Ethnic Profiling And China Business
Make no mistake about it, even in these allegedly enlightened times, a whole lot of stereotyping and ethnic profiling goes on in international business. The other day, I was telling an American client how it was time for us to look start seizing assets of a Norwegian company that owed my client a lot of money and appeared to be making no effort to pay it. My client's explanation for not wanting to pursue litigation was that he has been dealing with Norwegians for twenty years and when they can pay, they always do: "I am not going seize assets from a Norwegian company."
In the last six months or so, I have started hearing a lot of wrong-headed ethnic profiling from Asian companies (mostly Korean and Chinese) who are telling me they always believed American companies always pay. Sadly, some of these companies literally built their businesses on this belief, not even imagining that things could be otherwise. Let me explain.
I met with a Chinese company owed mega-millions by a US company and its story, though sad, is surprisingly typical. This company makes one fairly expensive product. It started out mostly exporting this product to Korea, Vietnam and Thailand. Soon it realized it could sell this product for a tiny bit more to the United States. Soon it realized it could huge quantities of this product to one good-sized American company, that, in turn, would essentially distribute it through US retailers. Soon, this Chinese company pretty much ceased selling its product to anyone other than this one large US company. It still sold to Korean, Vietnamese and Thai companies that would place orders, but it completely ceased trying to expand its business in those countries.
Now the problem. The US company has owed the Chinese company mega-millions for months and yet still wants to buy more product on credit. The US company has a good reason for being unable to pay and there is the possibility it will at some point be able to do so. But, right now, this Chinese company is hurting so badly financially that it is questionable whether it will be able to stay in business. It is trying now to revive its sales channels to other companies in the United States and in Asia, but now is not exactly the best financial climate for capturing new customers.
When I asked them why they were coming to me so lot for ideas on how they could assure payment from this American company, their response was that "they never even imagined it would not pay: "We thought American companies always pay."
This company has export credit insurance from the Chinese export insurance company and there was a time where that government owned company paid fairly quickly on such claims. Now though, it is not paying, instead it is claiming it needs to try to collect the money from the American company first. I have dealt with these Chinese export insurance companies and seen them in action enough to be able to give the following advice to this Chinese company:
1. You might get paid by the American company in time to save your business if the money the American company is expecting comes in.
2. You might get paid by the American company in time to save your business if our suing it persuades it to pay you before its other creditors.
3. You almost certainly will not get paid in time to save your business if you wait for the China export insurance company to get paid by the American company and then pay you.
Things are tough out there. What are you seeing?
Comments
I think this is more of a recognition by Chinese business people that the U.S. follows rule of law.
In good times, rule of law is reliable. In bad times, it doesn't matter how willing U.S. companies are to pay their suppliers. When the cash isn't available, there's not much they can do short of liquidating the company.
When good times return, U.S. companies should be just as reliable as before, but Chinese companies will have realized just how vulnerable they are. Things will be different.
Posted by: G.E. Anderson | March 21, 2009 9:49 AM
Sounds like the Chinese company got caught up in the "face" of having an American company as its primary customer instead of the older Asian companies, who may still be paying their bills depending on their economics. I'll bet the American buyer's attorneys are betting the Chinese company will be too cheap with attorney fees to want to pay you to go after them.
Posted by: Greg | March 21, 2009 10:59 AM
At a more basic level: I took a Shanghai taxi the other day and the guy as soon as he sees me come in he hands over a bunch of old French ATM receipts and a 200EUR France Telecom phonecard. He goes:
-Can you tell me how much this is worth?
-Hard to say - I answer - you would need to go to France and stick the card into a phonebooth to see how much is left.
- To .. France?
- Yep, in China this is worth zero.
- But that drunken guy last night paid me with this!
- Sorry.
And he says to my Chinese friend:
- 原来老外也会骗人！ (So the foreigners can also cheat!)
It is these kind of things that make me like China so much. I kept the phone card and paid him the 2EUR due of that guys ride. Who knows, next summer when I go to France I might have earned 198EUR.
Posted by: Uln | March 21, 2009 11:10 AM
Things are definitely tough but, sadly, I don't think we're seeing the worst yet.
If a company owes you money you have to keep payments coming in, even if they're smaller payments than you want/need... you have to keep the money moving in the right direction otherwise you're very unlikely to see it.
Posted by: uk visa lawyer | March 21, 2009 12:44 PM
If this company had been owed such a large amount by a Chinese company, would they have pursued it at a quicker rate? Or perhaps, they wouldn't have let the outstanding debt grow so big?
One of the few case studies that I still remember from college was of the manufacturer that gets enamored of the deep pocketed, insatiable customer. Based on that one customer, they expand their current production capacity, or even build new facility's, and simultaneous let wither old relationships. Then, after awhile, deep-pockets demands a steep price reduction, or starts paying late, etc. What is the company to do, they've placed all their eggs in one basket?
It may be that this time, the company has fallen for an American suitor, but really, isn't this story played out again and again intra and inter nationally? In fact, I remember hearing about a pretty well-known company that makes pickles falling into the same trap (that's what it is) with the big W retailer. Yikes!
Posted by: anon | March 21, 2009 6:21 PM
And on that thought, I'm sure many a company in China used this assumption to bilk quite a few American companies...
Posted by: LoveChinaLongTime | March 21, 2009 9:14 PM
I have experienced a lot of skeptical Chinese factories in the past year when it comes to taking on new projects. I often don't even bother sharing clients future purchase plans or future PO quantities with factories anymore. I feel that some Chinese companies are getting worn-out from US PO's falling through or never materializing as "promised," even when no promise is intended. I personally agree with this type of attitude towards protecting against over-optimism, but like the blog post states, far too many Chinese companies have built their success on faith and optimism alone.
Posted by: Jason Barber | March 22, 2009 12:51 AM