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Tips of Contract Manufacturing or License Manufacturing from China Commercial Lawyer

When a hiring firm wishes to have a product manufactured they often seek outside Chinese manufacturers. This is known as contract manufacturing. As experienced Chinese lawyer, we extensively assist our foreign clients find Chinese manufacturers. We summarized the opinion we gave to our clients and we hope these tips will help you along the way doing business with Chinese partner. However, please keep in mind these tips are not supplement of our China commercial lawyer's professional service. You are highly recommended to consult us before you make your business decision in China.

The contract manufacturer takes the components or the complete product design and produces the product for the hiring company. This is done to help minimize cost and usually is more efficient in a production standpoint for a company wishing to quickly develop a product and move it to market. This allows the hiring firm to continue to design products for the product life cycle without having to assume the overhead cost of a manufacturing plant. This can be a tricky process because the hiring firm must quickly and correctly choose a contract manufacturer that is a good fit to develop and produce their product. Failure to do this correctly can have catastrophic results. Here are 7 tips for firms wishing to use contract manufacturing-

1. Ask questions to gauge the contract manufacturing firm's reliability. The hiring company needs to determine whether a prospective manufacturer offers quality service, on-time delivery and quick attention to problems. This may require a bit of homework. Ask for referrals from other customers. The hiring company can also gain further clues about a potential candidate from data on its size, past clientele and financial history. All of these should indicate that a company is in the business for the long haul.

2. Ask questions about the staff already on payroll with the contract manufacturer. The hiring company should find that the chosen contract manufacturer already has the technical competence in their employees to deal with the product. For example if a contract manufacturer is developing a pharmaceutical component they should have several chemists and engineers on staff who can help bring the product down the cost curve.

3. Any contract manufacturer worth considering should also own the necessary equipment to manufacture the given design. Also take into account the firm's laboratory and production facilities. If the contract manufacturer already owns that necessary equipment that is a big plus since no further purchases are necessary. If a company lacks some of the essential equipment, it should be evaluated how quickly it can put things in place to get the project started, this may be to cost prohibitive and should warrant moving on to someone else.

4. Hiring firms should only consider contract manufacturers who are fully prepared to produce the product from a regulatory standpoint. The contract manufacturer should fully understand the process they will use to make the product to ensure it's going to meet all compliance, regulatory or other quality needs. This should also include checking the contract manufacturer's record in adhering to safety and environmental regulations of government agencies.

5. Most experts recommend physically inspecting a contract manufacturer's production site. This helps verify that a manufacturer has the necessary equipment and adheres to all regulatory requirements. This is more critical for some manufacturing than others. For example it is critical to audit the manufacturer's facilities for a pharmaceutical company while for an agricultural chemical customer such an inspection is not always necessary.

6. Ask questions that will shed light on how fast a contract manufacturer can respond to demand. Speed should certainly be considered in weighing qualifications of potential suppliers. Hiring firms want to deal with companies that can react very quickly, who have the capacity and people available to put on a project and get it done as fast as possible.

7. Finally there is price to be considered. While a hiring firm will evaluate the reliability, technical competence and regulatory compliance of many potential contract manufacturers, a hiring firm will narrow its list down to a small group of final candidates. At that point, the price to be charged for the services often becomes the overriding issue. While all the factors are important in the end price is often the critical factor in choosing a contract manufacturer.

Consult our professional China business lawyer for more advice when you are doing business in China. Our assistance is vital for your success in China.

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I am a licensed China lawyer. Most clients are foreign nationals and companies. China Lawyer Blog have associates in Beijing, Shanghai, Tianjin, Guangzhou, Suzhou, Nanjing, Qingdao, Fuzhou, Hainan, Hefei, Wuhan, Xian, Changsha, Xiamen and Hangzhou. Learn More

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China Lawyer BLog AuthorPeter Zhu, an experienced China attorney licensed to practice law for more than ten years, the author of this China Lawyer blog, welcomes any enquiry or consultation related to Chinese law.