Alibaba fraud highlights risk of online marketplace trading, local businesses warns

Prominent Australian Alibaba customers say they will continue to use the B2B website despite the company confessing that a group of employees assisted clients to commit fraud.

The Australian customers have warned similar businesses that fraud can happen on any online marketplace and diligence is required.

The comments come after Alibaba’s chief executive and operations officers resigned yesterday after an internal investigation revealed about 100 employees had assisted businesses to dodge verification procedures.

Those businesses committed fraud against Alibaba customers, sometimes failing to deliver products that were paid for.

Adam Schwab, who runs Deals.com.au (formally Zoupon), says he has bought items from Alibaba and will do so again but will read customer feedback more closely as a result of the incident.

“It’s such a massive business. This certainly would make us more wary, we’ll look at reviews more closely in buying stuff that we can’t get from Australia,” he says.

“But like any business-to-business transaction it’s very much ‘buyer beware’.

“This stuff can happen and I would hope people are paying attention to reviews and customer feedback so they know who they are buying from.”

OzHut founder Wai Hong Fong says he has stayed away from using Alibaba due to what he believes is confusion over which sellers are actually legitimate.

“I have some other friends in retail who use it, but I think it’s very hard to tell the good sellers from the bad ones,” he says.

“Even the bad sellers can get a good name, and you very much need to look at all the feedback of each seller.”

Alibaba has more than 390,000 local customers who sell or source items and components from the site for use in other products or for resale.

None of the Australian clients were involved in the fraud scandal, Alibaba said yesterday.

Deals Direct managing Paul Greenberg says the incident is a warning that businesses must be careful when dealing with open marketplaces.

 “I don’t have any axe to grind here but when you’re dealing with marketplaces you’re dealing with different issues than with something like a direct-to-consumer site,” he says.

“Marketplaces are complex and for those of us who use them as sellers there can be an inconsistency in market experience.

“It doesn’t strike me as surprising that something like this would happen.

“I don’t want to sound cute but marketplaces are interesting – there are misrepresentations and so on. This doesn’t come as a shock.”

Greenberg says his company has never bought products from Alibaba but has used the site to watch industry sourcing trends.

He says using open marketplaces like Alibaba is a good way to grow a business but warns that SMEs need to be careful when sourcing products, particularly from companies they don’t know very well.

“I like Alibaba, we’ve used it to source products. But using a marketplace is not quite as simple as just buying stuff directly,” he says.

“eBay have done very well around the world in reducing their exposure to this type of fraud and they’re always saying it’s a very small percentage.

“I think in these types of marketplaces this type of action can simply happen because of its size.”

KPMG fraud expert Gary Gill told SmartCompany yesterday businesses need to be on alert when sourcing products overseas, saying “online business … is always susceptible to fraud”.

Data released by Alibaba last year revealed Chinese companies were the largest buyers of Australian goods, accounting for 17% of all inquiries with India second biggest at 9% and local buyers 7%.

Food and beverages are the most popular items bought from Australian businesses with agricultural products second.