China Hardware Startups: Recalls, Returns and Failures

A houghtful and helpful blog post over at the Dragon Innovation Blog, entitled, Recalls, Returns and Failures: Let History Be Your Guide. This post is geared to companies that have their hardware made in China, but its words of wisdom apply to the manufacturing of pretty much any product in China.

The post starts out by emphasizing the need to focus on how your product may not work as promised and how product defects can harm your company, perhaps even bankrupt it:

When it comes to quality planning, hardware startups tend to spend most of their time working on ensuring that a product will work as promised however many teams do not spend significant time addressing the subject of how the product will not work as promised. Returns, return logistics, and possible recalls can be financially devastating especially in the early life of a product. What may appear as a small change in warranty rates can have significant impact on a company’s bottomline and financial viability.  For example, if a company assumes a $250.00 total cost, $50.00 margin and sales of 100,000 units per year, a change from a 5% to a 7.5% warranty rate can decrease profits by 17% and increase working capital by $50,000. A recall or major quality failure can easily bankrupt a company.

It goes on to advise that you figure out the what if scenarios for your product and then include those factors in your design process as early as possible. It then lists out various tools and techniques you can employ to tease out potential product problems. It even lists out the “major root causes” of recalls, including the following:

• Loosening of joints/connection
• Small parts or magnets swallowed by children
• Not following or adhering to federal safety standards.
• Pinch, cut or severing risks for fingers
• Breaking/cracking or other failure
• Overheating
• Battery failures
• Excess material or insufficient material
• Small pieces or magnets falling off
• Poisoning

If you are looking to have your product(s) made in China, I urge you to read this post. And to further protect against product defects — especially those that are the fault of your Chinese manufacturer — I urge you read the below posts on China manufacturing contracts as well:

• China Manufacturing Contracts: OEM, CM, and ODM Arrangements
• China Manufacturing Contracts, Part 2: ODM Arrangements
• China Manufacturing Contracts, Part 3: An Original Development Manufacturing Agreement that Works
• China Contracts that Work

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.