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When sourcing for branded products from China, be aware that most are counterfeit. China is a country where copyright infringement laws are in place but offenders are rarely prosecuted. Many sellers will claim to be selling the real products when in fact they are not. For example, you might get an Adidas shoe spelled Atidas or a Nike show spelled Nikc. Most small buyers are unwilling to put in the effort to thoroughly vet the suppliers and suppliers know this. Here’s why:
1) Most small buyers have tight budgets and won’t spend the money to verify a supplier due to financial constraints.
2) Most small buyers will not travel to China or engage a third-party inspection agency to check the product even if the inspection is just a few hundred dollars.
3) Many small buyers live in jurisdictions that have strong copyright laws and they assume that this is the same in China.
4) Small buyers will not spend the money to track down a scam artist in a foreign place or pursue a legal battle for a small order.
When a product looks to good to be true, it usually is.
It would be advisable to have a contact lawyer draft a contract to afford the best protection in case of a dispute. Despite this, here are some mistakes that can still be made:
1) Many buyers don’t ask for a contract and simply places a Purchase Order. Most Purchase Orders will not address issues such as quality issues, delivery issues, confidentiality, and etc.
2) The contract is with the wrong party. Many buyers have a contract with the factory but makes payment to a Hong Kong trading company. When a problem arises, it is hard to enforce the contract because the payment was not made to the contracted party.
3) Have the contract in both languages. Here’s the explanation from ChibridgeLaw.com:
“If the mutually agreed jurisdiction on the document is China, and both parties have signed/chopped the document, then technically, yes, an English contract is enforceable. But before the courts can make a decision the document will need to be translated into Chinese by a court-approved translator for the court’s review. This can be expensive and time consuming. It’s much better to have your attorney structure the wording in advance rather than hope the court’s translation will be accurate. Be safe. Use bi-lingual contracts.”
We recommend you proceed with caution when verifying the legitimacy of a supplier. Here are some tips that can help:
1) Does the company have all the business entity paperwork and all the certificates required to produce the product?
2) Does the company allow for unannounced factory audits and production quality checks?
3) Does the payment method offer protection to the buyer in case of a dispute or non-delivery?
4) Does the supplier show up as a scammer on any online databases?
5) Does the supplier have the capability of producing to your quantity and quality requirements before accepting the order?
Even after you have fully investigated the supplier, please take the extra precaution of ordering for a third party inspection of the goods before leaving China.
It really depends on the volume of the order. For small orders, Paypal is perfectly acceptable and offers buyer protection in case of a dispute with the order. For larger orders, the fees will deter suppliers from accepting this form of payment.
If you buy a semi-manufactured product from one factory and send it to another China factory to finish the product, there will be VAT taxes levied. Let's say you buy raw materials to produce a shirt in China. When the raw materials get sold to the manufacturer, a 17% tax is levied. Assuming the chain ends there, the 17% will be the only taxed amount. But let's say, the shirt gets sold to a distributor. Another 17% tax would be levied. Simply stated, a 17% tax is levied for each step of the chain.
Let's say the distributor exports the shirt. The distributor can file the tax paid paperwork and get reimbursed for his 17% of taxed paid because he exported the product.
Of course, in China, many companies do not follow the rules properly. So let's say the distributor exports the products but does not have the proper paperwork to claim the 17% rebate, then this rebate is lost in the export process.
In China, a getting the best quality for a target price you have in mind requires some skill and patience. While you should not state your target price in the Request for Quotation (RFQ) form, the target price should be disclosed once you have narrowed down to your handful of suppliers. If you do not give a target price, a supplier would naturally assume, you are a buyer looking for the lowest price and thus the lowest quality. So the supplier will negotiated based on this assumption. If you end up giving a target price that is much higher than the supplier's cost, they will simply keep this difference.
On the other hand, if you give a target price from the beginning and demand the quality must meet your specifications, then the supplier is more likely to satisfy your quality requirement. Not all suppliers and negotiations will work the same way. You really have to choose the right suppliers.
Chances are you may already be too late once the goods have arrived. It is up to your persuasiveness to move the supplier to rectify the problem. Prevention is the key to prevent getting poor quality products. Here are some steps you can take to prevent getting into this problem:
1) Have a signed contract that clearly states the required quality level (be as specific as possible)
2) Paperwork showing proof of payment and make sure recipient matches the contract company's name
3) Your supplier has physical and financial assets
4) Have routine unannounced physical factory inspections to inspect the quality of the product during production
But above all else, this is a must for every shipment: Have an independent company inspect the shipment before it is sent. It may cost a few hundred US dollars but this is the best prevention method by far.
Both groups have the plus and minuses. It would be unwise to focus on just one group. Most foreign companies with China factories would say they have better QC and customer service. Local China factories would say they have better prices. It really depends on the company so do your due diligence before making a commitment.
If your intellectual property (IP) is registered in a foreign country, it would be hard to enforce in China. A factory can simply send your product specs to another factory and produce the same identical product to distribute or sell to other customers.
If your IP is registered in China, then you will have the Chinese law on your side. It is highly recommended you file for a Chinese IP protection if you are worried about IP theft.
If your supplier does not have the required license, you can contact a third party exporting company to take care of the exporting process. There will be a fee, of course.
Another option would be to have our company, Supplier-In-China, export the product for you. We carry the required licenses to export product out of China. Visit us at: supplier-in-china.com