Switching between Chinese manufacturers is not a decision for businesses to take lightly. There is clearly a beneficial reason or reasons to want the move, such as improved quality or prices, but the transition process is risky.
Here we’ll highlight 3 common pitfalls you should be aware of before starting the switch, supported by insights from real-world cases.
You may enjoy the video that this blog post is based on:
1. Trademark Manipulation
This is a risk you may never see coming until it’s too late unless you’re vigilant. It involves your old manufacturer filing a trademark of your brand or something very similar and obviously recognizable (see the famous case where Michael Jordan fought for almost a decade against this very problem).
“I have some customers that come to me and tell me, ‘Oh, my manufacturer filed my own trademark. What can I do about it?’ Well, that’s a very, very harmful situation because if your manufacturer files the trademark, they can prevent you from exporting your product at all.”
This tactic gives manufacturers control over the brand, allowing them to continue producing and profiting from your product without your consent. In some cases, manufacturers defend this practice under false pretenses:
“The manufacturer replied, ‘Oh, it’s easy—it’s to protect you.’”
The reality is far more unpleasant. By securing trademarks related to your brand, they effectively undermine your business. As a precaution, ensure that your trademarks are registered in relevant jurisdictions before entering any agreements. Work with lawyers experienced in China business law.
2. Loss of Your Own Intellectual Property
Another common issue arises from unclear ownership of product designs. While a customer may create the design, manufacturers often retain critical control over its production:
“The design was from the customer, but it was managed by the manufacturer. So, basically, the customer didn’t own anything.”
Typically, this happens when the manufacturer does not share the bill of materials, the latest versions of the drawings & schematics, the test protocols, and other crucial information, with the customer.
This lack of ownership can trap businesses, making it nearly impossible to transition to a new supplier because, when it comes time to do so, the existing manufacturer may hold all of the cards:
“Even though it was their design and their product, the production was managed by the manufacturer, and they had no information or ownership over it.”
To mitigate this, businesses should be more involved in leading the new product introduction process and validating they get all the important deliverables for review.
Another approach is to ensure manufacturing contracts explicitly transfer ownership of designs and intellectual property from the supplier to you with no gray areas, unfortunately in China ‘possession is nine-tenths of the law’ as they say, so don’t rely exclusively on a contract…
3. Unauthorized Continuation of Production
Manufacturers sometimes continue producing a customer’s product without informing them after their cooperation has ended. This can result in direct competition with your own brand:
“The manufacturer wants to continue production no matter what, without telling you, and basically becomes a competitor.”
This risk is compounded when manufacturers sell products through platforms like AliExpress, bypassing standard import regulations:
“For the shipped product with AliExpress, there is no need for import capability from the manufacturer. The importer on AliExpress is the buyer, the individuals. So, you are not protected with your brand in the US or Canada.”
Again, putting in place adequate legal protections in China, with teeth, is a deterrent for this kind of dishonest behavior.
Steps You Can Take to Protect Your Business
To mitigate these risks, consider the following strategies:
- Do Due Diligence: Conduct thorough research and vet potential suppliers to identify any red flags early. You need to work with suppliers that will behave well when things get rough.
- Be involved throughout the NPI process: do not just let the manufacturer lead the way and send you samples for validation. That’s how you lose control of the key information. If you need the manufacturer to do some of the work, be very clear about what deliverables you want (if anything, for review & approval). Be clear about the format you need, too (e.g. PCB schematics should not be in pdf format).
- Manage the relationship actively: don’t let things deteriorate to the point where you need to transfer production away. Have your teams at the factory to investigate and resolve issues. Escalate serious issues to the right manager. Set a few important KPIs you will track, and give feedback based on data to the factory management. Show them very explicitly where their performance is falling short.
- Trademark Registration: Ensure your brand and trademarks are protected in China before engaging with manufacturers.
Leave a Reply