Dan Harris, from the China Law Blog, just published the text of a speech he gave about outsourcing issues in emerging markets (including China, Vietnam, India…). It is FULL of insights for importers.
I think it makes for an excellent guide for ensuring successful production, so I am reproducing a few excerpts here:
About due diligence:
Don’t be afraid to push for the information you think will be helpful to you. American companies are oftentimes reluctant to be seen as pushing too hard for fear that doing so will indicate that they don’t trust their potential counterparty. In my experience, the legitimate foreign company actually welcomes the opportunity to prove it is bona fide and it will usually bend over backwards to get you the information you seek. On the other hand, the illegitimate foreign company will usually claim that what you are seeking is “never done” in their particular country.
This means that the way the foreign company reacts to your requests for information can be one of the best and cheapest indicators of the kind of company it really is.
About the need for detailed documents:
I am always stressing how international contracts almost always require much greater specificity than domestic contracts. Courts in emerging market countries tend to be good at enforcing simple, clear contracts where the standards for default are objective and where the penalty requires little analysis. They tend not to be good at making a contract for the parties, as is common in the U.S. legal system. In the United States, suing on an oral contract or a contract written on a napkin can work out just fine. Don’t think that will be the case in an emerging market country where your not having your contract sealed may preclude you from suing on it.
And here is a good example of this:
Not so long ago, an American company came to me after having received a large shipment of laptop bags that weren’t strong enough to hold a laptop. We called the Chinese company to ask about getting a refund and they told us that if our client had wanted a bag strong enough to hold a laptop, they should have paid 50 cents more per bag for one that could actually do that. This company should have specified in its contract that they wanted a bag that could hold x number of kilograms.
About intellectual property (including trade secrets, trademarks, industrial designs, patents, and copyrights):
If you are going to “loan” your IP to a foreign company you should make it clear in the contract what belongs to you. It is not going to work for you to claim a few years from now that “everyone knew it belonged to us.” You should also think about registering that IP in the country to which you are sending it. Registering it here in the United States is not registering it “there”, particularly when it comes to patents and trademarks.
I strongly advise you to go read it in full!