China Confidential: How to Keep Your DRTV Products Secret and Safe

By Bill Quarless
December 2006

{Note: This column appears in the December 2006 issue of Response Magazine. Click here to read it on the Response Web site.}

Knockoffs are one of the biggest concerns in the DRTV industry. We've all heard horror stories about backdoor shipments and information leaks. But while confidentiality is certainly a challenge in China, the risks can be minimized using a few proven tactics.

Here are some key tactics to keep clients' products secret and safe:

1. Homework

Ninety percent of factory owners are honest people, but there is that 10 percent. We begin to weed them out using basic research. There are several free sources of information in China, including government organizations like the China Council for the Promotion of International Trade and the China Chamber of International Commerce. There are also several pay services that can tell you the company's trade practices, payment history and even if they've infringed on another company's intellectual property.

2. Detective Work

In China, there are so many in-betweens, go-betweens and company names (in English and Chinese) that it can be hard to know whom you're really dealing with. That's why we always tour the factory, looking for specific things. Do all "employees" have the same business card? Do line supervisors recognize our factory contact? Does the factory staff show him the respect of a boss? We also ask lots of questions. Who else do they manufacture for? Do they retain customers for a long time? If not, why not?

3. Salesmanship

Just as we study factories, factories study us, which means a certain degree of salesmanship is required. They are hoping for volume and continued business. Convincing them that you're a serious player who's in it for the long haul is another way to protect your project. Everyone knows what happened to the farmer who killed the goose that laid the golden egg (there is a Chinese version of this same fable). Our experience has shown that the Chinese think long-term and will not sacrifice a potentially profitable relationship for a quick buck.

4. Shows of Trust

Generally speaking, non-disclosure agreements (NDAs) are unenforceable in China and create an air of distrust. We prefer to use documents that represent a show of trust instead, such as "Terms of Engagement" and an "Authorization to Manufacture." These mutual agreements state that your project is proprietary, but also authorize the factory to manufacture exclusively on your behalf. Ultimately, however, a clear understanding and a firm handshake are more valuable than any piece of paper in China.

5. Fairness

The Chinese culture is one of haggling. But in the end, it's best if everyone comes out a winner. If you browbeat your counterpart into a losing situation, he may just find a way to make it up later. We always negotiate hard, but we also have preplanned concessions at the ready so our counterpart won't lose face.

6. Surprise Inspections

The initial tour shouldn't be the last time you set foot in the factory. It's equally important to have a presence while production is running. We conduct weekly, sometimes daily, tours to keep a close eye on things. We also conduct surprise inspections - a simple yet effective technique for keeping everyone honest. Such visits make it unlikely that a factory will even think about breaching confidentiality, let alone shipping your product out the back door.

7. Marked Molds

Like fingerprints, no two molds are exactly alike. As a result, careful analysis by an expert can prove that two products - say, yours and a knockoff - came from the same mold. But rather than hiring or trying to become a mold analysis expert, you can do what we do: simply put an intentional distinguishing mark on the underside of all your products.

In addition to the above tactics, the single greatest way to protect yourself and your business in China is to have great relationships. It may surprise you to learn that in an average factory meeting, we spend as little as 30 percent of the time talking about the project. The rest of the time is devoted to reinforcing a bond of friendship. That friendship is intertwined with our business and we sleep well at night, knowing our products are secret and safe.