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Doing Business In China Requires Patience. Don’t Just Be Leaving On That China Jet Plane.

Posted in Legal News

Twice in the last week, Chinese companies have sought to subject clients of my law firm to one of the classic international business tricks: changing the deal right before an in-person overseas signing.

This trick typically goes like this:

  1. You [the foreign company] agree to the general terms of a deal with your Chinese counterpart.
  2. You schedule your China flight to sign the deal and celebrate your new relationship.
  3. You arrive in China for the signing and only upon arrival do you learn that the contract you are to sign is very different from the contract to which you previously agreed.

There was a slight variation from the above with our two clients because we had insisted on receiving the contract in sufficient time to review it before anyone was to get on any jet plane.  We had made very clear we would need to get the contract back at least two weeks before our clients’ scheduled departures or there would be no departures at all.  In both cases, we got the contract (which was nothing like that which had been tentatively agreed upon) only 2-3 days before departure.  In both cases, our clients chose to remain at home while re-negotiations proceed apace.

I think this trick is tried on Americans more than on those from other countries.  I think the Chinese (somewhat rightly) view Americans as “impatient.”  We Americans love thinking of ourselves in the following terms:

Heck. I like to think of myself in those ways and my own law firm’s philosophy, reflects this:

We have done this by developing close relationships with a worldwide network of key personnel, including government officials, consultants, expert witnesses, local legal counsel, critical to getting the job done for our clients.

We operate in the fast-paced international business world where we promise and deliver dynamic, results-oriented advice. Our solutions will put you ahead of your competitors. We are practical lawyers and problem solvers who take a “hands-on, get out from behind the desk” approach to solving client problems.

And do not think the world does not know this about we Americans. And do not think that this is not incorporated into just about every instance of American companies doing business in China.

The thinking in China seems to be that once the American comes to China “to do the deal,” he or she will be unwilling to return home empty handed and, instead, will end up signing something less favorable than previously China business counterpart will falsely entice you to China by promising to sign.  Nonetheless, in most instances your strategy should be not to get on the plane unless and until it is clear the right contract will be there for you when you land.

Doing business in China requires patience.

  • http://onemanbandwidth.com/wordpress l

    Sinophobes and critics of this culture and its sophistication have made it easy to believe that the Chinese are NEVER on time and slipshod about due diligence….
    Our unintentional ethnocentrism/plantation mentality mixed with our lack of good information gives the wily Chinese corporate liaison a chance to laugh all the way to the bank….
    Great post!

  • http://www.panasianbiz.com PanAsianBiz

    Why not sign a tentative contract before going that allows for deviation only within prescribed parameters. In other words, a deal will be struck, but not without giving up more than a certain amount or gaining a certain amount?

  • http://www.chinalawblog.com China Law Blog

    Lonnie (OMB) –
    Thanks for checking in. But as you sports psychologists know, one should never underestimate an opponent. Actually, I do think that applies to both business and law. Underestimating is just an excuse for one’s one lack of care and preparation.

  • http://www.chinalawblog.com China Law Blog

    PanAsianBiz (BB) –
    Thanks for checking in. Actually, in one of the examples I gave, there was a signed Memorandum of Understanding and we were essentially asking that become the contract. Then, we got an essentially brand new contract at the 11th hour.

  • http://www.angelfire.com/ky/kentuckydan/CommitteesofCorrespondence Dan Kauffman

    Thanks for the link, but you tracked back to a general page rather than to a specific post.
    I will put up my usual Monday Open Trackback Post later tonight and put the link to this post on it.
    Time permitting I really should put up a special “Checkout this execent source for Asiatic Information”
    Post;-)

  • http://www.chinalawblog.com China Law Blog

    Mr. Kauffman –
    I checked and double checked and the link from here goes to your post, “I’m Leaving on a Jet Plane” and when I go to that post, it shows this post in the trackback section. Am I missing something. I certainly can always use the publicity, now more than ever as I am in second place in the Best Asian Blog award and I could really use some votes (actually some hundreds of votes). Seeing as how my having gone to Indiana Law School precluded me in the past from associating with anyone from Kentucky, I request you be my Kentucky campaign manager.
    BTW, I too am a Jacksonian — Scoop that is.

