Useful information

The explosive growth of online direct sales of products (non-food) from manufacturers or traders outside the EU to European consumers is still going on. Add the fact that not all such products are compliant with EU safety regulations (to say the least). Therefore, it was only a matter of time for the EU to implement regulation to improve consumer protection.

Much of this, including a modernized definition of the terms "producer" and "product", has been embedded in the new Eurpean General Product Safety Regulation (GPRS).

One specific aspect is that a "Responsible Person" inside the EU/EEA territory must be appointed before a product from outside the EU can enter into the European consumer market. This party is basically responsible for all matters regarding product safety, compliance of the product with all European laws and regulations, but also for carrying out corrective actions such as a product recall.

Consumers and product safety authorities must be able to identify this Responsible Person in a glance, and how to make contact. Hence, the Responsible Person must be identified on the product and/or the packaging. 

If the supply chain by itself does not naturally contain such a party, such as an importer, wholesaler or distributor, then someone else must be appointed especially for this role.

It seems like a golden opportunity for service providers who have the ability and resources to take on this role. But that is only the impression at first sight.

But what if a Responsible Person service provider is confronted with the obligation to carry out a full-blown product recall in several European countries? Will it have to pre-finance the costs of such a recall, which can run into the tens of millions Euro? Can it be sure that its principal (the non-European manufacturer, exporter or trader) will timely reimburse it for such outlays? And how can this risk for the service provider be mitigated?

And conversely: how can the foreign party, for example the manufacturer and brand owner, be sure that the Responsible Person service provider is capable - financially, in resources, in knowledge and experience - to initiate and carry out such a recall effectively and protect the reputation of the foreign principal and its brand?

These questions seem to signify a gap between Theory and Practice. Foreign companies that seek to appoint such a Responsible Person should exercise caution in the selection process of candidates, because if they mess up, the reputation of the brand and in fact their company can be damaged permanently.

And persons (natural ones or entities) that are interested to become one of these EU Responsible Persons, would be wise to very, very carefully think about the interaction and support of their client outside the EU, in order to be able to fullfil their role and survive the financial risks that come with it. Good contracts, and solutions to be certain about the financial back-up by the manufacturer or brand owner, are absolutely essential.

In the next few years, Practice (and not Theory) will show how this development has played out, and which are the most prevalent risk factors.

GPSR is an update and modernization of an older European directive. It presents a broader definition of “product” (for example: also intangibles such as software) and of the term “producer”. In essence, the “producer” is the party that is first responsible for consumer safety of the product that they place into the European stream of commerce. In today’s world, things like online sales, web-shops, non-European mega-platforms from which consumers can “self-import” items from outside, drop-shipping, second hand products and other upcoming phenomena had to be addressed. This has now been done, to ensure (or at least attempt so), that consumers will always find a party within Europe that is responsible and approachable in case of accidents, caused by defective products, or for initiating a product recall.  
 
Consequently, the term “producer” does not just mean a manufacturer, but may involve everyone downstream in the chain, starting with the party who first has put the product into the European stream of commerce. In other words: the party that imported the product into Europe. If that party is no longer there, or cannot or doesn’t respond, the next link downstream in the chain may be on the hook. In any event, no-one has to seek outside of Europe to seek redress, for example in China.  
That sounds great, theoretically. But practice will have to tell exactly what it will bring for consumers, producers, importers and the many “hybrid” chains in the delivery route from point of entry in the EU to the end consumer. 

The problem with perceptions and bias is not only that they lead to generalization but also that they don’t tend to move along with shifting realities. To make it even more complex: perceptions and biases are not just inside the minds of individual consumers, but also have an influence on how legislators and authorities put their focus. Since the first half of 2025 this needs no further clarification. 
 
In order to be less vulnerable to this effect, there is work to do. As an example, product safety authorities in many European countries appreciate that companies show active interest in regulations and compliance by attending their presentations for businesses, or to reach out to them with questions about the interpretation of certain regulations in practice. It may earn you credits; not that they apply rules to you more flexible than on others, but communication and mutual understanding in case of a real problem becomes easier and more constructive if you have a decent record with them. 
 
In a broader sense, understanding local perceptions, attitudes, typical reactions in case of a product issue, and the approach that “the public” expects from you is a good and almost certainly time and cost saving investment. Talk with people from practice. Visit events and informative presentations for local or regional businesses. Aligning your local risk management efforts with how your sales and marketing teams familiarize themselves with the foreign marketplace, may pay off in more than one way and save costs.  

Since decades, national industry standards for products and work processes in the (now) 27 + 4 countries have been harmonized, usually into European industry standards. This may increase the regulatory and financial impact if something goes wrong, but at the same time it simplifies life for industries too. Let’s see if this is also true for supervising and enforcement. 
 
