The Three Keys to Not Getting Ripped Off When Manufacturing Overseas

Hardly a week goes by at my law firm where one of our international litigation lawyers does not get a call or an e-mail from a company exploring its options for pursuing its overseas manufacturer for a bad product shipment or for no shipment at all. Each time, we patiently explain the costs and the hassles of litigating in a foreign court (or any court, for that matter), and almost every time, the company that contacted us concludes it does not make sense  to sue.

I find it frustrating that these situations are always occurring when the following can usually so easily prevent them:

  • Know your manufacturer. It is important that you have someone conduct at least basic due diligence on your proposed manufacturer. This basic due diligence ought to tell you whether the manufacturer actually still exists (definitely not a given these days with the economy at such a low point), whether it is properly registered and licensed to do the sort of business for which you will be paying it, and a bit about its financial standing and its reputation. Our international manufacturing lawyers have seen far too many times where companies have ordered and paid for product only to later learn that the “company” from which they bought the product does not really exist or is not licensed to make it or is just a really bad or disreputable company. It is not uncommon for our international litigation team to research a matter and determine that it has been tasked with trying to recoup money for product that was never delivered by a company that never really existed. Do not let this happen to you!
  • Use a good contract. In particular, use a contract that details your product’s quality requirements and clearly sets out how disputes will be resolved. For what constitutes a good overseas manufacturing contract, check out Overseas Manufacturing Contracts (OEM, CM and ODM). In many countries, agreement based on a purchase order and an invoice will not work.
  • Have the product inspected before you pay for it. I realize it is the rare manufacturer that will ship your product before you pay, but if the manufacturer will not let you inspect before the product ships, that is not a manufacturer with which you want to be doing business. There are excellent services around the world that can do this for you very inexpensively on a contract basis.

There are many other things smart companies do to protect themselves when using manufacturers overseas. They protect their intellectual property (IP) with NNN Agreements and/or Product Development Agreements and they protect their brand name by registering their trademarks  early. Companies that conduct due diligence on their manufacturers, use good contracts written for the country from which they are buying, conduct inspections of their product, and do what it takes to protect their IP stand a great chance of never being subjected to a lawyer lecturing them on the difficulties and costs of pursuing international litigation.

What are you seeing out there?