Archive for the ‘China Factory Claims’ Category

Major Reasons for Factory Claims in China

As a company importing products from China, you will face sooner or later a claim with one of your factories. Such claims can cost you a fortune and even endanger the existence of your entire company.

Many factory claims in China can be avoided though by a good functioning quality control management. From my more than 25 years working experience in China as a major importer of Chinese products, I would like to share in the following article some vital information with you to save you pain and cost.

There are various reasons for filing a claim against a factory but you will mainly be faced with:

  1. Late or incomplete deliveries
  2. Major quality issues
  3. Copyright violations
  4. Patent infringements
  5. Non-compliance with laws of the destination countries

Let me give you more information about the likely background of these claims:

  1. Late or Incomplete Deliveries claims can easily be avoided if your company exercises the necessary due diligence to monitor the production progress at the factory. If your factory was unable to produce the ordered quantity on time or could not supply part of it on time, you should have known this weeks ahead of time. It should not come as a surprise to you at the last minute. If this happens, it is likely your company’s control systems either are not yet in place or need refinement
  2. Major Quality Issues are another claim that could probably have been avoided if your QC department and your inspection company had done their homework correctly. The exceptions are hidden defects that can be only discovered after products reach a certain manufacturing operation (properly operating technical products for instance).
  3. Copyrights Violations are the worst case scenario and in general very costly. Since it is not a quality issue there are only a few precautions that you can take but they will not always prevent these claims. Chinese manufacturers have a different understanding of copyrights and from their point of view, everything looks alright. Unfortunately, it is still very common for factories to take famous brand name products and apply marginal changes in the hope that the design will be sufficiently altered to avoid copyright infringements. Most often, the design changes are not sufficient. My only advice to you is to carefully check the copyright or patent in your home country and do not rely on statements made by the factory, regardless of how convincing they may seem. You may want to contact a patent lawyer if you are in doubt. If you have the slightest doubt that your product(s) might violate copyrights, it is best to drop the products so you can enjoy a much better night’s sleep.
  4. Patent Infringements are another worse case scenario and can be even more costly than copyright violations. Patent infringements are sometimes very difficult to determine because they are at times only subtle modifications applied that can make a big difference. Trying to bypass existing patents without being an expert would be the same as playing with fire. You will be burned and will lose a lot of money on top of it. It is inevitable that you seek the help of an experienced patent attorney to avoid the many pit falls here. On the other hand, these lawyers are very expensive and you may wonder whether your effort to import a risky product (that’s what bypassing existing patents are about) is worth all your time and money. The key point here again, is that you cannot simply trust what your supplier tells you. He is not familiar with the patent laws in your country and frankly, he simply does not care. That means you are all alone and you are the one that will be held fully responsible if you import a doubtful products.
  5. Non-Compliance with the Laws of the Destination Countries is also a serious situation but different from points 3 and 4. You may be lucky and can prove to the authorities that their findings were wrong. If a problem does exist, it is very important that you can prove the problem did not happen through your negligence; meaning that you took all necessary precautions. What makes the case more serious is that you will be dealing with government authorities who are very powerful and can enforce a nationwide sales stop or even a recall of all distributed products. If that happens you will lose a lot of money and even more serious, your reputation as a high quality importer. Usually the government authorities will contact your customers first because that is where they will retrieve testing samples. Since your customers are distributing the non-compliant products, they will be liable. Still, you cannot escape your responsibilities because most retailers have clauses in their buying contracts that pass the liability for damages or claims to purchased products themselves to the importer.

All these claims are usually about huge amounts of money and avoiding them by taking the rights precautions is surely the right thing to do.

How To Avoid China Factory Claims

The first thing you want to do, if you have not done so already, is to establish your own in-house quality control department. That is the first step to making sure that your company has the means to control the quality of all incoming samples or any other quality issues before you place any purchase orders.

At the beginning, you do not want to start with too large of a department because you will be learning from experience. Efficiency should be more important to you than size. The composition of your department depends very much on the nature of your import products. If you are in the textile business, you may want to hire a textile engineer plus one or two assistants. If you are in electrical or electronic products, you need to hire an electronics engineer plus one or two technicians.

To perform their quality tests properly, your specialists will need suitable technical equipment. A note of caution: do not jump the gun by establishing a fully equipped lab at this early stage. That would prove very expensive. The easiest way to determine the kind of technical equipment needed is to rely heavily on your engineers after they are hired. They will know what is needed and where to get it. A discussion about equipping the test lab can easily be included in the interview process for the engineers.

This is the most reasonable way to establish your own functioning quality control department at an affordable cost and in the least amount of time. The second step is to visiting your Chinese factories on a regular basis if you want to minimize your risk. As a businessperson, you regularly take precautions to protect your company’s interest and visiting your supplier’s factories needs to be included as an insurance policy.

If you want to avoid claims, you need to discuss your quality requirements in person with the factory management to make sure that they have clearly understood your quality requirements and will implement it accordingly during their production.

The third step is appointing an inspection company to perform an inspection for you. You can choose from the following three primary inspection methods:

  • Initial Production Inspection (IPI)
  • During Production Inspection (DPI)
  • Final Random Inspection (FRI)

The most commonly used inspection method is the Final Random Inspection which is executed when a consignment is 100% manufactured and at least 80% packed.The fourth step is to provide precise information in your P/O, L/C and any other accompanying documents. That is often overlooked and many claims result from insufficient information from the importer to the factory. Having discussed your company’s specifications with the factory management in person, does not mean that you can omit such vital information in your documents later.

The fifth step is to include a specific provision in your contracts with Chinese suppliers requiring them to obtain and maintain sufficient product and general liability insurance with a reputable international insurance carrier.

Such insurance should not be seen as a replacement of the other four steps but it can become your backup. Following this 5-step procedure will surely help you to prevent most but not all claims with your Chinese factories.