Do you have a unique idea that you think can be a success? One way you can make your idea come to life is to work with a Chinese manufacturer to make the product for you. If you have never worked with a foreign company before, we understand how confusing it is in the beginning.
When you do not have a finished product ready for manufacturing or want to make something new, you will have to draft a product development agreement. The agreement is a detailed explanation of the product you want to make, how you will make it, what it will cost, and other important information. However, the most important reason why you need a product development agreement is to protect yourself against intellectual property theft and other potential issues.
Are you still curious about how to outsource your company’s product manufacturing to another company overseas? Here are some things you should consider when drafting a product development contract with Chinese manufacturers:
First, how far along is your product development? Do you only have a rough CAD drawing or a basic idea? Or maybe you already have a working prototype and you just want to find a quality manufacturer who can make it come to life. Regardless of what stage you are in, it is important for you to let manufacturers know so they will have an idea of where you are in the development phase. The further along you are in the design phase and have product specifications, the easier it will be for you to get cost estimates from different Chinese manufacturers based how many products you want to make.
A product development agreement between your company and a Chinese manufacturer must have a clearly outlined project scope. The scope must give a clear description of what the finished product looks like and when it will be delivered. The agreement should also highlight certain conditions that must be met by the manufacturer. The product scope can also include milestones, evaluation criteria, and other specifications about the potential project.
The document should also discuss production costs and clarify which party will pay for the molds, equipment, and other important tools beforehand. Everyone should also agree on who will approve the costs to prevent confusion and potential conflict later on. A product development agreement should also include payment terms and guidelines.
If you want to design an original product and have patents (or maybe you are patent pending), you will want to protect your intellectual property. There are many possible areas where intellectual property issues can arise when working with a foreign manufacturer. A good product development agreement should disclose who owns the intellectual property rights for the final product and during the development process. The contract should also highlight if there are any further restrictions.
Original Equipment Manufacturer (OEM) Agreement
Some Chinese manufacturer will request that you sign an Original Equipment Manufacturer agreement with your company if they agree to your terms. The contract can clarify if you are restricted from manufacturing the product with another manufacturer in China or another country. An Original Equipment Manufacturer Agreement may also mention if your company will have to pay a penalty or fee if you decide to cancel the product development deal or use another manufacturer after they have invested money in purchasing equipment and supplies.
Please consult with an experienced lawyer if you want to work with a foreign company. Although it may seem like a significant financial investment at first, a good lawyer can identify possible problems early on and work hard to protect your interests.