How to Handle Bad Product from Your China Supplier.

International Manufacturing Contract lawyers

Very interesting post by David Dayton over at Silk Road International, entitled, “Recent Chinese Negotiation Tactics: Translated!”

The post is on the responses (excuses?) Chinese companies give when their foreign product buyers complain to them about product quality.

David handles sourcing and quality control for mostly Western companies doing business in Asia and his post focuses on dealing with these responses while still within a supplier/buyer relationship.

My law firm’s dispute resolution lawyers and international manufacturing lawyers have handled countless quality dispute cases and so we too have heard nearly all of the same excuses David lists.

Our lawyers are often brought in to threaten legal action in an effort to get the money back. We usually do this by first writing a demand letter to the foreign manufacturing company stating that our law firm has been brought in to get our client a full refund and if we do not have that full refund within ___ days, we will pursue litigation or arbitration in _______. When dealing with Chinese companies, we always write this letter in Chinese, both so the Chinese company fully understands our position and to let them know it will be no big deal for us to sue them in China (where these lawsuits usually need to occur) tomorrow. Our letters also usually explain the law just enough to convince the Chinese company resistance is futile. We do the same sort of thing for Vietnamese, Thai, Indian, Mexican, Polish, (etc.) manufacturing companies as well.

These letters, coupled usually with weeks of negotiations, usually lead to some payment by the at fault manufacturer. If the letter does not work, we analyze our client’s chance of prevailing were it to sue and the likely cost of such a lawsuit or arbitration action and then we recommend whether our client should litigate/arbitrate or not, and where..

The manufacturing companies — be they in China or elsewhere, but especially in China — usually claim the quality of product they provided our client was warranted by the amount my client paid for it. According to the typical Chinese company, if our client had wanted better quality, it would have had to pay more for it. Unfortunately, in China this is often a great defense and that is why it is absolutely critical that your contract dot as explicitly as humanly possible delineate exactly what your Chinese manufacturer is required to do. Chinese manufacturers are by far the worst in the world when it comes to product quality and, not surprisingly, the worst in the world (by far) in terms of stepping up and admitting to fault.

Put another way, if you want your Chinese manufacturer to make your product to a particular standard, you have to be unbelievably explicit in your manufacturing contracts with them about exactly how you want your product to be manufactured. For example, even if everyone in your industry uses at least 10% stainless steel for a particular product and you have told your Chinese manufacturer countless times that your product must be at least 10% stainless steel and if your Chinese manufacturer’s initial sample contained 11% stainless steel, you still must make sure your written contract (preferably in Chinese) with your manufacturer explicitly states all product must have at least 10% stainless steel content. If your contract with your Chinese manufacturer does not state that you are requiring at least 10% stainless steel content and you get product with 3% stainless steel content, I can virtually guarantee your Chinese supplier will claim you paid for product with only 3% stainless steel content and there is a very good chance a Chinese court or arbitration body will agree.

Bottom Line:
You want something from your Chinese manufacturer, you put it in your written contract. Explicitly and in Chinese. You are also usually better off with your contract being in Chinese so that if there is a dispute, your Chinese counterpart is not well positioned to claim it failed to understand and if you do need to go to court in China, you have the contract ready to go for that purpose.
Or you can listen to a whole bunch of excuses….

8 responses to “How to Handle Bad Product from Your China Supplier.”

  1. To avoid bad Chinese Prouduct into USA, USA Companies should looking for a company who can good Quality Control. It including customer support representatives, internal job manager, sampling group, R&D division, material management office, tooling engineers, plant manager, machinist, manufacturing managers’s quality control. Each step need to look at with control.

  2. “According to the Chinese company, if my client had wanted better quality, it would have had to pay more for it. Unfortunately, this is often a great defense.”
    Couldn’t this be refuted by comparing the costs of similar products? At my previous job, we had several China sources all charging approximately the same price for similar products. We also knew what the raw material/component costs were, as well as labor, etc. Wouldn’t a business operating in China have at least general idea of what it would cost to operate at a different factory?

  3. To avoid bad Chinese Prouduct into USA, USA Companies should looking for a company who can good Quality Control. It including customer support representatives, internal job manager, sampling group, R&D division, material management office, tooling engineers, plant manager, machinist, manufacturing managers’s quality control. Each step need to look at with control.

  4. “According to the Chinese company, if my client had wanted better quality, it would have had to pay more for it. Unfortunately, this is often a great defense.”
    Couldn’t this be refuted by comparing the costs of similar products? At my previous job, we had several China sources all charging approximately the same price for similar products. We also knew what the raw material/component costs were, as well as labor, etc. Wouldn’t a business operating in China have at least general idea of what it would cost to operate at a different factory?

  5. Greg,
    Absolutely yes.
    But there is a direct correlation between the number of explanations one has to give in a lawsuit and the cost of that lawsuit and the likelihood of prevailing. What you are describing will usually require a third party expert and that is a big cost right there.

  6. Greg,
    Absolutely yes.
    But there is a direct correlation between the number of explanations one has to give in a lawsuit and the cost of that lawsuit and the likelihood of prevailing. What you are describing will usually require a third party expert and that is a big cost right there.

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