September 22, 2023

Because the China-US geopolitical setting continues be problematic, our shoppers and potential shoppers have pivoted from three way partnership relationships to distribution and related licensing-type relationships. This isn’t a one-sided development. We’re seeing a rise in these distributor relationships going each into China and out of China.

From the questions we obtain, we see that each Chinese language and US firms are conscious of the dangers of each nations greater than previously. That is additionally true for firms from nations which have taken concrete steps to ally themselves extra carefully with the US. On this weblog submit, I concentrate on US firms trying to develop into core distributors for Chinese language producers and types, however these rules could be prolonged to different jurisdictions.

What Language Ought to My Distribution Settlement Be In?

Whether or not a distribution settlement will likely be negotiated, drafted, and executed totally in English or Chinese language will largely rely upon the events concerned. That call at all times hinges on the relative negotiating clout of the events. That negotiation clout, in flip, usually relies on which occasion wants the deal extra. Within the present enterprise setting, Chinese manufacturers are hurting, however so are distributors trying to promote into nations the place inflation continues to be a significant concern for customers. You shouldn’t essentially draw back from a Chinese language-language settlement or conclude that you just received the negotiations as a result of the settlement’s official language is English.

Which Nation’s Legal guidelines Ought to Govern My Distribution Settlement, and How Ought to We Resolve Disputes?

After contemplating the language of selection, you must take into account the governing legislation and dispute decision provisions of the settlement. The appropriate selections right here hinge on which occasion will more than likely breach the settlement.

Chances are you’ll assume that my shoppers are much less prone to breach than their Chinese language counterparts, however that’s not at all times the case. We work with many small and medium-sized firms who’re making an attempt to construct or preserve their market share, usually within the face of stiff Chinese language competitors that’s utilizing unfair commerce practices, together with authorities subsidies.

In conditions the place my consumer is extra prone to breach the settlement, I need to place as many roadblocks to enforcement as attainable. These will present my consumer further time and in addition lower the probability that the Chinese language occasion will muster and preserve the monetary sources and willpower to implement the contract towards my consumer.

In that occasion, I’ll push to have Chinese language because the governing language of the contract and contract enforcement in China the place my consumer has minimal or no property and no plans to journey to China of their lifetime. However when the Chinese language counterparty is extra prone to breach the distributor settlement, I need Chinese language language, Chinese language legal guidelines, and Chinese language courts concerned, to place the enforcement level as near the Chinese language aspect’s asset base as attainable.

Arbitration is a faster and extra dependable dispute decision useful resource and is sensible the place neither occasion needs to offer the opposite a possible benefit. Many Chinese language firms view Singapore as a positive impartial arbitration location, and they’re going to usually counsel that forward of any US location or a extra impartial location like Vancouver or London.

How one can Negotiate Distributor Agreements with Chinese language Corporations: A Case Examine

Negotiation with Chinese language firms is never simple. It could really feel simple on the outset, and you might really feel like you could have been irrevocably welcomed into their interior circle, however that’s only the start. There will likely be a number of rounds of negotiations and edits to paperwork, even after you are feeling that you’ve settled a specific situation, and generally even after signing your agreements.

Under is an excerpt of an e-mail I despatched to a consumer throughout negotiations with a Chinese language producer to attempt to set up an unique US distributor relationship:

Despite the fact that one of these back-and-forth, lost-in-translation transactional relationship is irritating, I feel we’re getting extra certainty about how China Co views its US alternatives.

 We all know that their final aim is to make as a lot cash within the US market as they will. Like mainly all Chinese language producers, they don’t care about US (or Chinese language) legal guidelines or rules. In addition they don’t care about your relationship with them or their relationship with some other potential US distributor besides as a method to promote extra merchandise.

 They’ve zero motivation to vary their present shotgun method of making an attempt to fill the US with wholesalers who will simply resell the product for them. They don’t need to put themselves within the authorized crosshairs when their different unwitting US distributors will accomplish that.

 I imagine they aren’t skilled sufficient with the US market to grasp the troublesome place they’re placing you in. And so long as they’ve consumers for his or her merchandise (both you or another person), they received’t care sufficient to reassess their US technique.

 Your solely viable path ahead is to persuade them that they may make more cash with you than with out you and that you’re the precise associate to put money into for a long-term relationship. I feel that the steps you could have taken this far have been good, even when China Co doesn’t absolutely perceive what you might be providing to them.

 China Co doesn’t respect the chance that you’re taking up by turning into the importer of document and that their merchandise may simply be saved out of the US market in the event that they get flagged as problematic. However your engagement with them on the upcoming commerce present ought to proceed to construct goodwill to ultimately persuade them that try to be their main US distributor.

 From China Co’s e-mail, it feels like both they’ve a normal distributor settlement they use with their distributors or they’ve a major variety of necessities they impose on their distributors via different means. Both method, I don’t see a draw back to you asking them for clarification on these factors and affirming that you just favor a extra structured relationship to a free one. They could simply be ready so that you can put your cash the place your mouth is by putting some huge orders first.

 The truth that they didn’t redline this contract we proposed signifies to me that they in all probability aren’t used to working with legal professionals, interval. And we are able to additionally safely assume that they aren’t used to working with refined and bold US firms who need to develop a deeper working relationship past simply reselling merchandise.

 For those who assume it will be useful, both I or my native Chinese language colleague Emily Chen (or each) may get on a name to debate this with you and them in each English and Chinese language.

The cross-border enterprise setting continues to vary away from joint ventures towards relationships that may be extra simply established and disassembled. We are going to proceed to see this by way of distribution agreements and different artistic licensing preparations. These contours will range relying on whether or not the enterprise relationship revolves round items or providers and the place the proprietor, distributor, and sub-distributors sit.

What are you seeing in your trade?

For extra info, see:

Hong Kong Arbitration: Attorneys and Corporations Are Simply Saying No

How one can Safely Scale back Your China Product Costs As a result of NOW is the Time

The Uyghur Compelled Labor Prevention Act Places Your China Imports in Hazard