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Successfully Avoiding and Handling Legal Disputes in China

September 13, 2009

Doing business in China is like doing business anywhere else in the world. There is a risk of non-payment, a risk of non-delivery, and a risk of being misled entirely. Even though risk exists, risk is simply a part of doing business and it must be dealt with intelligently. To be successful in doing international business, you must place a certain amount of trust in business partners, but the risk is always present and you need to be mindful of this fact.

So what do you do when you purchase something from China and find out that what you purchased is not what you really purchased? What do you do if a manufacturer steals your product designs and sells your product through other distribution channels, effectively robbing you of any potential profit? What do you when you send money to a company and never hear another word? Sadly, all of those things have happened to people doing business in China and, unfortunately, they come to Terrapane for help after the fact.

Of course, we are happy to help customers with issues like these in China, but really prefer to work with customers from the beginning to avoid these situations in the first place. Legal entanglements can be expensive and they are definitely best avoided. So, we thought we would share some advice to those who are looking to do business in China and who prefer to go at it alone, or those who have encountered problems and do not know what to do next.

The first rule of thumb is to never send a lot of money to China without some assurances that you will receive what you pay for. The definition of "a lot of money" really depends on you. If you do not want to risk losing it, do not send it carelessly. Even if you send money to what appears to be a manufacturer, it does not necessarily mean it is truly a manufacturer or that the manufacturer is honest. Until you establish a certain level of trust, exercise extreme caution.

When sending money to China, it is best to use a trusted third-party. Sometimes, Terrapane will hold payment for goods and release that payment only after we inspect the products ourselves. When going at it alone, you should consider getting a Letter of Credit (LC) from your bank, if the manufacturer will accept that. In any case, you really should seek the services of a trusted third party to ensure you do not get cheated.

When a company requests for you to send money for a product, they will produce a Pro Forma Invoice (PI). Never send money without one of those. Further, any such invoice should be stamped with the company's seal. If possible, request that they fax it, scan it, or mail it to you, so that you can clearly see the company's seal on the document.

When you do send money to China, make sure the beneficiary is a company, not an individual. Inside any company, there are sometimes unscrupulous individuals who will accept your money and then deny every having known you, quite often giving you instructions to wire money to a friend or associate. It may be difficult or impossible to show that the company is at fault if you carelessly send money.

As time goes on, you may start to build a trust relationship with your partner. Even still, you should exercise caution. We have seen cases where trusted partners turn into thieves and sometimes deploying rather elaborate webs of deception. Be very wary if your business partner suddenly requests that you send money differently than you had done previously, such as a change in the bank or beneficiary.

When you do encounter legal issues, be mindful that the legal solutions will cost you money. You will need to seek the services of a trusted attorney and, sadly, there are a lot of dishonest attorneys in China. In fact, some attorneys will accept your payment and also accept payment from the other party in the legal dispute! When we are hired to engage in legal disputes, we take extra precautions to make every effort to determine which side of the courtroom our client's attorney is truly representing by engaging directly in the attorney selection and sending staff to visit offices of prospective law firms.

Having said all of these things, this blog posting was not intended to scare you. More often than not, businesses in China are honest and you will get what you expect. Even still, it is prudent to be mindful of the fact that there are cases where the manufacturer misunderstood instructions, misrepresented the products they had to offer, or had employees who were deceptive. It is for these reasons that Terrapane takes care in selecting manufacturers, handling our customer's intellectual property, and dealing with financial transactions. We want our customers to have a good experience doing business with China.

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