you how to buy off of Alibaba and navigate this new terrain so you can find the perfect supplier for your product idea and start selling online.

In order to start an online business you need two things: a product idea and supply. If you already have a trending product in mind and your business plan in place, the next step is finding the perfect supplier. In our global village, it has never been easier to find a manufacturing or wholesaling partner halfway around the world.

However, sourcing your products from overseas can still seem like a daunting task for new online entrepreneurs. Let's get started!

What is Alibaba?

Alibaba is a Chinese owned global wholesale marketplace founded in 1999. If you’ve decided and are determined to source your supplier from overseas, there’s a good chance you’ll want to know how to buy from Alibaba or AliExpress dropshipping.

By the numbers, Alibaba is the largest ecommerce company in the world, earning around $135 billion in 2022. It's also the most comprehensive directory that connects suppliers (mostly from Asia) with buyers from all over the globe.

How does Alibaba work?

Alibaba is a wholesale marketplace for buyers looking to purchase large quantities of products at the lowest price. Alibaba allows buyers to negotiate directly with manufacturers, create custom products, and achieve significant cost savings.

It’s also the better choice for purchasing private label products because you buy directly from the manufacturer.

The Alibaba group owns three Chinese marketplaces—Taobao, Tmall, and Alibaba.com—has hundreds of millions of users, and hosts hundreds of millions of retailers and products. There’s not much you won’t find in its directory, which is how it became one of the most popular destinations for online shopping.

How todropshipwith Alibaba

Here are a few dropshipping tips and recommendations for safely buying goods from Alibaba.

1. Begin your search for products

Buying from Alibaba and using the directory is fairly straightforward and similar to other marketplaces like eBay. Browse the product categories or do a search for the particular product you’re looking for.

There are two common approaches to doing a search for buying goods from Alibaba. You can search for items based on product descriptions, for example, “dog collars,” which will give you thousands of results. Alternatively, from the drop-down menu, you can select Suppliers instead of Products and search for manufacturers that specialize in a particular type of item
.

2.Examine the product listing pages

When starting your search for a supplier on Alibaba, there are a few things you want to look at and pay attention to on the product listing page. Let’s take a look at a product description example and listing for a dog collar we found on Alibaba.

Minimum order quantity (MOQ)

The minimum order quantity (MOQ) is the smallest order a manufacturer is willing to accept. However, it’s important to note that this is almost always negotiable.

In our example, the minimum order is50 units. Multiplying that by the higher-end price of $2.15 per unit, we quickly can see we would be looking at a minimum order of approximately $107.50 + shipping from this particular supplier for this particular product. This is good to know for later when it comes to negotiating, because it gives you a good start point.

Payment options

After understanding price and MOQ, you will likely want to know how you can pay the supplier. There are several common methods of payment and each has its pros and cons for both the buyer and the seller.

Let’s take a look at the most common payment options below and the associated risk level to you as the buyer:

1. Upfront TT (Bank Transfer)

Risk level: High

With a bank transfer, the supplier will receive full payment before production starts. This payment method bears a high level of risk to the buyer and generally is not recommended when dealing with an unknown supplier. There is little if any recourse to get your money back if something goes wrong.

2. Letter of credit

Risk level: Medium

A letter of credit is fairly safe for both parties, however it carries some complex procedures and is generally recommended only for larger purchases ($20,000 and above).

3. Western Union

Risk level: High

This is a risky payment method for the buyer that’s not recommended when it comes to paying suppliers if the payment is not protected by escrow. Western Union generally should be used only when dealing with people you know very well. There is no recourse if something goes wrong.

4. PayPal

Risk Level: Low

PayPal is a popular payment method for buyers, as it presents much less risk, ease of use, and generally good buyer protection. Although it’s a popular option with buyers, it’s less popular with suppliers due to difficulties in withdrawing money, high tax rates, and potential charge backs from less than honest buyers.

5. Escrow

Risk Level: Low

When using an escrow service, the buyer’s money is held by a third party and is only paid to the supplier after the buyer confirms satisfactory delivery of their order. Escrow is a fairly safe payment method for buying and selling online because it protects both the buyer and supplier.

Generally, when you’re just starting out buying goods from Alibaba, you’ll probably want to look for or negotiate with suppliers to either accept PayPal or some type of escrow service to give you the highest level of protection.

