Working with Chinese manufacturers is not easy because you have to be very careful regarding the agreement prepared for the same purpose. Price, delivery deadline and quantity are the most important elements in the agreement as they are critical to the business establishment. These vital factors must be addressed right at the beginning of preparing a contract by the Chinese business lawyers.
2 Ways to Incorporate these Elements
There are 2 ways of implementing these elements within the contract. The first way is to draw a contract stating the specific quantity and fixing a price. In such a contract using this condition the purchaser has the obligation to buy the product while the manufacturer is bound to sell the products. In case, any of these conditions are not met it will be considered as breach of contract. This kind of contract is often attached with a letter of credit.
The second way is the formation of a contract whose terms and conditions are laid earlier for the submission of purchase order by the foreign purchaser. In case the buyer does not submit any purchase order there is no need of accepting anything and also in case of rejection of submission the contract is not considered to be breached. This type of agreement does not come with a letter of credit attached to it.
Why Existing Companies Go for the First Option?
The companies aspiring to do business with Chinese manufacturers usually go with the first option. There are 2 reasons for it. They are:
- The price is fixed for a specific period of time for a particular quantity of product. Also in case of alteration in terms of price and quantity both the parties bear the expense equally.
- Fluctuation in demand and supply changes because of seasonal influence and the buyer gets ample opportunity to plan ahead of time for such changes. The only risk involved here is that the buyer if he/she buys lot of goods can be stuck with an inventory of old materials.
Second Option Viable for Start-ups
The second option is viable for start-ups because they come up with new products in a new market set up and gets a lot of time to test the waters ahead of product launch. It is also a safe way because buyers do not face any loss if the product fails to be a success. In this way there is no risk of being stuck with unsold stock.
These important elements when incorporated in the Chinese manufacturing binding agreements for establishing a partnership with other foreign companies make the transaction transparent if not safe. The respective first and second options are viable for existing and new growing companies. Get a contract done accordingly.