China Law Blog

Every so often a US start-up company will contact me with a plan to manufacture in China that involves the Chinese manufacturer producing at a reduced rate until the product can really get off the ground. My response to those plans is always the same:

I am not going to tell you that what you are proposing is impossible, because for all I know, it may be possible. But I am going to tell you that I have never heard of a Chinese manufacturer agreeing to such an arrangement with a start-up company and based on what I know of how Chinese manufacturers are structured and how they typically conduct their business, I think what you are proposing will be exceedingly difficult to achieve. Maybe Wal-Mart could pull something like that off, but I just don't see a small company being able to do so.

The start-up company usually responds either by backing down or by launching into US company speak something like the following:

We have gotten where we are right now through a series of win-win cooperative relationships with a number of companies and people and I don't see why we can't do something similar in China. Maybe this sort of thing is not yet typical in China, but once they see our product and realize how they can participate in it in a win-win sort of relationship, I think they will be interested.

To which, I usually tell them they should try and then when their relationship with their Chinese manufacturer is ready to be formalized with a contract, they should get back to me. They agree, but guess what? I've yet to get the return call.

China product quality guru Rene Anjoran, in his most recent post, "Partnering with a Chinese factory: a sweet dream?" explains how Chinese factories just do not think in terms of either "partnerships" or "win-win" and a lot of that has to do with their past treatment by Western buyers. Anjoran concludes his post (and I urge you to go there and read the whole thing), with the following list of ways to treat your Chinese manufacturer:

-- Accompany the factory at the beginning of the relationship, to explain clearly what is acceptable. -- Keep monitoring production quality, make sure to get written and signed records, and do not lower your standards for any reason (if possible). -- Dump regularly the worst factories: those that can’t (or won’t) be reliable enough, and those that are growing too fast. -- Give regular business to the best factories and walk your talk, as mentioned above. Make sure you are not seen as a bad customer. --Tolerate that the best factories get a reasonable premium on their prices: you will make it back easily on lower costs (better quality, less delays, faster responses, etc. all reduce your costs and help you please your customers). -- Don’t switch suppliers for a few pennies, but keep them in competition with at least another factory to avoid unreasonable quotations.