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The four essentials for sourcing from China.

by Dan Harris in 'China Law Blog'

Got an email the other day from a friend whose company is getting ready to source from China. The email asked me what the company needed to know "to protect their butts in China." I told them they needed to know/do the following four things.

  1. Choose a good factory. This is the sine quo non of China sourcing. I am always saying that I can write the world's best contract, but if the party on the other side is a thief, the contract will have no value. How do you pick a good factory? The first thing you do is make sure that you have actually picked a factory, and not a broker claiming to be a factory. The best way to pick a good factory is to go and look at it yourself. The second best way is to have a qualified person you trust go and look at it. The third best way is to rely on the views of others.
  2. Use an OEM Agreement suited for your situation. You need a good written contract between you and your supplier, the official version of which should be in Chinese. For more on this, check out "China OEM Agreements. Why Ours Are In Chinese. Flat Out." This agreement is the road map between you and your Chinese supplier. It will do at least three things for you:
    • It will make clear to both you and your Chinese supplier the terms and conditions of your relationship.
    • It will let your Chinese supplier know exactly what it must do to comply with your requirements and to stay within the law. By doing so, it will greatly decrease the likelihood of your having problems with your Chinese supplier.
    • It will position you well should problems arise.
  3. Set up a Quality Control System. Even with a good supplier and a good contract, you will almost certainly still face at least some quality control problems. The big question is when will you discover them. If feasible, check for quality before you pay for you product and before your product is shipped.
  4. Register your trademark in China. When it comes to trademarks, China is a first to file country. This means that, with very few exceptions, whoever files for a particular trademark in a particular category gets it. So if the name of your company is XYZ and you make widgets and you have been manufacturing your widgets in China for the last three years and someone registers the XYZ trademark for widgets, that other company gets the trademark for widgets. And then, armed with that trademark, that company has every right to stop your XYZ widgets from leaving China because your widgets violate that other company's trademark. Trust me when I say that many foreign companies have incurred massive damages by failing to take the simple and inexpensive step of registering their trademark in China.

If you abide by the above, you almost certainly will do just fine.

What do you think?

Dan Harris is founder of the Harris & Moure law firm, a boutique international law firm focusing on small and medium sized businesses that operate internationally. China is the fastest growing area for the firm. Dan writes as a source of China legal and business information.

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