• Powers Lauesen posted an update 6 months, 3 weeks ago

    Of course, China is just about the world’s leading manufacturing base. However, with the recent product safety scares and also the constant media attention, "Made in China" has become a high-profile issue for consumers and retailers. Now how will a foreign company minimize the potential risks of tainted/substandard products produced in China? On this page, we discuss contract terms which foreign companies must look into when entering into OEM relationships with Chinese suppliers. (Each of us highlight a few of might know about feel would be the main issues to become taught in agreement, we recognize that both cases is unique and there’s no such thing being a ‘typical’ OEM arrangement.)

    Standard Form Agreements. An OEM may have a standard form agreement that they will be more than willing to provide to foreign companies which use their services. Although this may lower costs at the outset and enable the foreign company to ‘build favor’ with their Chinese counterpart, using such an agreement is actually never advisable, and foreign companies will be wise to consult counsel, who will help the foreign company to negotiate and make preparations agreements.Be aware that we often recommend that the written agreement is preceded by preparation and negotiation on the basis of a business term sheet, which will outline the main relation to cooperation. The agreed points in the term sheet then function as the premise to the written agreement.

    Major Relation to its Agreement. Below, we highlight several major (though non-exhaustive) terms which should be contained in an OEM Agreement:

    1. Products and Specifications: These products to become manufactured must be well-defined within the agreement, in addition to product specifications which should be described at length in relevant appendix(es).

    2. Forecasts and Binding Purchase/Supply Commitments: As OEM Agreements often require that firm orders they fit through Purchase Orders, in order to ensure that you have a binding supply/purchase commitment in the agreement itself, the parties will often designate a specific minimum commitment on sides, to generate and buying some product in a moment period. Aside from the minimum requirement, the purchaser will usually supply a non-binding forecast to supplier, such that supplier can plan and allocate adequate resources (often 6-, 12-, 18-, 24- month terms).

    3. Price: For anyone products designated as described previously, the parties should determine firm prices, that may either be effective throughout the term from the agreement, at least some thereof, susceptible to (we advise) maximum periodic price increases. Further, it can be beneficial to include for discounts upon meeting certain pre-determined purchase volumes.

    4. Qc: Buyer and supplier will agree with certain terms afforded to buyer/required of seller for conducting product qc. Typical terms include i) access (often on short or no notice) to production sites, and ii) random testing of each and every batch of products before dispatch to buyer. Further, the parties may, depending on the valuation on the documents, look after a consultant with the buyer being on-site with a full-time/regular basis, for the purpose of assisting in quality control. (The buyer’s representative can also monitor supplier’s usage of intellectual property and other improper dealings, though their effectiveness will forever depend upon his/her loyalty on the buyer.)

    5. Term: The parties determine a suitable term for their contract, and may result in the agreement renewable on request by buyer. This term ought to be sufficiently long so as to be sure that buyer’s wind turbine could be adequately recovered.

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