Pretty much every week or so, our international lawyers get emails from companies asking our international manufacturing lawyers asking a question like the following :
- Can you recommend a good factory that makes _______?
- I am about to sign a contract with X Company and I am wondering if you can tell me whether they are legitimate or not?
- How can I find a good factory in _____________ [country] that makes ABC products?
- Should I have a factory in _______________ make my products for my company or should I build my own factory in this country or in some other country?
These are all tough questions and I thought about them today after reading How To Get a List of “Good Chinese Factories”? by Renaud Anjoran over at the Quality Inspection Blog. Renaud starts his post by noting how “hardly a week goes by without someone asking me for contacts of “good factories.” Renaud and his company have been helping Western companies find and work with factories in Asia for well over a decade and yet he cannot answer this question and he gives the following as his reasons why:
1. Confidentiality. Renaud’s company promises confidentiality to its clients and it therefore cannot share with other companies what they have learned by working with a client.
2. Absence of bias. Renaud’s company audits and inspects factories on behalf of its clients and he worries about losing objectivity by recommending factories.
3. There is no such thing as a “good factory in the absolute.” Renaud notes that what is a good supplier for one company may not be a good supplier for another company.
Apple works with a famous contract manufacturer (everyone has heard of them). The products they make for Apple are truly first class — in the millions of pieces, with very fast ramp up and pretty close to zero defect.
Well, that same manufacturer also produces batches (for other customers) that would not be acceptable for sale in Walmart or Testco, and sometimes even cheats on components. I know it because we have detected these issues while looking out for the interests of a client.
How is that possible? Well, on the one hand Apple’s business is something they value. And, perhaps more important, Apple spends a lot of efforts validating their production & testing processes before launching mass production, not to mention all their monitoring all along production.
If, on the other hand, an unknown buyer comes in the picture, gives them a 50,000 USD order, and patiently waits for delivery, they might be disappointed. A second- (or third-) rate team will work on your order, and totally different business rules will apply.
A small buyer, in that situation, is actually better off finding and vetting an unknown manufacturer that accepts to sign a balanced contract. Since there is no particular confidence in that manufacturer, the buyer takes precautions. Trust but make sure to verify.
As a law firm, our perspective is different but similar and I will explain our position by answering the two lists of questions I set forth above:
1. Can you recommend a good factory that makes _________? Just like Renaud, we do not know who is good at making XYZ product even if we literally just got off the phone with a client who told us how happy they are with their XYZ product manufacturer. Renaud is 100% right to say that a factory good for one company might not be good for another company. Renaud gives as an example a company that does a great job manufacturing for Apple because Apple is its best customer, but does a less than great job manufacturing for its smaller customers of which it cares far less. I have to admit that I wince whenever a client of ours says “I know XYZ is a great manufacturer because they make the widgets for ABC company, which everyone knows makes the best widgets in our industry.” I’m tempted to say, “well yeah but it’s also possible they are making the best widgets only because they are charging double what anyone else is charging and because ABC company stations ten quality control people at the XYZ factory 24/7 and would a situation like this make sense for you?
2. I am about to sign a contract with X Company and I am wondering if you can tell me whether they are legitimate or not? We cannot help with something like this unless we conduct due diligence on X company and we do not do that for free. We are not going to put ourselves and another company at risk by just venturing a guess.
3. How can I find a good company in _________ [country] that makes ABC products? Answering this question is going to depend on countless variables. What do you mean by a good company? Are you looking for a company that makes ABC products that you can buy off their shelves? Are you looking for a company that makes ABC products you can modify slightly to make your own? Are you looking for a company that will work with you in developing your own ABC products? How concerned are you with pricing? How concerned are you about quality? Are you looking for a company that will not compete with you? What sorts of quantities are we talking about? Are you willing to pay a manufacturing expert to help you find this factory? Are you going to want this manufacturing expert to help you negotiate the contract manufacturing terms for you? Is anyone at your company fluent in the language of X country such that it makes sense for your company to do this search on its own? Does anyone at your company have extensive experience in outsourcing product manufacturing? I could go on and on, but the above should be enough to convince you that there is no one answer to this question either.
4. Should I have a factory in _______________ make my products for my company or should I build my own factory in this country or in some other country? This is an important and complex question, to which the answer will depend on a whole host of factors that will be peculiar to your product(s) and to your company. We can give you the names of Asia manufacturing consultants with experience answering this question but for us to do so, I should tell you that they will charge you for their assistance..
The Bottom Line: Choosing the right country and manufacturer (be it you or a third party manufacturer or even building your own factory) is important and complicated and it is not something that should be determined via a five minute conversation with an international lawyer or by email. It should be done by working with manufacturing experts that know the country or countries that might make sense for your industry and your company.