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Dec 14, 2011

10 Must Dos Before Engaging in a OEM Relationship with a Chinese Company

A blog, I just discovered, because of reading a post at the China Law Blog, details a strategy to assist in guaranteeing that your products coming from China are worth more than the box they are shipped.

We agree, generally, with the advice, however, we hope that clients wishing to engage in an OEM/Manufacturing relationship with a Chinese manufacturer will not neglect to:
  •  Have Professionally Drafted OEM/Manufacturing Agreements in Chinese and English;
  •  Register all IP in China;
  •  Protect your Trade Secrets;
  •  Choose the Right Chinese Manufacturing Partner Through Due Diligence; and
  •  Build Internal Quality Control and Compliance Processes at the Chinese Company.
Please do your company a favor and think (be systematic) before you jump. 

The post can be found at: China Success Stories
1. Detailed Documents
"The number one key to quality when working with factories in China is documentation. Having bi-lingual, detailed, factory agreed upon checklists in place that document an item’s specifications and the criteria for inspecting the product before shipment, is essential to controlling product quality. One can not say for sure, but I would be willing to bet that the factories responsible for products recently recalled for lead paint did not have bi-lingual documentation on hand from their customer stating the type of paints that could and could not be used. Sure, this type of documentation takes time and hard work to create, but putting such processes in place is the first and most important step in avoiding quality issues. QC Checklists should describe in detail:

a) Item Packaging
b) Item Defect Classification (what is considered an defect and at what severity)
c) Item Size and Other Specifications
d) Item Functionality and How it is Checked"

2. Factory Presence
Having a presence at the factory ensures that both factory staff and management really know who you are. Either through a 3rd party QC company or your own staff, ensure that you are being represented at the factory in person on a regular basis, and that the factory clearly connects your presence there with your production.

3. Inspection
Perform regular product inspections (either with your staff or a via 3rd party), not only on the final product shipment, but also during production (otherwise knows as DUPRO). Ensure these inspections are consistent and based on clear inspection criteria. Always review the inspection results with factory management and their own QC team.

4. Keep Approved Samples
Some say that a picture is worth a thousand words. I say that a sample is worth a thousand headaches! Items often get revised and modified several times in the sourcing process, and then again after production begins. Keeping an approved sample in your office, and also one in the factory that can be used to verify the production product by the QC team, is essential in seeing eye to eye with your Chinese suppliers.

5. Take Responsibility
Nothing will alienate your Chinese suppliers more than a mistake on your side for which you take no responsibility, and blame their misunderstanding. I’ve seen hard-headed buyers make this mistake more than once, to the demise of their hard earned factory relationships. So, make sure you have all the facts before you start to blame. Recognize when it’s possible that a mistake or production issue may have been caused by your own fault, or your own team’s mis-communication. Take responsibility when this happens, even if it means a financial loss. If you are working with the factory on a long term basis, the credibility you will gain will outweigh what you have given up.
Again, please don't forget (link to article on matter in red):
          6.  OEM/Manufacturing Agreements: Do Contracts Matter in China?
          7.  Register IP: IP Protection Strategies Work in China
          8.  Protect Trade Secrets: Keep Your Trade Secrets Secret in China
          9.  Partner Due Diligence:  Due Diligence or Get Robbed by the Bar Sisters
         10. Build Processes: Developing Trust in China by Building Processes
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SeanHayes@ipglegal.com