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Ethnic Profiling And China Business

By Dan Harris and Steve Dickinson

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?

Full post as published by China Law Blog on March 21, 2009 (boomark / email).