Working with a sourcing agent in China can be great for overseas importers as you get to tap into their knowledge of local markets and their established relationships with (hopefully) suitable suppliers, as well as saving the time and effort which can be better spent on building your business of trying to deal with suppliers with an unfamiliar language and culture.

However, working with a sourcing agent isn’t without its risks, and this case demonstrates that an agent who appears trustworthy can suddenly go rogue with very damaging consequences for your business…


A positive start

An importer started working with a sourcing agent discovered online on a freelance platform. The agent was reliable, knowledgeable, and so capable that he became more like a supply chain manager, dealing with many aspects of sourcing for their product. This agent exceeded expectations to the point that the importer recommended him to friends, so confident was he in his capability.

When the agent eventually apologized and said that he was winding up his work as a sourcing agent to work in a different industry, the importer was sad but understood and wished him well. This was supposed to be the end of the story.


Storm clouds gather

Not long passed before the importer discovered products that looked incredibly similar to his design for sale on Amazon.

Fearing the worst, he investigated what this product was and who was selling it. His fears were confirmed as it turned out that his former sourcing agent had gone to his manufacturer in China behind his back and negotiated with them to manufacture a version of his product, subsequently selling it online as a direct competitor.

While they had been working together the agent had been using his privileged position where he was handling the customer’s product IP to gather market insights until he was able to launch his own competing products based on the existing ones.


The fallout

The importer had already signed a Non-disclosure, Non-compete, Non-circumvention (NNN) agreement with his manufacturer and inspection company, but the sourcing agent didn’t sign it stating that it wasn’t possible for a freelancer, allowing him to take advantage.

The importer reported this to Amazon and also the online freelancing platform and threatened legal action in China, although they suspected the threats didn’t have teeth without a signed agreement. Importantly, they informed their manufacturer that they had to stop supplying the former agent otherwise they would lose their business.

The agent was found to be an experienced online vendor with numerous SKUs on e-commerce platforms. We can only assume that the ‘sourcing agent’ gigs they were taking were allowing them to harvest product and market information, cherry-pick the best ideas, copy them, and then compete online.

A worry was that the manufacturer itself was willing to go along with this despite having signed an NNN agreement. Could they be trusted in future?


My thoughts on this case…

  • Amazon probably doesn’t care much about such cases. There are thousands of products selling on Amazon that are cheap copies, and Amazon benefits from it. Unless you can prove that you own the IP and there is IP infringement, they probably won’t help.
  • An NNN agreement is quite weak since you’d need relatively solid proof of intentional non-compliance before you can sue the other party, and they know it.
  • Other legal protections such as trademark and design patent registrations can be relatively inexpensive and play an important role.
  • In certain countries like China, hiring a “freelancer” rather than paying a company (or rather than having your own company in that country and hiring employees) is actually illegal, so suing a “freelancer” is just not going to happen. (This story smells very strongly of China, but of course, it can happen in any country.)
  • Someone can be competent, friendly, and caring, and might still be working actively on backstabbing you. Always consider the worst-case scenario and take precautions.
  • In China, we noticed a strong interest from certain companies to learn about the supply chains behind commercially successful products. They will try to get that information by any means. It can also come from some of your sub-suppliers when they see the orders picking up nicely and they don’t know what the final product is, what brand it is selling under, etc. A couple of years ago, we caught a component supplier trying to get into our production area to see what product we were assembling with their components, and that’s just an example. That’s a risk when you start to sell, say, 5K to 10K a month. The agent in that story found a way to get that info, and be trained by the buyer while earning money!
  • The buyer hired that “sourcing agent” and allowed him to give instructions to their manufacturer. However, the buyer hopes the manufacturer will go back and read the NNN agreement they signed (note: they might not even have read it) and say ‘no’ to the agent… not likely to happen. And now they have a good excuse.
  • If I were the buyer, I would also wonder if the agent was, and still keeps, getting a 5% or 10% kickback from the factory’s side even after such a dispute…


What can we learn?

This sad story shows that, although third-party sourcing agents can do a good job in finding suppliers and managing the purchasing of components, materials, etc, it is critical to have watertight, enforceable (in China) agreements in place with everyone who is exposed to your product IP and business secrets. Furthermore, trademarks and patents in China would have provided even better protection in this case.

The importer was vigilant and spotted the infringement pretty quickly, which is also a helpful discipline to follow if you’re selling a product online that could be vulnerable to being copied, but avoiding this in the first place is the best protection.

It is probably also better to work with a business to handle your sourcing who you can do due diligence on rather than risk working with a freelancer.

Finally, if you are afraid of this scenario happening to you and if your product is unique, add 1 point to your inspector’s checklist: “If you see any product at the factory that looks similar to mine, please take photos of some samples; if the factory people request that you delete those photos that’s fine but make sure to remember to report that to me at least in an email.” They won’t do an investigation, but hopefully, they will keep their eyes open, and that may help.

About Renaud Anjoran

Our founder and CEO, Renaud Anjoran, is a recognised expert in quality, reliability, and supply chain issues. He is also an ASQ-Certified ‘Quality Engineer’, ‘Reliability Engineer’, and ‘Quality Manager’, and a certified ISO 9001, 13485, and 14001 Lead Auditor.

His key experiences are in electronics, textiles, plastic injection, die casting, eyewear, furniture, oil & gas, and paint.

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