CYA: China Outsourcer Protect Thyself

Business in Vancouver (Vancouver's leading business weekly) recently published a piece Steve and I wrote setting forth the basics for protecting your China manufacturing business from problems.

Nothing in this article not previously covered here on the blog, but it does provide the basics in probably the most succinct form yet:

1. Chinese suppliers. Since Chinese suppliers run the gamut from superb to criminal, you must check out any potential supplier in advance. A basic credit check will reveal whether the Chinese company with whom you have contracted is the factory owner, not just some broker posing as such. A thriving company is less likely to risk its reputation by cutting safety corners than a company on the verge of going under.
2. Quality control. Because most Chinese product arrives already packaged for retail sale, a statistically valid inspection system within China is critical. The Chinese government has its own inspection system for food and drugs, but to reduce costs, many Chinese suppliers intentionally avoid this system. You have to ensure your Chinese supplier is licensed to manufacture the product you’re buying, licensed to export it and follows Chinese government inspection procedures.

3. Contracts. Your contract with your supplier should detail your safety and quality control requirements and your inspection rights. If the contract states you’re responsible for inspection, you must inspect. Your contract with your Chinese manufacturer can either shift liability toward or away from you.

4. History. You know who your problem suppliers are and you need to replace them now before they cause even bigger problems. Ask a product liability defence lawyer whether having to deal with a bunch of e-mails from you to your supplier complaining of “continual quality shortfalls” is going to be good for your product injury lawsuit. Actually, don’t bother, you know the answer.

5. Insurance. Insurance is not a replacement for the above, but it’s your backup. Insurance almost never covers more than your legal fees and out of pocket damages; it will not cover your time spent defending lawsuits, nor will it cover your damaged reputation.

6. Marketing. Don’t make claims about your product you can’t support. Many North American importers claim their Chinese product is manufactured to a standard that simply is not followed in China. Things like this just give the plaintiff’s lawyer more ammunition against you in any legal proceeding.

That's it in 335 words.

Comments

Regarding comment #6:

Don't believe your China supplier is really ISO 900x certified. Everything is ISO 900x certified, including restaurants, mobile phone shops and internet bars (along with pictures of Ahnold endorsing everyone of these establishments). Every single recognized certification is available for a small fee and the forgery is usually of the same paper and ink quality as an actual certificate.

Posted by: nanheyangrouchuan | August 14, 2007 8:33 PM

I used to work for a US company that manufactures air-conditioners for U.S. consumers. The company had a huge problem with their products manufactured in China. Problems with quality is the most pressing. People complained about leaking, "lemon" parts. Some even causing fire while in operation. The company had to deal with a lot of Better Business Bureau cases because of that. I say quality should not be sacrificed for affordability.

http://olympicblogger.blogspot.com

Posted by: CallCenterVet | August 15, 2007 5:40 AM

Companies like Mattel will always look at low cost countires like China. If Mattel to blame for this recall or just the Chinese manufacturer?
Firstly, every large company like Mattel have an internal QA department which is to insure that a supplier does deliver the goods as per contract. Why did the Mattel QA department not pick it up, as every product produced is to be inspected, this a rule of business, was Mattel cutting cost on QA, I don't think so, it would be to damaging for them, was a Mattel employee corrupt, as was is a major problem in China, if the sourcing is carried out from within China.
What does the Mattel executives have to say about the total lack of control from the QA department, is there a problem which needs to be looked at.
Chinese companies will always look for ways to cut cost, even if it is where the end customer would face a problem at a later stage.
Every developing country, in the past and in the future will face problems of quality standards, it happened to Japan, Korea, Tiawan and it is happening to China, India today.
I believe that Mattel should have picked this problem up during there inspections, because 9 million products was shipped and the problem was not picked up.
Mattel should take a good look at there QA systems and procedures and correct the problems before this happens again.

Posted by: bert | August 15, 2007 6:18 AM

i sound like a broken record reciting the above words of wisdom to our clients from outside china manufacturing here in Guangdong Province.

easy to say as a lawyer in shenzhen, but it still strikes me that foreign companies continue to think that if they send a sample to a china factory, they will receive a conforming production run. they should not even expect the approved production sample to be the same as the production run product, or that ongoing production quality will achieve consistency(not even bringing into payment risk issues even if the sample and production do match).

I think if companies outsourcing in China follow the above tips, they will be well on the way to minimizing losses and ongoing frustration. Also, they will ultimately pay less in legal fees by doing front end work, as well as have greater potential to establish a longer term relationship with the contractor.

Posted by: ryan beers | August 22, 2007 10:53 PM

Exellent work, respect.

Posted by: vanessa23 | October 24, 2007 1:51 PM

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