How do I keep factories from stealing my ideas? 12 ways make sure your designs stay yours
I received an email from Mark from ProgressForge last week. Mark is pumped about going to China and manufacturing, but he’s worried about factories stealing his designs. This is a huge concern for many importers- although I find this looms larger in the minds of people who are not yet importing that companies that have a track record of importing from China and elsewhere.
So how do you go to a factory and keep them from stealing your designs?
First, get over yourself!
I see this concern from a lot of first time (or wanna-be first time) importers. It is a poor use of the factory’s time to rip off a product from a small time business. Many factories (especially in China) are not very familiar with the market conditions in the destination market. And the factories want volume to fill their production lines. So, if they have a choice between developing (or ripping off) a successful product or ripping off a new product of unknown market potential, they will generally choose to rip off the proven product.
So, if you are emailing a factory and you’re worried about meeting their MOQ (minimum order quantity), chances are they will not be that interested in stealing your designs.
So- if this is the key concern that is keeping you from developing your product, please read this post, take the necessary precautions, and move forward!
Second, whether you protect your designs or not, factories can reverse engineer almost anything
If you deal with a factory long enough, and you build up a little trust with them, you’ll get the following Skype (or email) sooner or later:
I get these requests all the time. Even if a product is made in China, it is often easier for a factory to ask me to buy a product in the US and send it to them to reverse engineer and copy the product.
If this request is made of you, I suggest finding a way to politely decline- unless you really understand the game you are playing. Helping the factory out may help you build your connection (guanxi) with them, but helping to knock off someone else’s design surely earns you lots of bad karma. The choice is yours!
The point of this is that the more successful you are the more factories will attempt to steal your designs, whether you deal with the factory or not. Just look at the Goophone vs. iPhone. Everytime Apple produces a new iPhone, a factory in China reverse engineers it and offers an Android version. In many cases, the Android version hits the market before the new iPhone does!
How to minimize the risk of factories stealing your designs
With the above said, there are a number of techniques I have employed or heard of that can minimize design theft concerns.
1) Build your brand in your market
This is the #1 thing you can do. Make sure that you are not designing and sourcing commodity products and instead, build your brand. If you do this right, your customers won’t want to buy any knock-off products, even if they sold in your market for a lower price.
Remember a few years ago when Crocs (the shoe company) was riding high? You could buy knock-off Crocs in every flea market in America. And yet, the main brand soldiered on, with blistering growth and stock performance. When Crocs came crashing down, it was because of the fast run-up and market saturation, not because you could buy a knock-off for half the price.
Take a lesson from Crocs and make sure that you are delivering intense value to your customers. And make your brand mean something. With today’s social media channels and the openness of customers to engage with brands, making your brand meaningful is easier than it ever has been.
2) Protect your designs in your home market
Much ink has been spilled on the lack of respect for IP (intellectual property, e.g. patents, trademarks, etc.) in China. Some of this is on-point, and some of it is not. IP law is definitely a work in progress in China, but I have always found some level of respect for trademarks over there, although I have never seen any reverence for patents. And some of my friends report more success in getting and enforcing patents and other IP in China lately.
Regardless, the most important place to protect your designs is in your home market. This way, you can prevent your competitors from importing your IP-protected designs. If you do have IP protection, you have a number of good options to take when you find products in violation in your home market:
- First, publicizing your patents, etc. can serve as a deterrent to your competitors from ever heading down the road of infringement
- If products infringe, you can have your lawyer send a C&D (cease and desist) letter to the infringer. This is a cheap option that often solves the problem
- You can sue the infringer (in your home market)
- You can let the retailers and distributors of the infringing product know that the product infringes on your IP. I had a friend that did this with a large sporting goods chain in the US, and within days the infringing products were off the shelves and sent back to the infringing supplier, at the supplier’s cost! Plus, this damages the relationship between the infringing supplier and the retailer/distributor- so you might be able to step in!
- You can work with customs to have shipments to the infringer stopped at port and inspected- this is a time-consuming and expensive process for the infringer
- You can take to the press and social media to make the infringer look bad and drum up free support/marketing for your company
As you can see from above, getting IP protection in your home market has a number of large upsides. You should at least be trademarking your logos and trade name(s), plus provisional patents are relatively easy and cheap to get (in the US).
3) Get signed contracts from the factory laoban
This can be a controversial one. Many of my friends in the business consider these contracts essentially worthless. But I find value in them. In fact, I was once sued over a competitor’s agreement with a factory laoban. One of the things that saved me in the suit was the fact that the “contract” I was sued over was never written down and signed- it was more of a “gentleman’s agreement”. Had there been a signed contract, I would have been in hotter water.
So, when I develop my unique products with a factory, I insist upon a signed contract guaranteeing my company worldwide exclusive rights to the products I develop- and I include an exhibit in the contract specifically naming and describing these products.
The reason I like to use contracts is two-fold:
- You now have a written and signed agreement with the laoban. the contract is perfectly clear on your expectations. If the laoban breaks the contract, you can leverage his loss of “face“, and you can use his potential loss of face as leverage.
- If the factory breaks the contract and sells to another supplier in your home market, you can sue the supplier (not the factory) for tortuous interference with a contract. This is what I was sued for (referenced above), and it is a wicked little trick to enforce a contract- or punish a competitor. I’ll blog about this later, or if you’re impatient I mentioned it on reddit a while back.
