China’s Service Industry: Not for the Faint Hearted

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Steve Dickinson has a great post on China Law Blog on foreign companies providing services to Chinese firms. The advice is solid, at least in cases when the service company has sufficient leverage and/or is strong enough financially to turn away business. Here’s Steve’s major point:

U.S. consulting companies are increasingly selling their services in China.  This is part of the general trend towards sales into China that we have noted.  In confirmation of this trend, we have recently worked with several U.S. based consultants in selling their services into China. The approach taken by U.S. consultants is consistently naïve and almost guarantees problems in China.

[. . .]

The only way to prevent [payment disputes] from happening is to insist that no work begins until a substantial initial payment has been made.

What I find amusing about the discussion is that this general problem is something faced by lawyers every day, and not only when they deal with Chinese companies. For my law student readers, let this be a warning: this is the kind of industry for which you are preparing yourself.

With some exceptions, most clients do not value the work lawyers do, or at least they do not believe that the money lawyers charge is at all justifiable. Lawyers who do not come to terms with their clients upfront on fees are courting disaster and pretty much inviting a dispute when the project is over.

And for those lawyers out there who deal with new client SMEs or companies of any size from certain countries (I will avoid making a list here) and do not insist on a retainer payment upfront, I wish you luck. Try to ask for your costs upfront; in some cases, that’s the only payment you’ll ever get.

For those non-legal service companies that are running into trouble with receivables, you could do worse than asking a lawyer for advice before taking on that new China project. We’ve been there and unfortunately know all the pitfalls. By the way, we’re going to be asking you for a retainer.

2 responses on “China’s Service Industry: Not for the Faint Hearted

  1. Francisca

    What you write is not only true for legal services, Stan. I recently spent hours in discussion with a China state-run manufacturer “eager to expand into foreign markets,” they said. After laying out options and an outline for an action plan (enthusiastically received), we asked what their budget was for export market development. Er, nothing. They expected us to do all the marketing ground work for a minor commission after sales. We’ve heard the same story since 1985 – nothing has changed. Knowledge and skills in a service industry are simply not valued.