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…
The fallout
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.
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