Intellectual property (IP) ownership is a frequent cause of dispute between importers and Chinese suppliers.
If you bring your own design or your own tooling, they might use it for other customers or share it with other factories. But you have probably already heard about this danger (if not, you can read IP protection in China).
I have something else in mind, something new importers rarely suspect: when a China factory invokes IP ownership and refuses to give certain data to the buyer.
Let’s say you operate a factory in your country. A customer needs you to design the packaging, based on the product they want you to manufacture. You promise them to do it, you get the order, and you put your graphic designer on the project.
Then you run into problems, and you lose the business to a more reliable producer. The customer asks for the original packaging design files, since they paid for it. It is natural to give it to them, right? Well, not everywhere, and certainly not in China.
Chinese suppliers can invoke IP regarding designs, molds, sources of components, nature or mix of components, processes, etc.
Why? Because it increases the cost of switching production to another supplier. Once you start giving orders to a factory, it will make sure you are stuck to them. Yes, you read it right… It is considered good business practice to twist your arm.
How to avoid such a situation? Do not try to reason them with logical arguments. It is usually useless. It comes down to being in a position of strength. If they feel like you have no good alternative, they will not make any favor.
Sometimes it really, really cannot be defended rationally. Such a situation iss described in Poorly Made In China. The factory had been told to copy some samples of shampoo bottles of a famous brand, and then refused to give the composition to the importer. They found out that several flavors smelled exactly the same, and they never knew if the shampoo was safe. The bottles were sold for years in major retail chains in the USA, and the importer was unable to switch production anywhere else…
What should the buyer have done, in this case? He should have worked with a laboratory to get the composition, then given this information to the factory, and finally checked if it was respected in production.
Most importers can easily find a quality control or an engineering firm to document a product’s IP, before (or at the same time) a factory works on development. In some complex cases it requires qualifying the sub-suppliers and preparing prototypes off site, but generally it is fairly easy to manage.
If you have solid product knowledge in your field, you can do it by yourself. The key is to keep a copy of all relevant information in-house, in a form that can easily be exploited by another factory.