China Sourcing 101: Contracts And Negotiations- Q&A Video

China sourcing tips Q&A in Melbourne training session

I have taken the liberty of creating a short series including video tutorials and expanded transcripts that goes into some detail about how foreigner buyers can protect themselves in China.

Let’s dive right in to today’s installment: “ Contracts And Negotiations: Q & A video.”

Local Business/Local Lawyer/ Local Language

I don’t care if you’re dealing in Pakistan, Bangladesh or Taiwan it’s just so valuable to have the contract in local language. You may be thinking, “why can’t I put in the English language contract that English is the official language of this contract?” Sure you can, but this is what happened to me early on my career when I was using an English language contract in China.

The Chinese supplier’s lawyer killed one year by debating every word in my contract, claiming the translation was not correct or not done right by the court appointed translator.

So if it was in Chinese originally and the supplier signed off- meaning that they agree that this Chinese terminology is accurate- they can’t use the stall tactic of debating if your English language contract is translated correctly when it goes to court.

Sign the contract and send the money to the right party if you want to be safe

Alright, I’ve said it twice so far in the series, and I’ll say it a third time because it’s so important. Please make sure that the name on your contract is the same name on the bank account, business license and ideally the factory gate.

Have you heard about SupplierBlackList?

There is a great website where buyers are helping each other by basically exposing suppliers that did them wrong. You know the open secret is that most of the mega website directories, they make their money from the sellers that list on those directories. So yeah, Alibaba and Global Sources do vet the suppliers on their directories, but a great supplier can go bad overnight. And at the end of the day, the suppliers are paying to be listed, so they have to be pretty bad to get knocked off these website directories. Since SupplierBlacklist is not making any money from the suppliers, they can just expose everything in an open way.

Q&A

Woman in the Audience: Can I register my IP in China on my own?

Bellamy: In China you can’t register the IP on your own online, but it is pretty easy. You just need to engage a Chinese patent attorney. Someone that is authorized to submit these documents in Beijing on your behalf. They’re pretty easy to find and affordable- a couple hundred Australian dollars to register a brand. A bit more if we’re talking about a utility patent or other types of intellectual property.

Woman in Audience: Why doesn’t everybody use Alipay and similar services to protect the buyer?

Bellamy: Yeah good points, let’s take Alipay, I’m pretty sure there’s caps to how big of an amount you can transfer at any given time. In my experience, it is mostly used for buyers who are purchasing orders under ten thousand dollars. Once you get larger than that then you’re dealing with bank transfers and maybe even letters of credit. So while that service seems pretty good at protecting your money on small orders it’s not available for normal and large orders.

Even if you are going to use those payment process facilities, it is still good to have a contract because it validates that the supplier understands your key terms. You might have a non-compete clause, you don’t want this supplier to sell to your competitor in New Zealand. So that payment processing is not going to have any protection for that. So the payment services you talked about, protect your money from disappearing but they don’t really help with the relationship with the supplier. It can’t hurt.

Woman in Audience: I’m pretty sure my competitors back home are trying to reverse engineer my product and have it made in China.

Bellamy: Maybe you’ve got a great Australian brand and you’re worried that this American with a lot of money is going to knock off your products in China or India. One way to stop them is, you’re going to register your product in the location where production is going to take place. And after your brand is registered you own the intellectual property you can actually go to Chinese customs authorities at the ports and say “this is my authorized supplier” and all other exporters are unauthorized products that should be confiscated and destroyed.

If you want to shut down a knockoff artist who is cannibalizing your business, the best way is to hit them in the pocket book. So I would wait until your competitor places a purchase order in China and has paid deposits, so that they have money in the pipeline. Then work with the customs authority to grab the container at the port before it leaves China. It will mess up the competitors supply chain big time. Because no one gets paid when the goods are confiscated or at least help up at port, it really hits them hard and destroys their relationship with the suppliers. Especially if their supplier did not even know that it was a counterfeit product that it was infringing upon. Keep in mind that it costs less than a 1000 USD to register your brand and the cooperation of the custom’s authority is free of charge if you know how to go about it!

Woman in Audience: I have been buying from China for many years. But I never got around to registering my brand. I want to change suppliers, but now I learned that the supplier registered my brand without telling me! What can I do?

Bellamy: Yeah, now you got your hands full, you’re in an uphill battle especially if it was predatory where a supplier, and this happens a lot, registers your brand as a means of manipulating you. For example, Australian company does not register their brand because they say “hey we got the brand registered in Australia, we don’t sell anywhere else in the world, who cares about China”. Then your Chinese supplier registers that brand a couple years later. One day you want to switch suppliers and now you can’t export your product out of China with your brand on it because the supplier owns the IP. So if you are in that situation, then it might be best to go to dispute resolution. But manage your expectations, the law is clearly on the supplier’s side as China is a first to register rather than first to market system.

Woman in Audience: I know somebody else owns the right in China for the brand for the item I want to buy, but I also know that the brand is not controlled by that party in Australia and want to produce an item under my brand in China to sell in Australia.

Bellamy: Know that the Chinese party could stop you if they knew that you were doing it. Maybe they are not savvy enough to tell the customs authority that they own that brand. But if it is in the marketplace and they see that “hey, you’re doing a good job, making a lot of money, going to trade shows”. Eventually they are going to figure it out and try to stop you. Maybe you’d want to sort this out in advanced, either by changing your brand if you are a startup maybe or negotiating a solution. Lesson learned, it is a lot easier to trademark first and then the system is working for you.

If take away just three things from this series on China Sourcing: Contract & Negotiations

1. Use a formal document, reviewed by a local lawyer
2. “Same name” on contract, bank account, business license & factory gate
3. Contract in Chinese language & Chinese jurisdiction actually protects you better