My law firm’s international manufacturing lawyers are always telling our clients they cannot be too specific with their product requirements when buying product from a Chinese manufacturer. Words like “blue” or “good quality” or “typical in the industry” are meaningless. There is a wide range of blues and unless you specify the exact blue you want, the odds you will get the one you want or even the one in the sample are incredibly slim. And what does “good quality” mean in a country where you can buy t-shirts for 25 cents that will fall apart after one wash? Typical in the industry? What industry? And how do you expect some manufacturer in China to have any clue about safety or fashion or anything else in the United States or in Europe?
If you want good quality products — as defined by you — you must be clear about exactly what you want. If your product and all of your competitor’s products are always made with 10% copper and everyone knows this, you still must make clear in your spec sheet that you want your product to be made with 10% copper and then in the contract itself you make very clear (and in Chinese) the liquidated damages to which you will be entitled to if the product has anything less than 10% copper in it.
When I give speeches about what should go into Chinese contracts, I usually relay something like the following:
Many years ago, I heard a story of an American who was renting an apartment in Shanghai. Now I am not even sure if this story is true or apocryphal, but it is such a good story to illustrate how Chinese judges and arbitrators view contracts it really doesn’t matter whether it happened or not.
It was a nice apartment this American was renting and it had a really nice expensive office chair — high end apartments in China are usually fully furnished. One day, the really nice office chair broke and became unusable and the American tenant kept asking his Chinese landlord to replace it. But that wasn’t happening.
The lease on the apartment eventually came up for renewal and the American refused to renew it unless the landlord put in writing that he would replace the really nice office chair. The landlord agreed and after the new lease was signed, the landlord sent someone to the American’s apartment to put in a $2 metal folding chair.
What would happen in the United States if this tenant were to sue the landlord over the landlord’s failure to replace the office chair with something pretty comparable? Anyone know?
The tenant would win because the court would essentially write into the lease contract the provision that the replacement chair had to be a good office chair like the one it was replacing. What would happen if the tenant sued the landlord in a Chinese court?
The Landlord would win because if you want something in your contract in China, you had better put it in there with specificity.
Why is this chair story even relevant? It’s relevant because American companies time and time again fail to put enough into their contracts with Chinese companies. Instead, they just assume the courts or arbitrators will know what the parties intended and re-write their contracts accordingly. But it does not work that way in China.
We had a company come to us after having received a large shipment of laptop bags that weren’t strong enough to hold a laptop. We called the Chinese company to ask about getting a refund and they told us that if our client had wanted a bag strong enough to hold a laptop, it should have paid 50 cents more per bag for one that could actually do that. This company should have specified in its contract that it wanted a bag that could hold x number of kilograms.
I was reminded of all this today after reading a Quality Inspection blog post entitled, Be ULTRA SPECIFIC with your Chinese Suppliers. This post shows a couple of examples where Chinese companies are super specific in conveying their messages. This got me to thinking about how the need to be super specific may stem from China’s hierarchical society and the role each person sees for him or herself. To grossly summarize, we Americans love to claim to “think outside the box” whereas in China thinking inside the box is oftentimes valued more highly. Then again, it all just may have to do with how US courts are so willing to infer contractual terms and Chinese courts are not.
But the reason for having to be ultra-specific in your Chinese contract is not what matters. What matters is that you do so in your contracts with your Chinese manufacturers because that is the key to getting good product from China also one of the keys to doing business in China or with China.
For more on what should go into your China OEM Agreement and how to succeed in outsourcing product from China, check out Buying Product from China: Take These Five Steps and China Manufacturing Agreements. Make Liquidated Damages Your Friend.