Tuesday, June 2, 2009

You’ve gone through a thorough analysis to determine that outsourcing works for you, and China is the place to go (our team can help you out with this). Now you need to know how to get started - and, unlike many of our blogging friends, we’ll just put this up front. You need really good business and legal advice for this. China’s economic and legal dealings have changed a great deal in the past year, and you don’t want to leave your company’s future at risk because you didn’t plan well enough. So, what’s in the plan? There are five main issues to consider.

First, how much work are you going to do in China?

Second, if you are farming out cost-heavy functions, such as manufacturing (as many are), are you able to get financing? According to David Drayton, author of the wonderful Silk Road International blog (Steps for Effective Sourcing) and this excellent article on Chinese outsourcing, (New Opportunities) financing is a hit-or-miss enterprise these days.

Technically insolvent Chinese banks are cash-rich due to government funded injections, and they’re loaning out money like your favorite grandmother,yet they seem to be targeted towards specific industries, such as technology, education, logistics, green tech, health care, infrastructure, and transportation. In addition to these sectors, local governments and connected entities are getting cash. It may be difficult for an unconnected factory to get access to those funds. Factoring is an option in the short term, but long term will eat away your profits. Otherwise, China is littered with unused inventory, cancelled product and cheap labor. Cash flow, orders, deposits, guarantees and creativity in your terms will get you far. And understand their wariness - foreign cancellations completely changed the industry, so they are a bit more circumspect on foreign orders. Whatever you do, make sure you’re steering clear of the Foreign Corrupt Practices Act - Asia tends to be a red flag for this law. More on the FCPA can be found here: at the Justice Department's official web site.

Third, are you protecting your intellectual property? We can’t emphasize enough good use of counsel familiar with Chinese courts on this one. The intricacies of the Chinese legal system moves us on to our next point.

Fourth, have you considered product liability issues? In addition to US liability issues, China doesn’t have a network of national insurance providers for product liability, and factories end up going bankrupt in the wake of liability issues (e.g., the Sanlu milk issue). The ongoing Epic Kayak case will give us a glimpse of the Chinese court position on outsourced product liability - look for US product liability insurers to keep a close eye on the outcome of this case, too. You may also want to consider a product test service to keep quality assurance as high as possible.

Finally, you’ll want a local agent to oversee the process and provide onsite troubleshooting. Our affiliate attorneys in the USA China Law Group have offices in Hong Kong, Guangzhou, Shanghai, Beijing and Nanjing.

The engine of China is huge, and you may be able to harness China’s energy to power your company’s bottom line, thriving in the midst of recession. But failing to plan is planning to fail - so be smart and plan wisely!

1 comment:

  1. guest blogger invitation


    This is Rose writing from www.huliq.com. I visited your blog and liked your content.

    Would you be interested to send us a guest post on any of the issues related to the topics that you cover in your blog. We will publish it in our site www.huliq.com

    In return with each guest blog we will give one link in the author's byline back to your blog. We only ask that the guest post ( we prefer it be a news coverage, sources can be Google News, CNN, MSNBC, Yahoo News, BBC and others) be a unique story and not be published in your blog.

    HULIQ is indexed by Google News and Google requires that the length of the unique news is at least 5 paragraphs. We desire it to be at least 6 paragraphs if possible. And that all need to be a unique content. Once you send us a new story totally unique we will immediately publish it with you link in it, and within 15 minutes it should be indexed by Google News.

    Also, please structure author byline as follows:

    author's name:
    author's e-mail:
    author's blog url:

    Please let me know if you may have any questions about www.huliq.com.

    If you want to consult the topic with me first that's perfectly fine as well.

    Many thanks