When it comes to safeguarding IP in China, we often see so many issues that could have been avoided by taking a step back before getting started. Mistakes in managing IP in China can cost time, energy, money–and even your entire business. Sound practices are mission critical to help avoid disaster. Here are four keys we’ve found to improving IP practices that can make a substantial short and long-term difference.
Prioritize process vs. product expertise
While it may seem logical to award business to a supplier who makes a product just like yours, it is a double-edged sword.
Example: Prior to engaging with us, one client in the consumer electronics industry, lured by the promise of high-quality and speed to market, awarded a job to a supplier with a full portfolio of similar products. Within weeks the client’s products were added not only to the supplier’s catalogue but also to the catalogues of others around the globe.
The bottom line: Protect your IP. Split up production to best in class suppliers. Today our client separates production by outsourcing key components to different suppliers with deep expertise in specific processes: injection moulding with one, cable assemblies with another, and importing key proprietary components. We then coordinate final assembly with yet another supplier unfamiliar with the client’s market and without the marketing muscle to become a competitor.
Own thy drawings
Often overlooked, a set of humble drawings are a major source of IP leaks.
Example: Prior to engaging with us, one client in the outdoor home goods market worked with a supplier who refused to turn over a final set of drawings. Even though the client provided the initial set, nine revision levels later, the supplier did most of the development work to get to a functioning product. The client did not separately compensate the supplier for design work. Without final drawings, the client could not apply for patent protection in the USA and worldwide. Unintentionally, the client created a competitor.
The bottom line: Stay up-to-date on drawing revisions and improvements and maintain document control. If you do not have in-house engineering capabilities or capacity, engage a separate partner to maintain drawing and IP control.
You paid for it–but who really owns the tooling?
As with drawings, tools must be managed as strategic corporate assets.
Example: Prior to engaging with us, one client shopped price and did not realize her supplier built, owned, and managed all tools on behalf of his customers. The supplier’s business practice was to win jobs with attractive pricing and recover margins by leveraging tools either across other customers or adding products to his own catalogue. When the client wanted to move the tools to a new factory, she found out that her original payment for tooling was only a portion of the total cost. To obtain ownership and control of the tooling, she was going to have to pay the remainder to the original factory or fund new tools at the new factory and wait for the new tooling to be completed. This was of course an unwelcomed surprise, additional cost, and delay.
The bottom line: Take tools off the table. Keep them on your balance sheet. Today our client owns her tools. For greater control, we remove the tooling from suppliers’ factories when not in production.
Independent quality control
Clients who have been successfully manufacturing in China often tap into 3rd party quality control. Quality process – in other words, what your customer cares about and pays you for – should also be considered strategic IP assets.
Example: One of our clients with their own China-based factory with more than 3,000 workers lacked disciplined control of quality required for industrial components and assemblies.
The Bottom line: Separate ‘Church and State’ to meet quality targets. Today the client engages us to perform independent quality audits for incoming and production parts; during assembly; and on finished goods prior to shipment. This approach of “trust through verification” has proven successful in delivering incremental improvements month after month.
Next to your people, IP is among your most strategic business assets. A sound IP strategy confirm its rewards are yours, and not someone else’s.
Safeguarding IP in China keeping you awake at night? Contact us today and we’ll help you uncover your areas of biggest risk.