Shipping Solutions Newsletter

Everyone is talking about the People’s Republic of China (PRC or China), and not just because the country is hosting the next Olympic Games. Today China stands tall as a one of the fastest growing economies in the world. In the last three decades, as per the latest figures, China’s economy grew by 10.6%. The Chinese economy has gone from being a lumbering agrarian economy 25 years ago to a rapidly developing economy today. China-based factories make 70% of the world toys, 60% of world’s bicycles, 50% of world’s shoes, and 33% of world’s luggage.

In this first part of the article, I will discuss the miracle of China’s economic growth and what multinational corporations have done to succeed—and fail—in the Chinese marketplace. In the second part of the article, I will address some of the challenges International marketers face in their efforts to win the hearts and minds of Chinese consumers and other stakeholders.

At the present time China’s economic growth is in the golden era with high growth and low inflation. China is now the third largest trading nation and one of the fastest growing markets for U.S. goods and services. China’s economic miracle can be attributed to soaring exports and huge investments in buildings and the requisite infrastructure. Foreign investment is flowing in; trade is rising, as are the real estate and stock prices. China has received the highest Foreign Direct Investment (FDI) in the world. FDI in China was $63 billion in 2006.

Between 1985 and 2003, China has consistently been the world’s fastest growing economy with an average growth rate of nine percent. Since its entry into the World Trade Organization in 2001, China has been seen in a new light, not just the world's center of low cost manufacturing, but also as a legitimate consumer market open for global business. Currently, about 80% of the world’s top 500 companies have invested in China.

The Chinese consumer market is growing by leaps and bounds as is evidenced by the sales record of many consumer durable products. According to The Economist magazine, car sales in China have risen by 30% over the last year. Sales of mobile phones and household electronics are up by 20% to 40%. Retail sales grew by 12.3% in real terms in 2006.

Already there are an estimated 300,000 Chinese with a net worth of $1 million USD or more, but it is not just millionaires who are on a buying spree. The China Branding Strategy Association claims that some 175 million Chinese can afford to buy luxury products. In a recent survey by the China Market Research Group, CMR, 60% of respondents claimed to have purchased luxury goods. A large majority of these (89%) luxury goods buyers were between the ages of 20 and 30 with assets less than $25,000 USD. Most foreign consumer companies decided to position their products at the top of China’s market pyramid.

With their vast capital, technology and product lines, early entrants into China were the well recognized brand name owners such as Coke, Pepsi and P&G. These global giants practically scooped up the market with the power of their marketing offenses and the acquisition of existing local leading brands. Gaining a dominant market share was relatively easy for these early adopters.

Some Western business leaders are moving into China without any clear knowledge of the many pitfalls they will encounter: the weak rule of law, forceful government intervention, a scarcity of managerial talent, the likelihood of counterfeiting, a fast-paced business environment and highly aggressive local competitors.

By Mary K. McCormick email | bio

In most standard sales of goods contracts, roughly the last third of the agreement consists of the most standard, little-noticed clauses known as “boilerplate.” These include clauses on subjects such as Assignment, Waiver, Notices and the like. In most negotiations, the parties spend little or no time focusing on or re-writing these clauses.

One of the typical boilerplate clauses is what is known as a “force majeure” clause. For sellers of goods, it pays to take some time to focus on the force majeure clause.

“Force majeure” is a French phrase meaning superior force or overwhelming circumstances. In common law countries like England and the U.S., it is more often referred to as “Acts of God.” I was once negotiating a joint venture agreement with some Bulgarians who objected to the use of the phrase “Acts of God” in the draft, since, as they pointed out, they were atheists. So we just changed it to “force majeure.” Legally, it’s the same thing.

A force majeure clause allows a party to suspend or terminate the performance of its obligations under a contract because of the occurrence of a force majeure event without being liable for a breach of the contract because of such non-performance. A typical list of force majeure events would include war, riots, fire, flood, hurricane, typhoon, earthquake, lightning, explosion, strikes, lockouts, slowdowns, prolonged shortage of energy supplies and acts of state or governmental action prohibiting or impeding any party from performing its respective obligations under the contract. So if, for example, a hurricane occurred that shut down a port, the seller planning to ship its goods through that port would not be liable for late delivery of the goods.

Force majeure is defined generally as any event or condition not existing as of the date of signature of the contract, not reasonably foreseeable as of such date, and not reasonably within the control of either party, which prevents, in whole or in significant part, the performance by one of the parties of its contractual obligations or which renders the performance of such obligations so difficult or costly as to make such performance commercially unreasonable.

Under most national laws, force majeure events must meet four criteria: (1) the event must be external to the contract and the parties; (2) the event must render the party’s performance radically different from what the parties originally contemplated; (3) the event must have been unforeseeable; and (4) the occurrence of the event must be beyond the control of the party seeking to use force majeure as an excuse for non-performance.

Since the payment of money by the buyer is almost never excused by the occurrence of force majeure events, it is the seller who should be most interested in having a good force majeure clause.

Some buyers will argue that strikes and lockouts and other labor disputes are not entirely unforeseeable or may be within the control of the seller, so that is often an area for negotiation.

If you or your company are a seller of goods, take a hard look at the force majeure clause in your standard sales terms. It should include language on a definition of force majeure events, what happens when an event occurs, who can suspend performance, and what happens if the force majeure event continues for more than a specified period of time. A good force majeure clause should be customized to fit the parties, the industry and type of goods, and the specific type of contract.

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