Want to Frame an OEM Agreement in China? Know the Checklist

An OEM product may be designed and manufactured to specifications other than those specifications of suppliers primary products. OEM in China referred to the Chinese company that originally builds a given product and sells it to the foreign company. It is important to all the foreign companies to make sure the contract manufacturer they have chosen is capable of delivering all their manufacturing requirements for producing their OEM products.

According to most of the Chinese law firms, overseas companies need to keep in mind that not all the contract manufacturing companies are the same. You need to keep a comprehensive checklist of questions in hand while interviewing the contract manufacturer for your OEM product. It is essential that you and the contract manufacturer are working together to successfully bring your OEM products to the market and expand your business.

It is noted quite often that many OEM relationships fail to meet the definition of the term because the dynamics of the OEM are changing. As a business owner, you have to ask the right questions before forming this valuable relationship with a Chinese contract manufacturer.

The Following is a Checklist of OEM Agreement:

  • Materials– The kind of material the CM is going to use must be clearly mentioned in the contract. Be sure the contract manufacturer you’re considering has adopted quality standards – such as the ISO 9001:2008 – which provide guidelines to ensure the contract manufacturer’s products and services are consistently meeting customer requirements.
  • Manufacturing– Review consignment terms, contract, and Standard Operating Procedures (SOP)
  • Price– Request to know the provider’s pricing formula and activity or service rates with current your product.
  • Order placement– How are orders to be placed? Purchase order or by forecast? Also, be sure and state the liability where necessary. The agreement must also define the list of products, performance criteria, tooling list and purchase order.
  • Quality control and quality assurance- Foreign companies need to have the right, after a 24-hour notice, to inspect, audit or examine the manufacturer’s operation, record, system, and facilities to ensure compliance with the OEM agreement.
  • Term– The parties will determine an appropriate term for their contract, and may make the agreement renewable on request by the buyer.

Key Takeaways

Due to the fact that China has become the world’s leading manufacturing base, it is quite obvious that businesses from all over the world want to make the most of it. An OEM agreement could prove to be the most effective tool in order to carry on seamless business operations in China.

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A Complete Guideline on China’s New Cybersecurity Law

China’s new cybersecurity law came into effect from 1st of June 2017. The new law which was rubber-stamped by the country’s Parliament last year is part of wide-ranging efforts by Beijing to manage the internet within China’s borders. The law focuses on protecting personal information and individual privacy, and standardizes the collection and usage of personal information. As such, companies will now be required to introduce data protection measures, and sensitive data for instance, information on Chinese citizens or relating to national security must be stored on domestic servers.

The law has raised concerns among some foreign companies over greater data controls as well as increased risks of intellectual property theft. Vague terminology and absent official guidance on complying with the law have created uncertainty. While Chinese authority is saying the new cyber law is aimed preventing serious cyber attack threats and security concerns, many are arguing that it will make the operations of the foreign companies in China less secure and more expensive. Many of the accompanying rules that ought to clarify what foreign companies can and can’t do under the law remain vague, leaving businesses of all types in limbo.

Network Operations Security-
The Network Security Law introduces rules and requirements that will significantly impact individuals and entities utilizing the internet in the PRC. Critical network equipment and network security products will need to comply with mandatory national standards, and will be subject to security certification or inspection.

  • Appointment of dedicated cybersecurity personnel
  • Retention of network logs for at least six months
  • Reporting risks on network services and products to both users and authorities
  • Formulating contingency plans for network security incidents, and reporting such incidents to the authorities
  • Providing assistance and cooperation to public security bodies and state security bodies to safeguard national security and investigate crimes (the extent of which is not yet clear, especially in terms of the disclosure that will be required of private businesses).

CSL does require CII operators comply with the following, in addition to the requirements for all network operators:

Annual security assessment-
According to the new law, CII operators need to review the security of their networks and assess potential risk annually. The entire process can be conducted by the companies themselves or they can engage a third-party service providers.

Data localization-
The new law stipulates that the personal data of Chinese citizens should be kept within the territory of China. If the key information infrastructure operators who collect or process such data would like to transfer the data outside the country, they will need to undergo a security assessment and get approval from the National Cyberspace Administration and State Council. Unauthorized collection, disclosure and receipt of a citizen’s personal information now constitutes a criminal offense.

Network security requirements-
Businesses are obliged to employ network security safeguards, such as preparing and implementing contingency plans for mitigating network security incidents, reporting possible security risks, and assisting Chinese authorities in investigating and combating cyber crimes.

Online protection of minors-
The Chinese government aims to strengthen the protection of minors in the cyberspace by obliging entities that collect personal data from minors to (1) place a warning label on their websites; (2) obtain a consent for data collection from the minors or their guardians; and (3) set rules for minors’ personal data processing

Many foreign companies are becoming increasingly skeptical of China’s promises of economic reform. But it has been noted that most of the foreign companies based in China are already accustomed to tight internet and content controls. Many have existing internal policies for information technology and data management and privacy in China. So there is no major worry and apprehension for the foreign companies as long as they are maintaining the law.

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