4) Work the social angle
This is another controversial one. When you work with a factory, you get to know their your salesperson, and often, the factory laoban. You can leverage your relationship with your factory partners to use social pressure to make them less likely to “back door” you. Be aware that this is a method that is fraught with pitfalls for someone who is not used to collecting and wielding social capital- and if you are working the social angle to pressure a factory, they will do the same in return!
An example of this would be a factory pressuring you to not order an inspection of goods the factory knows would fail inspection. Or just any situation in which the factory makes you feel like an asshole for requesting something that the factory does not want to do.
In my case, I take the time to meet most of my supplier partners (domestic and international) face to face. This way I am more than a name on Skype to them- and vice versa. Then, when a factory is acting up, I can appeal to some idea of our “friendship” to help fix matters. This can pressure a factory partner with the loss of face if they are unable to help fix things.
5) Look at their customers
If you’re doing business with a factory that supplies many of your competitors, this is probably not a good factory to work on ground breaking proprietary products with. I get emails all the time from my factory partners that say:
We developed xxx with competitor yyy- are you interested in ordering it also?
And I am sure this works both ways, too. So, while you are trying to get a foot in the door and get a lot of “me too” products off the ground, it’s great to be in a factory that is a major supplier for a competitor. But once you have some level of success, this same relationship can bite you in the ass.
I’ve even seen a factory develop a new product with competitor yyy, and develop 2-3 extra versions of the same thing. This way they can tell competitor yyy that they have an “exclusive” on the product. And then the factory turns around and sells a cosmetically different version of the same thing to their other customers! So develop your new hotness somewhere else.
6) Leverage future orders and your relative importance to the factory
You are in a precarious place with a factory if you are a small customer- and doubly so if you are a small customer with unique designs. In this case, the main reason the factory is dealing with you may be for those designs! So, be super careful if that condition applies.
Conversely, if you can find a “Goldilocks” factory- not too big and not too small, where you are an important customer, you’ll have more leverage in negotiations in general, and the factory will be less willing to annoy you by stealing your designs.
7) Don’t factory jump arbitrarily and often
If you are a chronic factory-hopper, you expose yourself to the factory using your designs once you leave- especially if the factory feels you left them in the lurch. Once you’ve left a factory, you can’t effectively leverage your future relationship- the factory thinks there is none!
8) Use non industry specific factories
In the same vein, if you jump industries an do business with a new factory that has no customers in your current industry, you vastly decrease the potential for design theft- because even if the factory copies your designs, they have no customers in your current market, and the factory may have no idea where to start to develop a new market.
For example, we recently developed a new sandbag for FringeSport. We have any number of cut and sew operations in the US, China, and Pakistan that we could have used to develop the sandbag. But all of these operations are in the sporting goods industry. So we found a new factory that serves the backpack/duffel bag industry and has no sporting goods customers. We developed the sandbag with them, and I am reasonably comfortable that they are not going to sell this design to my competitors- as the factory has no experience in sporting goods. They don’t even know where to start.
9) Use smaller factories with less international sales savvy/exposure
Especially if you are seasoned at sourcing product and dealing with factories, you can search out “hidden gem” factories that have less experience dealing with international customers, or who lack international sales staff. In this case, you probably need deep language abilities and an excellent understanding of the culture (assuming you are sourcing from China), but picking a factory like this can greatly minimize the chances that your factory will sell to someone else in your market. That said, there are few “hidden gems” with decent quality left in China.
10) Use multiple factories for components, do final assembly elsewhere
If you can do this, you’ll cut the potential for factories stealing your designs to close to nil. Just source the components from 2 or more factories and do final assembly in your home market (your office/warehouse). This way none of the factories has the full design for what they are making.
As a bonus, you may be able to source components from a low-cost area (e.g., China), and do some assembly in a “value add” area (e.g., USA) and you may be able to call the product “Made in USA.” Check with the FTC about your marketing claims if you want to go down this road.
11) Design in a (fixable) flaw into the product
Similar to above, I have heard stories of companies that deliberately include a small, but easily fixable flaw in their products. Once their factory produces and ships out the products, the factory does a “rework” and fixes the flaw. An examples of a flaw is having a small item missing on the circuit board.
12) Keep it close to home- don’t outsource overseas
Oh boy. Whenever I talk to ignorant people about overseas factories, I always get this response- especially in regards to Chinese factories. It’s so cliched to me now that I almost shut down the conversation whenever someone says this. For better or worse, global sourcing is often necessary in today’s world to remain competitive. I source as much as possible domestically, but often, it just does not make sense. If this is your knee-jerk response, please read up on your economic theory, especially comparative advantage.
With that off my chest, this is a good option, if you can make the economics work. If you can find a good manufacturer in your home market, you have a number of benefits that can help you protect your designs:
- Shared culture. If you have culture shock dealing with Chinese factories, you’ll feel much more comfortable dealing and negotiating with factories in your home.
- Better ability to “read” your factory rep. Similar to the above, you can better “read” your factory partners in your home culture. Are they shady? If so, proceed with caution.
- Easier access to legal remedies, including IP and contract law. Basically, if you are in the US, you don’t have to sue a factory in China- you can sue (or threaten) to sue domestically. The threat of legal action carries more weight since it is a legitimate possibility.
With all the above said, I have seen US factories pull some of the same shenanigans as overseas factories, so this is not the ultimate solution. But it is a solution to consider.
Wow, this was a long post! Did I miss anything?
Let me know in the comments. Whether you are a newbie with unanswered questions, or a seasoned China hand, I love all input and feedback.
The post How do I keep factories from stealing my ideas? 12 ways make sure your designs stay yours appeared first on ProductSimple.