We are always telling our clients that they cannot be too specific with their product requirements when buying product (OEM product or otherwise) 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 that you want, your expectation the odds that 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.
No, what you need to do is set out 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 make VERY 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 exactly what liquidated damages you will be entitled to if the product has anything less than 10% copper in it.
When I talk on 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, that this American was renting, and it had a really nice expensive office chair (high end apartments in China are virtually always rented out 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, he came by and 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.
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 doesn’t 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 post by Renaud Anjoran on his always excellent Quality Inspection blog. Renaud’s post is entitled, “Be ULTRA SPECIFIC with your Chinese Suppliers” and, needless to say, that is the advice it conveys. What’s cool about his post though is that he shows a couple of examples where Chinese companies (his own hotel) are super specific in conveying their messages. This got me to thinking that 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 because that is THE key in how to get good product from China and to a certain extent, 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 the following:
- China OEM Agreements. Ten Things To Consider
- China OEM Agreements. Yet Another Reason To Have One
- China Supply Agreements. Why The “Perfect” OEM Agreement Should Cost Less
- OEM Agreements With Your China Supplier. Not Just For The Big Boys
- China OEM Agreements. Why Ours Are In Chinese. Flat Out
- The Five Steps To Successfully Buying Product From China.
- China Manufacturing Agreements. Make Liquidated Damages Your Friend.
What do you think?