3. Contact suppliers

Now that you understand how to better protect yourself when performing a transaction on the other side of the globe, it’s time to contact some suppliers. When contacting suppliers overseas, email, social media, or WeChat will likely be your main method of communication.

In many cases, suppliers will use a program like Google Translate to translate your email as well as their reply back to you. Remember, computer translation is still an imperfect art, so expect some errors and possible misunderstandings.

To make sure communication is as clear as possible, keep your emails short, concise, well formatted, and free of spelling errors. This not only will help the manufacturer, but ultimately will provide you with more useful replies.

Quick tip for buying on Alibaba: When asking your questions and formatting your emails to suppliers, it’s best to number your questions so they can easily reply to each one. This keeps the questions and communication clean and organized.

4. Request a quote

Requesting a quote (often referred to as an RFQ or request for quote) is a relatively simple process for how to buy from Alibaba. However, taking a few extra minutes to plan your email can make a significant difference in the number and quality of replies you receive.

Here are a few important questions to consider for your email when buying from Alibaba:

• Minimum order quantities (MOQs). Even if a listing provides its MOQ, you should double check with the supplier to ensure accuracy. If the MOQs are much higher than what you know you can afford, you’ll want to ask if they are willing to negotiate their minimums. Make sure to give them an idea of what you can afford. Keep in mind, minimum order quantity is almost always negotiable with overseas suppliers.
• Pricing for samples. Samples are important to inspect for quality. You’re going to want to ask what their pricing is for samples right away. Some suppliers that receive a lot of sample requests may change full retail pricing for them, others will offer samples at a discounted rate, and some may even provide samples for free if they feel you’re a serious buyer.
• Production pricing. One of the most important questions is how much your products cost per unit. Many times on Alibaba a supplier will give a range ($2–$3 per unit, for example), but you’ll want to know exactly how much each unit will cost you.
• Production time. Knowing how long it will take to produce your order is an important consideration, and depending your exact business, time can be critical.
• Payment terms. Many suppliers will require new businesses to pay for the full order upfront. This is important to know, since inventory is a major cost for ecommerce startups. You may also want to also ask if they provide payment terms on future orders.

Here’s an example of an email template you may want to consider as a guideline when contacting overseas suppliers from Alibaba:

As you can see, the sample above is short, concise, and its goal is to make sure at a high level that there is a fit between both parties.

5. Negotiate your terms

Once you have begun conversations with several suppliers and have a good idea of each of their prices, MOQs, and payment terms, you can begin negotiating with them. As mentioned previously in our tips for buying on Alibaba, minimum order quantities are almost always negotiable, it’s simply a matter of asking. Remember, a good negotiation leaves both parties happy with the outcome, so push a little but not too hard.

6.Consider your options

Once you’ve narrowed it down to a select few suppliers, the next step of how to buy off of Alibaba is weighing all your options. Keep in mind that when doing so, you’ll want to consider more than just price, MOQ, and payment terms. Make sure you factor in how well and how quickly each supplier replied to you.

Communication with your supplier can be a critical element of your business going forward, so you’ll want to make sure you start off on the right foot.

Is Alibaba safe?

Since its launch in 1999, Alibaba has become one of the largest marketplaces in the world. Like many modern ecommerce marketplaces, a majority of merchants on Alibaba are reputable and trustworthy, making the marketplace reasonably safe and legit.

The company offers Trade Assurance, a verification program for select suppliers, to protect your payments through the Alibaba.com payment platform.

The benefits of Trade Assurance include:

• Convenient payment options. Alibaba offers multiple payment methods, including credit card, PayPal, and financing options for qualified US buyers.

• Payment security. Track and reconcile funds with suppliers and know when they receive your payment.

• Better support. When working with Trade Assurance suppliers, refunds are available if you’re not satisfied with the product’s quality.

Trade Assurance protects you from getting scammed or receiving low-quality or unsafe products from Alibaba. Even though there will be some back and forth between the seller and Alibaba during mediation, you’ll be protected from bad suppliers.

This isn’t to say that working with dropshipping suppliersnot in the Trade Assurance program is bad. It just means you’ll have to do more research to keep yourself safe.

