Dealing with business issues: Domestic vs a China-based lawyer (1)

Many of us are lucky enough to have engaged great lawyers back home who have successfully guided our domestic businesses over the years. But now that you are going global, are you sure your domestic lawyer has the China chops to guide your international business as well? 

Obviously, doing business in China is radically different from conducting business in your home country. To illustrate that point, in this two-part blog post we’ll offer an inside look at some “China issues” that hometown lawyers often get wrong.  A professional, experienced China-based lawyer will understand in great detail each of the points below. But the typical hometown lawyer, and maybe a few readers, will be left with your head’s spinning after reading this blog post. You have been warned….

Issue 1 – Q: Why does my Chinese supplier keep shipping me defective merchandise?

Domestic lawyer’s (wrong) answer:  “Chinese suppliers are bad, they don’t care about quality, find a new supplier.”

Experienced China lawyer’s explanation:

Because the margins are tight, the seller wants to lock in the buyer for multiple orders. But the buyer won’t promise to place additional orders until the first order arrives. Sadly, too many buyers forgot to have clear terms in the PO/Contract about how defects will be handled. Sellers can exploit this to their advantage in the following way:

When the seller ships out the order, the seller “makes an error” and under-ships the number of units and/or they make sure a certain percentage are defects (on purpose).

Since the novice buyer didn’t have a contract that would clarify what happens in the event of defects or under-shipment, the seller is now in the driver’s seat. Mr. Li will say “sorry for the defects, it was a mistake, won’t happen again, we’ll give you replacement products on the next order”. Just like that, Mr. Li has his buyer locked in for the next order!

It’s easy to avoid this kind of drama. Here is how:

• Have a well written,bi-lingual contract, under official chop. A custom contract can be done up by an English speaking Chinese lawyer for just a few 100 USD.

So in my opinion, a buyer is just plain crazy to skip this important step.

• Apply a level of independent QC at the factory or consider having the product inspected 100% at an assembly/inspection facility.

More on contracts, payments and purchase orders here!

That clears up the first issue! Next week we will take a look at another (wrong) answer that a domestic lawyer may give about coverage for liability in China.