Last week I had a Zoom call with a long-time, no nonsense, client regarding an ongoing matter. As we were wrapping up the meeting, he mentioned his company was looking to start moving the manufacturing of some of its products from China to Vietnam or Thailand, and he wanted me to tell him what his company needed to do to protect itself.
He wanted the soup to nuts version, and I had five minutes max. This is my elevator speech on how to protect your company when having your product made in a foreign country:
Obey the law. You will hear about companies that are violating this or that law and are getting away with it, but that just means they have been lucky so far. Everyone knows someone who smoked until they died in great health at 88.
Protect your Intellectual Property. IP is where your company's value lies, and you must protect it. Trademarks are valuable and they almost always cost less than $2,500 to register. But, if you do not register your trademark, someone probably will and in most countries, this means you will lose it. The first to register a trademark in most countries gets it, so register your brand names and your logos right away. Do not wait. Copyrights and patents, we will discuss next time. Non-compete agreements, non-disclosures (NDAs), we will talk about later. In the meantime, check out this post on NNN Agreements, which are usually absolutely critical.
Manufacturing Contracts. You need good manufacturing contracts. NNN Agreements. Product Development Agreements. Manufacturing Agreements. Some or all of these.
Choosing the right jurisdiction for your disputes is critical in any contract. Choosing the wrong jurisdiction is a very common mistake.
Due Diligence. With whom you do business overseas is key. If you team up with a crook, we lawyers cannot help you much, if at all. Our law firm can help you conduct due diligence on your potential suppliers.
If I have an additional five minutes, I discuss the following.
Sourcing websites. These are designed to provide marketing channels for suppliers/exporters and aggregate product/supplier content for buyers/importers online. Read the User Agreements closely as they clearly state that you are essentially using the site at your own risk.
Never rely solely on any ratings systems provided by these sites. Always conduct your own due diligence on your product supplier.
Trade shows. A potentially great place to meet suppliers and learn more about the industry, manufacturing process, products, export issues, etc. The exhibitors can teach you many things and are willing to do so if they believe you are a serious buyer and potential customer.
Like finding the right supplier, it is not easy selecting the right trade show to attend. Do your homework, ask other importers you know which shows they attend and also look for UFI approved events (www.UFI.org).
Quality Assurance. There are companies that specialize in factory audits and product testing. Use their expertise.
Shipment. If by air, then speak to FEDEX, DHL, etc. to understand not only shipping costs, but also import taxes. If by sea, look for a shipping company that can also help you manage the taxes. It's also a good idea to speak to your local customs office.
Get your shipping terms done right, which is much tougher than most realize.
Payment. Never send cash if you can avoid it. Talk to your bank about Letters of Credit and Escrow, but these do not work so well in many less developed countries. There are systems to protect your money, so use them. A good contract helps here.
Patience. Take your time, look at alternatives and start small. If something looks too good to be true, it is.
By adhering to legal requirements, protecting your intellectual property, and using appropriate and well-drafted contracts, you can mitigate your international manufacturing risks and safeguard your company's interests. Conducting thorough due diligence, choosing the right suppliers, and understanding logistical details are also vital to successful overseas manufacturing.
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