Let’s take a look at several things you can do to protect your money when sourcing from Alibaba:

1. Verify suppliers. Alibaba has its own verification program. Verification is based on third-party on-site inspections, as well as feedback from previous customers. If a supplier is verified, you'll see a widget on the left-side of any product page that looks something like this:

Looking for these verification badges is a good first step to assessing whether a supplier is ready to ship for you. Here, you're able to see how long a supplier has been verified, the number of in-person inspections, response times, and customer satisfaction rates.

In addition, Alibaba includes supplier specialty tags applied to suppliers based on their performance. In the example above, you can see two tags; Supplier Assessment Procedures (indicating the supplier has been assessed for quality control) and Minor Customization (indicating the supplier offers custom packaging for some products).

Additionalspecialty tags may be added for environmental compliance, a high number of repeat customers, fast shipping times, and more.

2. Ask questions and follow up. As you begin narrowing down suppliers, make sure to ask a lot of questions about their business and their products. Ask for a copy of their business license Ask for a phone number—and actually call it. Have aconference call with your contact. Ask for photos of the factory and sample products.

Feel free to ask for whatever makes you feel more comfortable doing business with someone a world away. It wouldn’t be crazy for you to even ask your factory contact to take a photo of themselves on the factory floor holding up the current day’s newspaper and one of their products.

3. Get samples. It should go without saying that before you invest any significant amount of money into inventory you need to get samples to check and verify quality. Feel free even to contact them through another (fictitious) name and email and get an additional sample so you can compare.

4. Be prepared to walk away. Finally, if something is too good to be true, it usually is. Be wary of pricing or promises that don’t seem right or that are way off from other suppliers you’ve contacted. Always be willing to walk away from a deal if something doesn’t feel right.

If you’re looking for new Alibaba suppliers, make sure to download WeChat. You can then talk with potential suppliers in real time and get a better sense of what the working relationship will be like for your dropshipping store.

What’s the difference between Alibaba and AliExpress?

Alibaba and AliExpress are both Chinese-based online marketplaces made up of third-party sellers. The big difference between Alibaba and AliExpress is:

• Alibaba is for business-to-business transactions.
• AliExpress is open to consumers.

While Alibaba caters to large and small businesses purchasing bulk wholesale orders, AliExpress provides dropshipping products at retail prices to anyone, with no minimum order requirements. With Alibaba, you buy directly from the manufacturer and can easily private label with custom designs or logos.

AliExpress items are usually pre-made, so there are limited customization options, and typically are more expensive.

Sellers on AliExpress also tend to offer ePacket shipping, which can help your ecommerce store deliver high-quality, validated products to customers, faster. Alibaba shipping time is typically longer.

If you’re running an ecommerce business and want to quickly source AliExpress products rather than work with wholesalers, connect a Shopify storefront with a dropshipping app. It’ll help automate your dropshipping service to free up time (so you can promote more) and increase profit margins.

Pros and cons of Alibaba dropshipping

The most common reason many entrepreneurs look to Asia, and in particular China, for product suppliers is to take advantage of the low manufacturing costs. Costs of manufacturing in Asia can be significantly lower than in North America and other parts of the world. So much so that it would be quite hard to start a dropshipping business if it wasn’t for overseas manufacturing.

Cheaper product costs are great, but they aren’t the only reason Asia is an attractive place to find a supplier.

Pros

• Lower manufacturing costs
• Suppliers are (generally) much more open to working with small businesses and providing smaller quantities
• High number of suppliers to choose from
• For many products, Asia might be the only place that produces the item
• One-stop services like Alibaba have made it very easy to navigate and purchase from suppliers

Along with the advantages of sourcing wholesale from overseas suppliers also comes several disadvantages that store owners should be equally aware of.

Cons

• Perceived lower quality and unsafe from customers
• (Usually) lower manufacturing and labor standards
• Almost no intellectual property protection
• Language and communication barrier can be difficult to overcome
• Difficult/costly to verify manufacturer and visit on site
• Longer shipping time
• Product importing and customs clearance
• Lower level of payment security and recourse

Become an Alibaba dropshipper and safely source products

Buying wholesale goodsvia Alibaba from a safe and reliable supplier for yourdropshipping niche might be a new experience but also can be a rewarding one. With some basic knowledge and common safeguards, it can be a safe and profitable business model for your online store. Always do your due diligence, and if a deal feels too good to be true, be ready and willing to walk away. There are a hundred other suppliers you can find in just a few clicks.

Happy sourcing!

Illustration by Pete Ryan