Most supervising agencies have in common that they work together on European level through intra-European information platforms. If one of the national agencies imposes a corrective action (such as a recall), this decision will almost always be taken over by the peer organizations in other European countries. It is certainly recommended for businesses from outside Europe to get familiar with institutions such as EFSA and Safety Gate or, in case of special product categories, the applicable regulatory framework. This is an essential element in building up preparedness for incidents, and thus resilience.  
 
There is also a soft factor, which may not be the same everywhere outside of Europe: a level of  consensus that knowing how to manage a crisis from day one, and openly communicating what you plan to do, helps in protecting reputations, with consumers and investors. Aggressive defense against agencies imposing a  corrective action (i.e. a recall), and resisting to do so voluntarily, may be seen as “strength” by investors in some parts of the world, but usually not so in Europe.  
 
The financial damage on the long term, resulting from allegations of trying to cover up something (true or not), can be catastrophic, adding up to multiple times the cost of a proactively initiated product recall. But only if this takes place with an effective plan. And watch out: many factors can make a recall plan useless, if it is too strict, too theoretical, outdated, or not regularly practice-tested by simulation. 
 
   
 
Although every situation is different and must be judged on its own merits, foreign (parent) companies and investment firms controlling businesses or selling products in Europe may benefit from keeping this in mind.  

New start-ups are typically buzzing with enthusiasm, drive, energy and out-of-the-box creativity. Everybody is focused on how to get this going and to make it a success. Positivism all over the place. Not really the time for thinking what to do if something goes seriously wrong with a new product. 
 
Yet, every manager will understand somewhere in the back of his/her mind, that it will be necessary to develop some sort of contingency plan. Also, if you are a not-so-new start-up, the same advice mentioned above would apply. Familiarize yourself with how things work in such an unhappy case. Not in general, not based on practices in home-office country, but here, in your new market.  
 
Get it done. Plan a day with all disciplines that might be involved (from purchasing to sales, from production to R&D, from quality assurance to logistics, from work floor via legal to top management. Think and speak freely of scenario’s that you normally don’t want to hear about. Make a plan and test it by simulating practice. Have it, maintain it, improve it and make sure everybody who needs to know it, does actually know it. And nominate a few top people as the first response team, in case you get that big liability claim, or if authorities tell you to recall a product. 
 
New acquisitions normally have been vetted through and through during the due diligence process. Usually this is a very finance-driven exercise, and that is quite understandable. The new investor needs to know if the acquisition is worth its price and has the potential to become very profitable. You don’t want snakes in the grass and skeletons falling out of the cupboard.  
 
I will describe a few scenarios, dramatized, anonymous and with facts changed for the sake of anonymity. Inspired by combined scenarios from practice. Cases where a risk or an existing problem was never identified (or looked at too naively) during the due diligence process. I hope these examples will make my point. 
 

• Let’s imagine an industry of sports articles taking over an existing company in Europe. The parent company may itself have very mature, well-thought recall-plans that have proven themselves in practice, and even gained them appreciation from the supervising authorities. Because of the expedience and effectiveness with which they could act in a case in the past.  
  Now the new acquisition is on board, with its own history. Promising, financially sound, but did anyone ask about existing recall plans? No, but if they did, the answer might have been: “not yet”. (It wouldn’t have been a big deal, because the parent company has its proven recall plan.)  
  And in the first year after take-over, did anyone ever take the trouble to inform the management of the new daughter company about the recall plan? Were they given the chance to become part of the regular simulation-testing? No! Well, let’s say: not yet. So, they know nothing about it. As far as they know, there is no plan.  
  Then, on an unfortunate day after the take-over (or even worse: starting already before the take-over) comes some Central-European product safety watchdog, with a whole bundle of pretty alarming consumer reports about an unsafe product from this new daughter.  
  First of all: will the management of the new daughter company have the guts to immediately come clean with its new parent? For example if they got a complaint already, but didn’t take it seriously at the first notification? Possibly not. And if not, when will they finally come out? 
  It does not take much imagination to see that the chaos may be complete. In no time the parent company has to take over the whole problem and put its existing recall-plan at work. Except: it was never written for the situation and the downstream dealership chain of the new daughter company. All of this needs to be fixed first, with the safety authorities and media banging on the door. 
   
  Mergers and acquisitions quite often come with management replacement, sometimes all key people in the company that has been taken over. Management replacement may be a rush job, to be completed in a short time. The risk exists that not all existing issues, files, problems, threats and procedures (including contingency plans) can be thoroughly discussed between old and new management in such a short time, not even talking about disgruntlement. 
  Therefore, nobody may be aware of, let alone familiar with, existing plans and procedures, either on parent or on daughter company level. Let’s go back to the previous hypothetical case, but we add a new element.  
   
