China Outsourcing: You Need a System and a Contract

Renaud Anjoran’s Quality Inspection Blog (which if you are not reading you absolutely should be) had an interesting post the other day, Setting a System in Place when Buying from a China Factory, stressing the importance of having system in place with your China contract manufacturer.

The post starts out noting that satisfactorily completing most product orders from China factories usually “depends on a few key people,” such as the following:

• The old guy who does the setups but doesn’t document them
• The salesperson who remembers what is important for the customer and repeats it every time to production people
• The owner’s wife who keeps an eye on production quality

The post then talks about how many Chinese factories have poor systems in place but a boss or some other key person with a “relatively good attitude.” But what “happens when these key people switch jobs, retire, or get busy on something else?” Anjoran answers this question by citing to this post I did on the “exact topic.”

My post was on how restaurants in China that start out well so often deteriorate in quality due to poor management, which then leads to the chef leaving, which then accelerates the cycle of decline until the restaurant shuts its doors. I actually did not write that post to highlight how important key people are to a foreign company’s relationship with its China factory, but I now wish I had.

Anjoran’s post then goes on to list out various ways the foreign company can do something to put a system in place through their ordering process” that will survive the “chef” leaving. He also provides scores of helpful links setting out what sort of systems should be used, and I urge you to go to his post for those.

What I took from Anjoran’s post is how important it is to have a written contract in Chinese with your Chinese factory so that when its “chef” does leave, you have a written document setting forth the strictures of your relationship with the factory and the terms of your product purchase transactions. This is when trade secret and confidentiality and non-compete provisions really earn their keep. You may trust the people at the company with whom you are now dealing but are you certain that you will be able to trust their replacements?

For more on the benefits of having a contract with your Chinese manufacturer, and on what you should put into that agreement, check out the following:

• China OEM Agreements. Ten Things To Consider.
• China OEM Agreements. Why Ours Are In Chinese. Flat Out.
• How To Get Good Product From China; Specificity is THE Key To Your OEM Agreement.
• OEM Agreements With Your China Supplier. Not Just For The Big Boys.

The post China Outsourcing: You Need a System and a Contract appeared first on China Law Blog.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.