Golden Rules of Buying Chinese Proprietary Product

There is a considerable change noticed over last few years regarding the Chinese manufactured products. In the recent time, Chinese manufacturers are getting more and more involved in the designing process of the product unlike earlier times when they used to make items according to the design submitted by their foreign clients. Now most of the factories in China have started to sell proprietary designs of their own. Inevitably lots of contracting issues have emerged because of this trend as most of the foreign buyers of the Chinese goods do not have the clear cut idea of the about this trend.

What is Proprietary Design?

Before discussing the issue properly you need to have a good understanding of the proprietary design. Here is a simple definition of proprietary design-

A proprietary design or technique is one that is owned by a company. It is exclusively owned by a private individual or corporation under a trademark or patent that is selected for use exclusively. It also implies that the company has not divulged specifications that would allow other companies to duplicate the product. Proprietary items usually have distinctive characteristics or features, and are often incompatible with competing items. Proprietary designs are less flexible than standard ones. You usually will have fewer choices in components when you buy the system, because the design will usually be based around specific choices made by the company.

Early Proprietary Design Phase in China-

The economic boom in the People’s Republic of China is attracting global investors in the process industry with significant amounts of investment. When the manufacturing boom started in China, the situation was not at all complex. The Chinese manufacturing company used to manufacture a certain product that no other company in the world could claim as their own in terms of design. Earlier the product specifications were standardized and the only task of the factory was to follow the standards given by their foreign clients and manufacture the product.

The Present Proprietary Design Phase in China-

As it has been said earlier, a huge change has been observed in the manufacturing sector in China as factories over here have become highly advanced. The buyers have to select from the design and the specification set by the manufacturer.

How to Overcome the Proprietary Design Issues in China

  • Rather than providing that the Chinese factory must manufacture in accordance with industry standards or the specifications of the buyer, the contract must provide that the manufacturer warrants that it will manufacture in accordance with its own specifications.
  • Although there is no big issue opting for the manufactures of proprietary product, many foreign companies have faced challenges such as poor service, theft or misappropriation of intellectual property (IP), and being forced to procure from specific vendors. To overcome these problems it is better to consult with a China lawyer.
  • The foreign companies need to have a clear and effective with the Chinese manufacturers setting requirements about IP and trade secret use, procurement, and quality.

Lack of proper understanding from the buyer’s side leads to their buying of a Chinese manufacturer’s proprietary product as no different from the purchase of a fungible base product. So be very precise while drafting the negotiations.

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