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:

What do you think?

I have never written a will, not even for friends or family. I have never handled a DUI, a divorce, or a real estate closing, not even for friends or family. I have never negotiated with a union, drafted a pension plan, or handled a debtor-side bankruptcy. I could go on for pages listing out the legal matters I have never handled and will never handle.

And there is a reason for that.

There is a reason why I have never handled any of the above matters and there is a reason for my telling you all this in this post. I have never handled any of the above matters for the simple reason that I am either wholly unqualified to do so or there are so many other lawyers out there far more qualified (and efficient) than me at such matters, that my handling them would be a disservice to the client.

I wish more lawyers thought like I do when it comes to international contracts as I am getting tired of cleaning up their messes.

In just the last few months, I have seen the following:

1.  An employment contract between a United States company and its three ex-Chinese employees. The United States company brought me this contract after its Chinese subsidiary was sued by these three ex-employees. The United States company wanted to argue in China that the three ex-employees could not sue the subsidiary both because they were not employees of the subsidiary and because the contract made very clear that any disputes needed to be resolved in a U.S. court. They had actually paid a U.S. lawyer to draft this document. I told them to ask for their money back from the U.S. lawyer and try to settle with the three ex-employees as quickly as possible. Their employee agreement was illegal on multiple counts.

2.  I met with a company who wanted us to draft a supplier agreement with their new Chinese manufacturer on terms “somewhat similar” to those in the distribution agreement they provided me. Upon further questioning from me, I learned that they had been using this distribution agreement with their other suppliers, but they were having doubts about its efficacy. Not only was this distribution agreement written all wrong for China, it was the complete wrong agreement. It set out a relationship whereby the U.S. company was acting as a distributor of the Chinese company’s product, when in reality, all the U.S. company was doing was buying OEM product from Chinese manufacturers. Very strange.  I also told this client to ask for their money back.

And here’s the kicker. The law firms that wrote these two contracts are decent law firms, though neither do any international work. Not sure if they are so hard up for work that they are willfully deciding to cross into legal arenas in which they do not belong, or if they simply do not know any better. Not a good thing. 

What do you think?