China Law Blog

David Dayton over at Silk Road International sets out what every buyer of China product must do before buying product from or having product manufactured in China.

A summary of Silk Road's list:

1. Pay $150 or so and get a report on your company before you send any money over to China. David mentions using Verify or Glo Bis for this. These reports will usually tell you if the company to whom you are about to send so much money actually exists and is operating legally. I would also suggest that you do an internet search (in both English and in Mandarin) on the company from which you will be buying to see what others are saying about it.

2. Second, pay another $800 or so to get your factory audited. Dayton's company, Silk Road International, does this. The audit will confirm that the factory from whom you will be buying actually has the capability to provide you what it says it will provide you.

3. Get your potential supplier to give you the names of others, preferably from your own country, that ordered product from your potential supplier recently and then call and find out how it went.

Dayton then does a great job laying out the math on why this makes complete sense:

Now, maybe you’re saying: “Hey! I can’t pay and extra $1000 to just confirm what they already told me!” My response is: “What % of your order can be rejected and still allow you to still stay in business?” Yes, it’s that serious. Pay $1000 up front. Pay another $1000 for a few days of QC and you’ll not only be safe, you’ll be set up for your next order and you and your supplier will have standards set for the future. If you are ordering $20K or more, this should be an acceptable margin. And the next order you’ll only be paying $1000 for the QC. The opposite scenario is that you just trust your factory and send tens of thousands of dollars to someone you don’t know, have never visited and works in a very instable and opaque business environment. If the factory takes $20K and runs (and I’ve never had this happen to me, but I’ve heard stories) the $1000 will seem like small potatoes. If 20% of your order is junk, or if 100% just “off just a little,” but enough to make it a 2nd in your market, how insignificant is the $1000 pre-check now?!

4. Get "a lawyer and cover your legal bases in China before you send any info/spec’s/designs/art to China." Again, Dayton is right. We typically recommend that you secure a signed non-disclosure agreement (NDA) from your potential suppliers before you show them anything of any real import. This NDA should be in Chinese. We also typically recommend you register your intellectual property (IP) in China before you discuss it with anyone in China.

Even doing these four things will not guarantee you will succeed, but not doing them all but guarantees you will fail.