You want to find a Chinese supplier because you need the price advantage that China offers, but you are worried that the supplier you will work with will start selling your invention to other people or that others will start producing and selling your invention. Basically, someone might start competing against you with your own invention.
What you need is a strategy that will do the following:
- select a supplier that is more likely to be trustworthy
- motivate the supplier to stay trustworthy and
- remove any opportunity for the supplier that would come from being untrustworthy.
A trustworthy supplier
In our experience, when an idea is stolen it is typically stolen by a trading company and not a factory. The reason for this is that factory owners are typically more interested in keeping their factory busy, and they are less focussed on marketing issues. In addition, factories are less likely to have competent English speakers to properly pursue the foreign market.
Therefore, it makes sense to find a factory instead of a trading company. However, not all factories are the same. Not only that, you still need to ensure that you have a competent factory as well as trustworthy.
The ideal factory is one of a medium size. Smaller factories will often lack the skill and competence to provide you with reliable supply without the need for constant attention and management. Larger factories are more likely to have experience selling to foreign markets, and thus they have the potential to sell your invention without your knowledge to competitive retailers or distributors. A medium sized factory provides you with the right balance between skill and isolation from competitive western retailers and distributors.
There is one issue of contention over the ideal factory regardless of size. That is their current product range: do you look for a factory that has experience making a product similar to yours or one that is completely new to the industry? In the first case, you will have a factory with a greater degree of expertise and connections with other possible distributor; however, they are also in the best position to take advantage of selling your product behind your back. In the second case, you will have a more trustworthy supplier; however, you will need to be correct and specific about what is to be made and you will also need to find all distribution avenues. The answer to this question must be congruent with the other elements of the strategy and fit with what you feel comfortable with.
There are two basic ways that you can encourage a factory owner to be trustworthy: solid and reliable orders, and a good relationship with them.
The best approach is solid orders. If you provide a steady number of orders then a factory owner can keep is employees busy, and his factory will be profitable. This is what a factory owner likes so he will be content and more trustworthy. Therefore, be certain that you have a solid business plan and that you are as certain as you can be on expected sales.
A good relationship can also help. However, this really can only help if you are keeping the factory busy. If your involvement with a factory is more hassle than it is worth, then you will likely damage a good relationship and there is little you can do to improve it. However, if you maintain a steady stream of orders, then maintain contact with the factory owner and working on your relationship can further encourage trustworthiness.
Sometimes it might be difficult to find a perfect supplier. And just because you have the perfect supplier doesn't mean that another company can't still buy one of your products and reproduce it. Therefore, it is often good back up to make it is as difficult as possible for your invention to be sold without you being involved.
Patent protection is one obvious tool. When people here that a product it patented, they will think twice about copying it. The trouble is that patents can be costly, they only cover one country or region at a time and they can require considerable legal might to enforce. Therefore, sometimes patents are not ideal.
Non-Disclosure Agreements (NDAs) are a tool worth using when you want to take the trade secret path. You can ask your supplier to keep all of your designs secret. This will not prevent others from reverse engineering your invention, but it might help slow them down. To take this path you will need to make sure that you provide complete and detailed designs so that you can claim that they are entirely yours.
Splitting suppliers means that no one person can easily use the established production resources to produce your invention independently. Of course, this requires more management effort on your part and it is not a guarantee (others can still reverse engineer your invention). However, it does offer an extra hurdle to anyone thinking about stealing your idea.
Owning production tools allows you to quickly (but not necessarily easily) move them from one supplier to another. Therefore, if one of your suppliers is selling your invention to others without your consent or with compensating you, then you can move production to another supplier. This makes opportunities to sell your invention without your knowledge seem much less attractive.
Exclusive distribution agreements with major distributors are a commercial technique to keep others out. If others can't get good distribution channels for the product, then there is little point in producing it. If you can structure the deal with distributors in the right way, then they might also be prepared to use their financial resources to help enforce patent protection to ensure that they are the only distributors in their market. Thus, such an approach can have a double benefit.
The strategy in practice
Using the above strategy will offer you greater protection. However, you need to decide upon the subtleties of your own strategy. Will you use patents; will you split suppliers; and can you gain an exclusive distribution agreement? These are just some questions you need to consider before you finalize your strategy.
For example, if your invention is a deviation on an established product that you might decide that you need a large well established factory already makes such a product to ensure expertise and quality. Thus, you will not split suppliers. Because such a supplier will have the advantage in being well connected with other suppliers and distributors, you might decide to first take out a patent and make an agreement with a strong distributor.
You will also need to consider the tactics. That is: how will you execute each part of your strategy? Will you frequently travel to China to liaise with your suppliers and look for evidence of others copying your design or will you find a third party to work with? Either option is fine, but it is important that you think about this first.
Finally, don't forget that you can turn your threats into opportunities. Always consider asking your suppliers if they know of any other markets or distribution networks that you could sell to. Just because they know of the opportunity doesn't mean that they know how to take advantage of it. But you probably will. Now that's a partnership and a good relationship for making money!
The GYSMC team is a multi-national group of experienced product development engineers that are dedicated to helping people get their products and inventions made in China.
http://www.getyourstuffmadeinchina.com Take a look for more information if you want to get something made. China is probably the place to do it and we can help.
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