Our intercontinental litigators have lately been getting more than the standard number of e-mails/cellphone phone calls from firms (largely American and European) seeking to pursue litigation from their Chinese companies for lousy products. In these “bad product” conditions — in particular if it is with a previously “good” producer — the item issue frequently stems from a sloppy subcontractor utilized by the Chinese maker with whom the Western business has been doing the job. The Chinese company admits it used a subcontractor and it blames the terrible high quality on the subcontractor. In most situations, the Western firm did not even know anybody other than its Chinese manufacturer was doing work on its item.
Most internationally savvy China companies are occupied these times and loath to turn down excellent purchasers, even if getting on far more purchasers will involve they subcontract. From time to time the subcontracting is for 1 portion of a product, oftentimes a part they themselves are not even capable of building. Other times, they will subcontract out all the production. I feel the boost in subcontracting complications stems from staff challenges prompted by COVID.
We have dealt with quite a few circumstances for international companies that gained lousy product or service from their formerly reliable suppliers and in well around 50 percent of these scenarios, the product high quality difficulties stemmed from their Chinese provider owning subcontracted out all or a portion of the producing. The Chinese provider typically admits to having subcontracted the function and in some cases even remarks that the difficulties normally would never ever have transpired. The supplier commonly admits legal accountability for the high quality control dilemma, but then typically proposes remedying it by giving a modest low cost on long term orders until finally the damages from the bad product or service have been covered.
The foreign business is normally in no temper to keep on doing business with the offending supplier and needs only a financial cure. Even so, mainly because the earnings margins at most Chinese suppliers are so small, they generally can not pay the damages brought on by the terrible product or service and a standstill success that can only be resolved as a result of litigation.
The very best alternative for this subcontracting challenge is to avert it from going on in the initial position and the way to do that is with a superior producing contract. When our China lawyers draft manufacturing contracts we typically consist of a provision prohibiting the Chinese company from subcontracting out creation without the need of to start with acquiring written permission from our consumer.
Almost with out exception, the Chinese manufacturers concur to this provision and then abide by it. The motive for this is very simple: the standard Chinese producer has dozens of businesses for which it provides products, but quite several (if any) contractually forbid subcontracting. When the Chinese manufacturer is so active/confused as to call for subcontracting, it can make sense for it to subcontract manufacturing for individuals foreign businesses it is NOT contractually prohibited from subcontracting. I analogize this to bike locks. Even the ideal bike lock simply cannot stop all thefts, but its efficacy will come from bike burglars preferring to steal a bicycle with a poor excellent lock than a single that is difficult to split. Your very well-crafted China manufacturing arrangement will turn into your equal of a substantial high-quality bike lock. Check out it.