How to Avoid Common Pitfalls in International Manufacturing

How to Avoid Common Pitfalls in International Manufacturing

With so many supply chains in flux, our international manufacturing lawyers are seeing an increase in manufacturing problems. This post seeks to better equip you to avoid international manufacturing pitfalls and build strong, successful collaborations.

Don’t Be Too Eager to Make the Deal

Even good companies can neglect to incorporate the best business practices during contract negotiations if they are too focused on signing the contract. This generally happens when companies do not conduct the appropriate due diligence on their counterparty or draft a solid China contract.

These companies typically believe they have enough general business experience not to need an attorney or think that their “great rapport” or long-term relationship with their counterparty will enable them to work through any future issues amicably. These companies have never had a major problem with any of their previous business deals, they have used a domestic attorney to review their international contracts, and/or they are on too tight a timeline to conduct due diligence or negotiate key terms that will matter if the deal starts to fall apart.

Recently, a consumer products company came to our law firm for help in resolving a string of product quality and late delivery problems it was having with its Chinese manufacturer. Our lawyers conducted basic due diligence on the Chinese manufacturer and that quickly revealed that it had a history of such problems. This tech company’s failure to conduct timely due diligence caused it significant financial losses and damage to their brand reputation

Get a Good Manufacturing Contract Now

A good manufacturing contract usually must, at minimum, include the following clauses:

1. Jurisdiction Clause.  This clause should ensure that any legal disputes are settled in the best jurisdiction for your company.

2. Intellectual Property Protection Clause. This clause should define the ownership and usage rights of any intellectual property involved in your manufacturing process.

3. Quality Assurance Clause. This clause should set specific standards for product quality, including inspection processes and penalties for non-compliance. In many countries, you also should specify the damages your supplier must pay for each breach of this provision.

These clauses help prevent misunderstandings and provide a clear framework for resolving disputes. Use an attorney experienced with international manufacturing contracts.

Stick to Your Guns During Your Contract Negotiations.

Even if you have a good manufacturing contract, if you or someone in your company with authority decides that one or two provisions are not important — when they actually are — you are increasing your chances for future problems. Your attorney should be able to explain to which provisions are important to your company and which are less so.

Make Sure the Right People IN Your Company Review Key Contracts

You need to be clear who in your organization has authority to negotiate and contract for your company. After the contract has been negotiated and signed, and after you have wired your funds and received substandard product or consistently late deliveries, it is not a defense to say that you did not approve the prior actions of someone affiliated with your company, whether it is a low-level employee or a third-party agent.

Effective internal communication ensures that all relevant stakeholders are informed and involved in the decision-making process. and minimizes the risk of oversight

Communication is Key

Successful international manufacturing requires more than just signing a contract and forgetting.

Clear and frequent communication is critical when working across cultures and time zones. Clearly defined communication protocols can go a long way to preventing problems. This could include outlining preferred methods of communication (email, phone calls, video conferencing), establishing response time expectations, and ensuring all parties involved understand the decision-making hierarchy within each company. Regular updates, even if there’s no news, help maintain transparency and prevent misunderstandings from festering.

Quality Control Throughout the Process

Don’t wait for problems to check in with your manufacturing partners. Schedule regular calls or video conferences to discuss production progress, quality control measures, and upcoming deadlines. This allows for early identification of any potential issues and facilitates proactive solutions. Consider implementing clear quality control procedures and milestones throughout the production process. This ongoing monitoring fosters a collaborative environment and ensures your expectations are being met. Nothing beats regular visits to your manufacturers.

Conclusion

Taking the time to plan upfront yields significant future benefits in international manufacturing. By prioritizing strong contracts, consistent communication, and ongoing monitoring of your manufacturing partner, you increase your chances of success.