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How To Handle Bad Product From Your China Supplier.

Posted in Legal News

Very interesting post by David Dayton over at Silk Road International, entitled, “Recent Chinese Negotiation Tactics: Translated!” The post is on the responses (excuses?) Chinese companies give when Westerners complain to them about product quality. David handles sourcing and quality control for mostly Western companies doing business in Asia and his post focuses on dealing with these responses while still within a supplier/buyer relationship.
My job as lawyer on most quality control problems usually does not start until the relationship is pretty much over.
Over the years, I have handled countless quality dispute cases against Chinese companies and I have heard nearly all of the same exclamations David lists. I have been brought in to threaten legal action in an effort to get the money back.
We usually do this by first writing a demand letter to the Chinese company stating that we have been brought on to get our client a full refund and if we do not have that within ___ days, we will pursue litigation in _______. We always write this letter in Chinese both so the Chinese company fully understands our position and to let them know it will be no big deal for us to secure Chinese counsel to sue them in China (where these lawsuits usually need to occur) tomorrow. Our letters also usually explain the law just enough to convince the Chinese company resistance is futile.
These letters, coupled usually with weeks of negotiations, usually lead to some payment around half the time. If the letter does not work, we analyze the client’s chance of prevailing were it to sue and the likely cost of suit and then recommend whether it should litigate/arbitrate or not, and where..
These Chinese companies usually claim that the quality of product they provided my client was warranted by the amount my client paid for it. According to the Chinese company, if my client had wanted better quality, it would have had to pay more for it. Unfortunately, this is often a great defense.
If you want your Chinese manufacturer to make your product made to a particular standard, you have to be unbelievably explicit about exactly how you want your product to be manufactured. For example, even if everyone in your industry uses at least 10% stainless steel for a particular product and you have told your manufacturer countless times that your product must be at least 10% stainless steel and if your manufacturer’s initial sample contained 11% stainless steel, you still must make sure your written contract (preferably in Chinese) with your manufacturer explicitly states all product must have at least 10% stainless steel content. If your contract does not state that you are requiring at least 10% stainless steel content and you get product with 3% stainless steel content, I can virtually guarantee your supplier claim you paid for product with only 3% stainless steel content and there is a very good chance a Chinese court will agree.
Bottom Line: You want something from your Chinese manufacturer, you put it in your written contract. You are also usually better off with your contract being in Chinese so that if there is a dispute, your Chinese counterpart is not well positioned to claim it failed to understand and if you do need to go to court in China, you have the contract ready to go for that purpose.
Or you can listen to a whole bunch of excuses….

  • http://www.standardmanufacturer.com greenhouse613

    To avoid bad Chinese Prouduct into USA, USA Companies should looking for a company who can good Quality Control. It including customer support representatives, internal job manager, sampling group, R&D division, material management office, tooling engineers, plant manager, machinist, manufacturing managers’s quality control. Each step need to look at with control.

  • Glen Wilkins

    “According to the Chinese company, if my client had wanted better quality, it would have had to pay more for it. Unfortunately, this is often a great defense.”
    Couldn’t this be refuted by comparing the costs of similar products? At my previous job, we had several China sources all charging approximately the same price for similar products. We also knew what the raw material/component costs were, as well as labor, etc. Wouldn’t a business operating in China have at least general idea of what it would cost to operate at a different factory?

  • http://www.chinalawblog.com Dan

    greenhouse613,
    All true, but easier said than done.

  • http://www.chinalawblog.com Dan

    Greg,
    Absolutely yes.
    But there is a direct correlation between the number of explanations one has to give in a lawsuit and the cost of that lawsuit and the likelihood of prevailing. What you are describing will usually require a third party expert and that is a big cost right there.