Over the past few years, we’ve come into contact with more and more of these customers:
We don’t want to just sell other people’s products anymore. We want to develop a product line of our own to go to a Chinese OEM to build our own brand.
Many Australian entrepreneurs who are on the road to brand transformation have ideas and drive, but the first time they work with a Chinese factory, they are often full of uncertainty and worry:
- Is the factory reliable?
- How to negotiate the contract?
- Will there be legal risks if we have never done business in China?
- How to protect intellectual property rights? Will the design and brand name provided to the factory be stolen?
If these seemingly “small problems” are not sorted out clearly before the start of the cooperation, they will often turn into big problems that are difficult to end later and even affect the start of the whole brand.
We have sorted out four key aspects that have the deepest impact but are most likely to be overlooked, so as to help overseas enterprises see more clearly and walk more steadily on the road to “landing in China”.
Before determining the partner, many people are easily attracted by the “cheap price” or “quick response”, and ignore the other party’s basic qualifications. In fact, before formally moving forward, you should do a few key things that are often skipped, such as:
- Verify the factory’s registration information and business records in China
- Check whether there are any risk signals such as lawsuits, abnormal business operation, major industrial and commercial changes, etc.
- Require the other party to provide reference samples of past cooperative brands and delivery data, etc.
This step is actually what we often call “Due Diligence”. Due Diligence is not simply a search for business information, but a systematic assessment of a company’s operations, financial structure, contractual obligations, compliance record, etc. The purpose is to determine whether the partner is worthy of trust and resources. This information helps clients to avoid the trap of “attractive offer but high risk” and to control the risk at the early stage of cooperation.
“We’ve already agreed on this over email” – is one of the most common phrases we hear. Many brand owners working with Chinese factories for the first time are accustomed to relying on chats, emails and verbal confirmations to move forward. However, once problems arise, such as delivery delays, quality discrepancies and payment disputes, it is difficult to have evidence to defend your rights.
The application of law and dispute resolution mechanisms should be given special attention. Due to the obvious differences between the legal systems of Australia and China, a sound contract should:
- Clearly define the governing law
- Set out how and where disputes are to be resolved
- Take into account the legal realities and enforcement possibilities of both countries
And taking into account the local implementation of the contract，
- The form of contract must meet the basic specifications of both Australia and China
- All key terms and conditions must be bilingual to avoid any misunderstanding
- A team of lawyers with cross-border experience will assist in the drafting and structuring of the agreement to ensure that the agreement can be implemented and enforced
When cooperating with Chinese factories, many Australian companies are most concerned about product sampling, production and delivery cycles. However, successfully bringing products to market involves far more than simply “manufacturing them.”
There are a few key questions that must be considered in advance before a product leaves the factory:
- Has the brand been registered in China? Is there a risk of trademark squatting?
- Is the factory willing to cooperate with after-sales terms such as return, exchange and warranty?
- Does the product meet Australian quality, labelling or safety standards?
- Does the packaging and instruction manual comply with the regulatory requirements of Australia and China or other countries where the products are sold?
Once these issues are not planned for before production, at best the process can be delayed and at worst affect the legal sale of the product, or even jeopardize the rights and interests of the brand.
Among them, intellectual property protection is the part that is most easily overlooked but most difficult to remedy once things go wrong. Many enterprises have handed over product drawings, brand names or packaging to factories before they have completed the registration, and as a result, they face trademark squatting or counterfeiting, which can disrupt the entire brand strategy.
We have analyzed in detail the IPR protection strategies in cross-border cooperation. Whether it’s a Chinese brand going overseas or an overseas brand seeking OEM production in China, these principles are equally applicable.
📌Recommended Reading: 《Brand Protection in Cross-Border E-Commerce: How to Avoid Intellectual Property Risks》
When initial negotiations go smoothly and contracts are signed quickly, many people in the early stages of cooperation are not willing to mention “what if something goes wrong”. But the reality is that even if everything goes well at the beginning, issues may still arise during collaboration, such as substandard products, shipping delays, or even situations where factories privately counterfeit products and infringe on intellectual property rights. If the contract does not clearly specify how to handle these situations in advance, these problems can easily evolve into delays, shirking, and even caught in the tug of war between the two countries’ laws, increasing the cost and difficulty of resolution.
In cross-border OEM cooperation, a more common and practical approach is to explicitly agree in the contract that, in the event of a dispute, it will be dealt with by an arbitration body rather than going directly through the court system of a particular country.
Arbitration offers several distinct advantages over litigation:
- The process is more flexible and is not subject to a single country’s judicial process.
- Both parties can be dealt with in a neutral forum, avoiding a “home field advantage” for one party.
- Easier to be recognized and enforced in more than one country, enhancing effectiveness in practice.
Instead of reactive remedies, it is better to put “how to deal with problems” on paper from the beginning. Such clauses often do not affect the atmosphere of cooperation, but can protect the rights and interests of one party at critical moments.
Co-production with Chinese factories is an important step in the maturation of a brand. It brings not only cost optimization, but potentially a leap in supply chain, customization and brand control. This step, however, must also be based on clear legal planning.
- If you’re thinking about launching your own product line, looking for a Chinese OEM,
- If you’re not sure how to negotiate a contract, how to register your brand, and how to arrange payment,
- If you’re looking to build a solid foundation for your brand with a compliant collaboration
Feel free to reach out for a chat and perhaps we can sort our thoughts out more clearly together.
Written by Xueying Yang; Content planning: Zhou Yan; Xueying Yang; Proofreading: Sun Gang
The content of this article is based on publicly available information and the author’s understanding, and does not constitute any form of professional legal advice or basis for business decisions. Readers should refer to this article in the context of their own actual situation and consult relevant professionals for specific guidance. The author and the publishing platform do not assume legal responsibility for any consequences arising from the use of the information in this article.
Consultation with Specialized Lawyers
Abraham Sun
Principal Solicitor
As the Principal Solicitor, Abraham has been working with numerous clients including listed companies, state-owned enterprises, ultra-high-net-worth clients, and investment banks. Customers in various industries including Australian and Chinese companies and individual investors, had achieved considerable economic benefits with his professional legal advice.
Dickson Luo
Solicitor
Dickson mainly conducts dispute resolutions and commercial litigation in areas across insolvency, corporations, employment, real property and consumer law. He is proficient in English and Chinese Mandarin, and have extensive experience acting for clients who have limited or no English skills in complex disputes and litigation matters.
Linda Thai
Solicitor
Linda assisted our legal team with a range of litigation matters in Australian intermediate and superior courts. She has established solid foundations in litigation from assisting in matters from the initial investigation stage to briefing and liaising with barristers and also assisting our solicitors at court appearances.
Bhanu Seemar
Solicitor
Bhanu is a commercial litigation lawyer who has extensive experience working closely with counsel on a range of commercial law matters including contract disputes, insolvency disputes, consumer and franchise disputes, shareholder claims, financial services and regulatory enforcement matters, corporations law, and class action litigation.
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