The Importance of Contracts When Doing Business in China
Some companies doing business in China don’t believe that there is a need for contracts with their counterparts. Some will say that the Chinese won’t follow the contract terms anyway, while others insist it would be futile to try and enforce them in Chinese courts.
However, there are some very good reasons to draw up contracts with those you are doing business in China and here are some of the top ones.
Doing business in China can be a difficult task for various reasons. First of all, there is a language barrier that is a constant struggle. Also, the Chinese see business differently than most western countries so problems can arise with misunderstandings in management, supply, manufacturing and other areas if strict guidelines aren’t applied. Chinese partners have a habit of wagging their heads “yes” while not delivering on what was discussed.
A contract provides clarity on what it is exactly that you want accomplished. It is especially beneficial to have penalty clauses listed should various goals not be met. The possibility of losing money over irresponsible decisions makes for good motivation to do things right.
Add such issues in your contract as shipment dates, quality expectations, and other important items that want fulfilled. Don’t rely on assumptions when doing business in China or you could run into multiple problems.
A contract also provides very straightforward guidelines as to what is expected. This leaves little doubt as to what must be accomplished in order to comply. The contract should be written in Chinese to ensure there is complete understanding on their part.
Strict provisions set up in contracts provided to the partners that you’re doing business in China with also gives you clout when the company is pressured to produce large quantities from numerous other partners. If they have a contract from your company that explains the consequences of not providing shipments on time, for example, they will work harder to fulfill your order first and push to the back of the pack the companies without contracts.
A contract also provides the power of enforcement. Although there is a common belief that contracts for doing business in China cannot be enforced in the country, the truth is that China is ranked 16th out of 183 countries for successfully enforcing them. That is a very good track record of enforcement.
Besides, businessmen in China are prone to comply with contracts rather than face the possibility of being sued and having the courts rule against them. The Chinese do not like the thought of dealing with the government. This alone gives you more control of the items outlined in your contract.
The bottom line is that it is well worth the effort to draw up a contract (in Chinese) between your company and those with whom you are doing business in China. The amount of preparation, negotiation and even enforcement of contracts will save you a great deal of time, money and headaches that are more apt to surface without them.