Most companies and entrepreneurs are sourcing from China for two main reasons. The first reason is the long-term objective of creating a market presence in China for the purpose of serving the economy. The other reason is a short-term objective of taking advantage of low labor costs in this part of the world. Forming a distribution contract in China is the best possible option for foreign businesses to distribute their manufacturing goods in Mainland China.
As an overseas company, if you are not willing to appoint agents in China to act on behalf of you, then going for a distribution contract is the ideal way to operate over here. The risk is less and the gains are enormous.
Working with Chinese manufacturers
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.
A Chinese lawyer is required to draft a contract by clearly explaining these terms right at the beginning.
Incorporating these fundamental terms right at the onset can be done in two ways.
FIRST- The manufacturing contract drawn for the purchase of goods is a binding one for a particular quantity of product to be delivered within a stipulated time frame and a fixed price. The outstation purchaser has an obligation to purchase while the manufacturer is compelled to sell. Failure in any of these will be considered a breach of the agreement. A letter of credit is often attached to this kind of agreement.
SECOND- A contract stating the purchase of goods is formed only after the foreign purchaser submits the purchase order which is also accepted by the Chinese manufacturer for which the terms and conditions are laid earlier. This contract is however not formed when the foreign buyer does not provide a purchase order and the Chinese manufacturer does not have anything to accept it. In case there is no submission of an order or there is a rejection of order these are not considered a breach of contract. This type of agreement comes without a letter of credit.
China is really unpredictable in its measures for curtailing corruption. Also, it is unpredictable regarding enforcing those laws frequently. Chinese government’s behavior with foreign companies has always been that of a foster child. They always strike more on foreign companies to safeguard the interest of the homegrown companies. It has struck down and still continues to strike on the foreign companies a lot more. As a result, the foreign companies have been hit the worst in this regard.
Another very important point is that, in case, you are doing business in the Chinese environment with such a thing that is politically sensitive, then you have to worry a lot more and be extra careful. You may be hit anytime. This is a common practice in the Chinese business environment.