The other day I received an email from a college student looking to form a business that would buy product from China and sell it in the United States. The email asked about the steps to take to get such a business going. Here is that email (modified slightly to maintain anonymity):
I am an American college student studying International Business and Chinese at ______ University. This past semester while studying abroad in China, a friend of mine, _______ (who met you in Chengdu), turned me on to the China Law Blog.
A few friends and I have decided to start a company soon after graduating next May. The company will produce and sell product X, starting in the U.S. and then moving to China and elsewhere abroad. Right now my friend’s father is developing the prototype product X, which is coming along with great success. In the meantime, we our trying to structure the company and figure out the logistics of the start-up.
I’m seeking your advice because we want to manufacture product X in China but don’t know how to get started. I have read your articles describing the risks/dangers of manufacturing there and I want our company to approach the production of our product in a smart, cautious way. Once the prototype is complete, how do we go about finding reliable manufacturers in China for our product? I know about the importance of protecting IP rights and (some of) the differences between contracting in China vs. America, but I want to know: what is the next step after the our prototype is complete and we have buyers? Where should we go from here?
Thanks a lot for your time and consideration! I hope to hear from you soon.
I responded as follows:
Thanks for writing and thanks for the loyal reading.
1. Form a US company (probably an LLC) and have a good member agreement drawn up among the owners. Hire a local lawyer for this.
2. Make sure your IP is protected in your primary selling market (the United States?). I doubt you will have anything that can be patented, but that should be a consideration also. Patents are expensive, however. If you are going to call your product, product X (that sounds good to me), you should trademark that in the United States and in China and in whatever other countries you plan to sell it.
3. Now find the manufacturer. There are many ways you can go about this. The best and usually the cheapest is to do tons of internet research and then narrow it down to 4-5 and then fly to China and meet with those factories. If you are going to be doing something really different than other companies that make and/or sell this product, you should require the factories sign a China NNN Agreement before you show anything. This NNN Agreement should be in Chinese and in English, with Chinese as its official language. The alternative is to hire a product sourcing company to find the right Chinese factory for you and to negotiate on your behalf. If you choose that route, we can give you names of people/companies our China lawyers know and trust who do this. These people can also usually help with things like shipping as well.
4. Then have a really good China Manufacturing Agreement with the manufacturer (in Chinese) and you need to trademark your product name in China and you should be good to go (assuming your product does not call for a China patent).
I am sure I have left out a few things, but the above are the basics.
What do you think?