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.

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Dan Harris

I am a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

I mostly represent companies doing business in emerging market countries. It has taken me many years to build my network and it takes constant communication and travel to maintain it. My work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

I was named as one of only three Washington State Amazing Lawyers in International Law, I am AV rated by Martindale-Hubbell Law Directory (its highest rating), I am rated 10.0 by AVVO.com (its highest rating), and I am a SuperLawyer.

I am a frequent writer and public speaker on doing business in Asia and I constantly travel between the United States and Asia. I most commonly speak on China law issues and I am the lead writer of the award winning China Law Blog (www.chinalawblog.com). Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed me regarding various aspects of my international law practice.

I am licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at my firm, I focus on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.

  • Thanks a lot, Dan.
    Another example of this: about one year ago, some North-American importers were pressuring their Chinese suppliers to decrease prices “exceptionally”, “because this crisis is stronger than anything we have seen so far”. From the Chinese exporter’s point of view, it was laughable: “they expect us to lose money because of THEIR crisis, and do they honestly think they will allow us to increase prices again when the economy is fine again?”

  • pug_ster

    Yes I agree. Many American companies coming to China doing RFP’s to different companies but ultimately wants the lowest price for the same product. Unfortunately, this gives the incentive to many Chinese companies to cut corners that many American companies failed to take the due diligence on.

  • LaoLao

    As PiPi once said:
    …To the Chinese, there is no win-win scenario. “Win win” is the name of a panda in the Sichuan Zoo…

  • daniel

    I manufacture in China for quite a few years now and completely disagree with Dan and in fact had a different experience in China.
    There are possible two scenarios here:
    1. The American company is perhaps suggesting to pay dirt cheap while at the same time expecting the Chinese company to provide top level service and sacrifice on their part.
    2. The American company and/or with no. 1 is approaching a company which deals with large quantities and companies.
    These days there are plenty of Chinese companies that are willing to “partnership”, you just have to choose the right company and pay reasonably just like anywhere else in the world, business is business.
    Same with hiring local personal, you have to match the people and pay to the actual market situation.
    Happy manufacturing in China is quite possible. This article is better titled us “Another Clueless American Company Found”. Yeah ok.

  • Scott Alan

    I started a partnership with a company in Shenzhen, they agreed to a price, quality and even signed a contract, the final product was low quality with all kinds of tooling errors, I plan to file a 10 million dollar law suit against this company for not honoring the contact, destroying my company by allowing us to promise product that was not good enough quality to resell on the market.
    I have found that quality is much better in the east than in the large western cities like Shenzhen, I am not saying all companies in Shenzhen are bad, I am sure there are many honest companies, it is the bad companies like the one I dealt with who give a city full of companies a bad name.
    I found Wenzhue and many cities east of that have better quality, prices and honest people.
    Stay clear of Shenzhen and those large cities filled with companies who think nothing of honoring contracts, getting you to pay a high price for low quality is looked on as a smart business man when in actuality they are nothing but low life thieves.

  • Alex T

    Scott-
    I completely agree. We have been dumping suppliers left and right over the last half-decade. We have changed our business model to do manufacturing here in the USA (for most products).
    We are sick and tired of dealing with so many stupid Chinese people (and I don’t often call people such names, but they well deserve it). Absolutely ZERO common-sense in many of the companies we have spoken with.
    This is not something we have been doing for 6 months; we have been in the electronics business for 5 years now. Luckily, we have found a few suppliers that are GOOD (not great).
    We are slowly dropping ALL of them, as we want to have NOTHING to do with people that lack commonsense or people that don’t understand a basic concept such as: “Inconsistent quality will not GAIN you more sales… idiots”
    I see the downfall of China happening within 10 years. This country thinks many of the foreign buyers and consumers are idiots, who won’t see defects or other ‘cutting-corners’ tactics of theirs.
    Their “CHEAP CHEAP CHEAP!” attitude will be their ultimate downfall.
    I am not saying that you cannot find decent suppliers/factories in CHina. I am just saying that in MANY cases, it is simply not worth it. I know that our company can produce the same electronics products in the USA (WITHOUT THE CONSTANT DEFECTS, RETURNS, REFUNDS, ETC that you get with a ‘cheap’ China deal) and do so at a competitive rate to China.
    What drives companies to outsource are the ridiculous benefits/perks that they must provide to employees. Remove these, and cut out the excess ‘flab’ in the company, and I bet you they can produce goods at a competitive rate to China’s current rate.