An agreement with China home storage supplier will give you complete peace of mind knowing that your rights are protected. It will also ensure you can take action if the manufacturer fails to deliver.
Signing manufacturing contracts with Chinese manufacturers can be challenging. This is due to uncertainty about what is contained in the contract, jurisdiction and language used.
Here, we’ll dive into the essentials of signing a manufacturing agreement in China, what’s included, and the rules governing its enforceability.
Contract Manufacturing Scenario–China home storage supplier
The pandemic has slowed manufacturing and trade activity around the world, and China is no exception. Despite the decline in the first quarter of 2020, China home storage supplier China’s exports accelerated in October, rising 11.4% from 2019 to $237.2 billion.
Growth continued in 2021, driven by strong global demand. China home storage supplier shipments in August 2021 increased by 25.6% year-on-year and 19.3% year-on-year. Percentage for July based on customs data. The resilient industrial sector saw a rebound in consumer and outdoor wholesale products, including leisure products, furniture and electronics. As the world’s largest exporter, China has always focused on exports and achieved growth, becoming the largest export partner in the European and American markets.
Whether you want to outsource the China home storage supplier of outdoor wholesale products, outdoor gear wholesale, or other consumer goods, there are several factories in China that produce such products. It is important to sign a manufacturing agreement with a China home storage supplier before you proceed to complete the transaction.
Why Signing Agreement with China Home Storage Supplier is improtant
Working with a Chinese manufacturer without a clear agreement exposes you to multiple risks. These include deviations from agreed prices, delivery dates, product quality and leaked trade secrets.
For example, a startup in the United States vigorously promoted its products and secured enough orders during the holiday season. These orders must be delivered in specific quantities, specific rates and times. Buyers in the U.S. insisted on drafting a binding contract that startups are obligated to follow.
After receiving these orders, the startup contacted a Chinese manufacturer to submit the order. Chinese manufacturers, although initially agreed, demand higher rates a few days later, or can suddenly say they don’t have the manufacturing capacity to fulfill the order.
That would mean the startup would have to face breach of contract lawsuits in the U.S. for failing to meet its contractual obligations. Failure to meet contractual obligations can not only affect a startup’s financial health, but also damage its credibility. If the startup fantasizes about Chinese suppliers signing binding contracts with the company on all terms, the sudden shift would be a complete, unpleasant shock.
There are also cases where Chinese factories that manufacture products for U.S. or European buyers secretly register the buyer’s trademark in China. In some cases, they make similar products for the buyer’s competitors.
A well-drafted Made in China Agreement addresses these issues and defines the basic terms for purchasing manufactured products. Key terms are related to delivery date, quantity, quality and price. Manufacturing agreements also protect your trademarks and intellectual property (IP).
Having a binding manufacturing agreement with your Chinese supplier helps prevent unpleasant surprises and ensures that the supplier and you are aligned throughout the trade. Knowing what to focus on when entering into a manufacturing agreement with your Chinese supplier is the first step in developing a well thought out agreement.
Key Points of Signing a Manufacturing Agreement in China
Manufacturing terms—Signing Agreement with China Home Storage Supplier
The manufacturing agreement clearly sets out the various terms and obligations of the buyer and the supplier, including:
The production equipment the will use
quality inspection program
type of packaging
breach of contract
The manufacturing agreement should also protect you from unauthorized subcontracting. This sometimes happens when the manufacturer cannot manufacture the entire product or the required quantity and decides to subcontract.
This can mean buyers don’t know where their product ends up being produced. This can affect product quality or increase the risk of production delays, supporting property theft and other ethical concerns.
Ensure that manufacturing agreements in China mention that subcontracting is not acceptable to mitigate these risks.
Protect your trade secrets by preventing disclosure to the public. While U.S. companies rely on NDAs drafted in English to prevent the disclosure of their trade secrets, such agreements may not be enough in China.
China home storage supplier will not disclose your business secrets to the public. However, there are also cases where factories steal product ideas to make similar products. Your manufacturing contract with a Chinese supplier must make it clear that Chinese companies cannot use trade secrets to compete with you by making similar products.
Provides the following types of protection—China home storage supplier
No use – the manufacturer cannot use your intellectual property/trade secret in any way
Confidentiality – Chinese suppliers cannot disclose or share your intellectual property. with others through unauthorized subcontracting or any other means
Non-circumvention – no manufacturer can make and sell your product to your customers
NNNs are especially important when you have unique product ideas, whether related to wholesale outdoor gear or other products.
Ownership of molds or tools
Disputes related to tool and die ownership can and do occur during manufacturing in China. The risk of such disputes increases if you choose to work with a Chinese manufacturer without due diligence. Unethical manufacturers know that another factory cannot make a product right away without tools or molds. They can use tools or molds to hold you hostage.
Specifying in the manufacturing agreement that you always have the tool/die and including a list of the tools you have will help reduce this risk. If you lend your existing tools and dies to a manufacturer, make sure you charge a deposit and mention the deposit amount in the agreement.
Consider a liquidated damages clause to ensure you can claim a certain amount of damages if the Chinese manufacturer doesn’t return your tool to you in a timely manner. The inclusion of a damages clause in the contract provides the basis for Chinese courts to freeze the manufacturer’s assets pending a final judgment. When factory owners realize this, they are less likely to use your molds or tools against you.
Product Development Agreement or PDA
Are you looking for product design and development assistance from a Chinese manufacturer? Whether you want to sell outdoor products made in China, or other products that need to be designed and developed in China, PDAs can make a difference.
Many Chinese manufacturers help start-ups and small businesses in the US and Europe design and manufacture their products. Without a PDA, Chinese suppliers can claim that they own your intellectual property. Because they help you develop your product.
PDA enables you and your Chinese supplier to agree in advance on:
Products to be designed and developed.
Technology contributed by Chinese manufacturers and foreign companies
Who provides product specifications
Who owns the rights to the IP finished product
If you have a fully developed product but only use a Chinese factory for manufacturing, this clause may not be required in your manufacturing agreement.
Termination of contract
Make sure you include a contract termination clause in case the contract can no longer be performed. For example, if the manufacturer breaches the contract, you may want to terminate the contract. However, either party can terminate the contract on mutually agreed terms. If your manufacturer suddenly cancels the contract without warning, it may be difficult for you to recover any damages.
If this happens, it’s important for you to have a contingency plan.
Dispute Resolution and Enforceability—China home storage supplier
The manufacturing agreement should specify guidelines for resolving disputes and their enforceability in the event of disputes. Make sure the contract:
The contract is written in Chinese,
The agreement includes the original registered name of the Chinese manufacturer (Chinese name, not English name)
This agreement is governed by the laws of China
Chinese courts have exclusive jurisdiction over Chinese suppliers
In the event of circumvention or breach of contract, China home storage supplier dispute resolution and enforceable provisions ensure that you can take legal action against the defendant.Click here to learn more.