  • http://www.muschamp.ca Muskie

    Sadly this is very true, you don’t have to be an American to have this tried on you. You don’t even have to be a corporation. I know people who were set to teach at a Chinese university or school and when they went to sign the actual contract details were not as they expected them to be. This after flying to Singapore and back.

  • http://www.chinalawblog.com China Law Blog

    Muskie –
    Thanks for checking in. Very good point. I am aware of this happening countless times to ESL teachers in Korea, China and elsewhere, but I did not even think about that when I did this post. Glad you brought it up.

  • http://www.chinalawblog.com China Law Blog

    Adam –
    Thanks for checking in and thanks for sharing your experience. I think you are right.
    I have never encountered the exact sitatuation you describe, but I constantly encounter a similar one. The one I see is where the American company has paid $400,000 and received faulty goods and then asks the Chinese company for a refund. The Chinese company doesn’t have anywhere near $400,000 so it offers the American company a 5% discount off all future orders until the $400,000 is paid off. Never known an American company to take anyone up on this offer.

  • http://www.fromchinawithlove.ca Adam

    While slightly off topic, your comment about the thinking of Chinese business people is that once an American comes to do the deal, they will do it no matter what rings true with other aspects of business in China.
    I’ve heard and experienced this many times in the manufacturing industry. Many factories in China firmly believe that as long as the product leaves the warehouse, the factory will receive payment for the shipment, regardless of whether the shipment is rejected or not.
    In fact, one story I’ve heard of resulted in a vendor telling the factory they did not want the product because it was of such poor quality, and the factory said “if we don’t get payment, next time we will charge a 25% service charge” — completely ignoring the fact that the vendor never wanted to do business with this factory again!
    This seems to be a common disjoint in thinking between Chinese business people and Western business people. While a Western business person would never accept a shipment that was faulty, let alone pay for the shipment, and would never sign a contract that they did not agree with, Chinese business people think that Westerners will accept whatever they receive, partially because Westerners are so desperate to get into China.

  • http://www.chinalawblog.com/2007/03/how_to_handle_china_manufactur.html China Law Blog

    How To Handle China Manufacturing: Negotiations, Strategies, And Experiences

    Excellent advice on how to deal with Chinese manufacturers in a post over at the Silk Road International Blog, entitled, Negotiations, Strategies and Experiences. The key word is experience and David Dayton, the writer of this post, has loads of that. …

  • Bert Felt

    Makes me laugh a bit.
    Dan is right.
    But this is not the only trick in the book. Anyone remember the old western films where the salesman sells vacuum cleaners in a town with no electricity by offering a few drinks to the shopkeeper, or the 1930 second hand car salesman, or has anyone tried to buy a second hand car recently. What about the “fine print”? What about the drinking bash the night before the signing, and then a new fresh team of more “senior” managers announce the need for some renegotiations the next morning? What about the “cultural” difference, same sentence means different things to the parties.
    Some 30 years ago I witnessed a young guy who came to Japan to work for a local company there. He had his signed employment contract with him. The Japanese manager asked to view the contract, took it and boldly crossed out several paragraphs in the employee’s contract with the comment. “Sorry – we have made some changes. These paragraphs are no longer valid.”
    Whatever you do, make use of someone experienced.
    All the best
    Bert
    Bert Felt
    Email: bert.felt@merkina.com
    Skype: kiwino1

  • http://www.chinalawblog.com China Law Blog

    Mr. Felt –
    Thanks for checking in. You are right that this is not the only trick in the book. Not even close. As for the drinking bash (and all that goes with it), I have a U.S. based client that will hire only women to go to China because too many of the men he has sent over have, by compromising themselves, compromised the best interests of the company. As a lawyer, I am not recommending companies do this, I am just mentioning it to show the extent to which the drinking bash can cause company problems.

  • regulatorr

    Looks perfectly straight to me. Of course, I’m also the type of person who allegedly [ahem! allegedly] agree with everything.