• Same scenario as above, but in the meantime the parent company itself has been part of a hostile take-over by a foreign venture capital investment group. That group, by itself, has no affiliation with the industry, the product or the market in which the parent and the new daughter company operate. The new financial group, owning both companies, has replaced the entire management of the parent company. 
  So, now there is nobody at management level in the new daughter company, nor in the parent company, nor within the investment firm, who knows about this existing recall-plan. It sits somewhere in a file cabinet or as one of the many files in the old administration system.  
  Adding further drama to this purely hypothetical case, the investors behind the venture capital group have a different view on first reactions towards authorities, that try to “shove an obligation to recall products down their throats”. They resist, if needed all the way to the supreme court, because that is how it works in some other places in the world. A voluntary recall “looks weak”, it will cost a lot of money, and that was not the idea with the new take-over. They have very good lawyers, so let them deal with it! 
  Well, it is quite thinkable that this is not going to end very happily, for some of the individuals involved….  
   
  Bottom line is that preparedness is a key element of the value of a company. It is an essential quality to protect the integrity and reputation of products, management and in fact the existence and viability of an entity.  
   
  In case of merger or acquisition, the buying company or the external consultant(s) involved in due diligence might – among others – especially want to  look at: 
  
  
• The level of preparedness in terms of business culture, existing contingency plans, familiarity with those in management who need to know, the frequency of practice testing these, and previous use of these; 
• The immediate availability of such plans for new management, others who will be involved in product related crisis situations, including those in the newly acquired companies 
  
  
• The possibility and expected difficulties in synchronizing  plans, if both the party being taken over and the new owner or parent company have these; 
  
  
• Existing cases anywhere known in the intended daughter company or immediate risk of new cases emerging; including impact analysis on financial and reputational level.  
  
  Additionally, in any situation of management change/replacement, these kind of plans should be on the top list of what has to be carried over to new management in a seamless way. New management may want to adapt or improve these, but should be aware of the existence of these from day one. 
   
  All that has been written above had to do with the risk of not knowing about existing issues and/or procedures, and what that may lead to. The question whether the opposite (i.e. overreporting or overstating) is a similar risk is quite valid. Although naturally it puts a lesser risk to the consumer. One might see it as the risk of buying a leaking balloon. The one going to be hurt would usually be the investor that takes over another business with its books of outstanding liabilities and collectible claims. Here is an example, also hypothetical and inspired by practice. 
   
• Let’s say the company involved is a producer of yoghurt in plastic cups, located in Greenland. It is part of a multinational group in Malta, and its product has rapidly become more popular. The cups are filled by a very advanced machine from  continental Europe. The machine has nozzles, which have to be replaced every month. If they don’t do that, too much ambient air may end up in the yoghurt causing shorter shelf life.  
  Then the Greenlandic company is taken over by another multinational with its head office in the Azores.  
  Before that acquisition happened, a thorough due diligence investigation had been done by a famous global accounting firm. One item on the list of obligations and claims had to do with a large production batch of yoghurt that had been blocked and discarded just before the acquisition. Wholesale value US$ 3 million. The case is on the list of claims, because apparently the manufacturer of the filling machine is held liable. A report says that the at one exchange, to replace the filling nozzles, they all had a sharp edge that caused leaks in the cover of the cups. There are also photo’s, but the machine manufacturer has not taken a position yet. An in-house legal has confirmed that the claim should have a 75% chance to succeed. For purpose of the due diligence report, the claim is valued at 2 million Euro.  
  Of course, once the acquisition is completed, the new owner in the Azores instructs the new local management to proceed on the claim against the machine manufacturer.  
  The machine manufacturer sends a team to a different client with the same type of machine, and for a whole day they try to simulate and reproduce the alleged problem. They can’t, it is simply impossible.  
  A few weeks later, they discover by coincidence that exactly in the month of the failed production, the Greenlandic company had not ordered any replacement nozzles at all. This triggers a big red flag, because for almost every complicated machine, there are imitation parts on the market, usually much cheaper than the original parts.  
  Just to try it out, the machine manufacturer has somebody go into a famous Chinese sales platform to order similar imitation nozzles from three Asian companies.  
  When the first delivery of imitation nozzles comes in, it is already “Bingo”. They inform the Azores owner of the company that they sympathize with the loss of so much production. However, they tell the owner, that the nozzles that are blamed for the problem must have been cheap imitations from Asia, for which they now have reasonable proof. Hence they deny all responsibility and will pay nothing.  
  Instead, they recommend the Azores company to do in-house investigation into the practices of the purchasing department in Greenland, before the take-over took place.  
  That’s it. End of story. A deflating balloon. A two million dollar claim gone up into thin air. The machine manufacturer never hears a single word about the claim anymore. The next month, a new order for replacement nozzles comes in from Greenland, as if nothing ever happened. 
   
  Morale of this story: accountant firms usually dispatch top people in business assignments like M&A. Big numbers, trends, future looks, not really an activity where you focus on something as little and trivial like a couple of nozzles, costing a few dollar each.  
   
  In theory such things don’t happen. Not to save on such cheap parts, and not in a place like Greenland. But sometimes it makes sense, also for top financial specialists, to seek for some practice experience in things that – on the surface – are too simple and too futile to be worth looking at.