Vietnam is quickly becoming a viable option to source products and outsourcing manufacturing projects. The footwear giants like Nike and Adidas have been steadily moving production out of China to Vietnam. Facing rapid wage rises in China, companies from all over the world are attracting to Vietnam for its competitive labor cost, top-notch quality and lightning-fast productivity. Another major advantage of this country is its location as it is situated at the heart of Asia.
Foreign-Owned Manufacturers in Vietnam–
Vietnam business set up has become an appealing option for many foreign companies. It is noted that, because of the recent tariff war between Washington and Beijing, US companies are more inclined to source products from Vietnam instead of China. However, China business lawyers are of the opinion that foreign entrepreneurs should be prepared for complex regulations, bureaucratic challenges and licensing delays. You need to keep in mind that many factories in Vietnam that cater to America and European and Australian companies are owned out of Chinese companies.
Your Product Should be Made in Vietnam for the US Tariff Purpose–
The entire product line is located in China, the product is manufactured in China and then it is shipped to Vietnamese distributions centers from where it is transported to various locations. China lawyers suggest that, foreign businesses need to make sure that their product is actually manufactured in Vietnam, not shipped there from somewhere else. For the US tariff purpose, the product your sourcing should be completely made in Vietnam.
The Legal Consequences of Sourcing China Made Products from Vietnam-
Quite often it has been noticed that Chinese companies assure their foreign clients that they will ship their product to Vietnam from where they will ship it to their locations as though they are not from China to make it tariff-free.
>> The first concern that China lawyers pointed out, if the deceit is revealed to the authorities, it may lead to a huge penalty as well as imprisonment.
>> Your entire product could be ceased and your trade license may be withheld for lifetime as this type of transshipping is entirely illegal.
>> For saving only a few bucks, your business reputation could be at stake for breaching the rules of United States customs law.
The decision is up to you, whether you want to follow a sound and legal sourcing strategy or take an unnecessary risk. Vietnam Manufacturing is booming and finding the right supplier is getting easier, so you don’t need to take any unethical steps.
Despite the recent political crisis between the US and China, this manufacturing heaven is still considered to be the best place for getting involved in a business venture. Beijing has enormous leverage and importance on the international level. According to the Larry Brainard, chief emerging markets economist at investment research firm TS Lombard, China is “facing tariffs on the bulk of their exports to the US for the indefinite future, binding constraints on acquiring US cutting-edge technology and domestic economic dislocation as [Chinese] firms adjust to the tariffs.”
Various distribution structures are available in China, including:
>> Structures Of Distributorship
>> Commission Agency
>> Trademark Licence
>> Joint Ventures
Why Distribution Contract is an Important Element for the Foreign Companies in China–
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 cost in this part of the world. Forming a distribution contract in China is the best possible options for the foreign businesses to distribute their manufacturing goods in the 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.
The distribution agreement is distinct from an agency agreement and an introduction agreement to which different Chinese laws apply. China has no requirement mandating payment of any compensation or indemnity to a commercial agent or distributor upon termination or expiry of the agreement. If the agreement provides for compensation upon termination or expiry, the Contract Law will apply.
Any Seller entering the Chinese market would no doubt be concerned about protecting its business secrets and intellectual property rights. In order to deal with this issue, China lawyers put “no registration” provision to the distribution agreement in order to secure the China trademarks of their clients. The provision functions in this way, the Chinese distributors agree that the foreign company owns all the trademarks and other intellectual property rights and the distributor has no rights to those trademarks and the distributor will not register any IP in any way related to their foreign partner’s IP.
In order to make the distribution agreement enforceable in the PRC following things need to be done:
First- The distribution agreement has to be drafted with Chinese law as the governing law.
Second- The Chinese language should be the agreement’s controlling language.
Third- The enforcement of the agreement should be in the Chinese court.
Enforcing a contract in China is quite a challenge. Foreign companies need to have a proper legal representation to cope with these challenges and make the most out of the China distribution agreement.