Many years ago, the Wall Street Journal did an article, Fifty Shades of Blue: Tar Heels Seek the Truest Hue, on how important “North Carolina blue” is for North Carolina fans. Don’t I know it. I know it because I talk about it in just about every talk I give on China manufacturing contracts and I thought about that just now after getting off the phone with a potential client who has what I call the North Carolina blue problem.
This company was calling because it had spent A LOT of money buying what it thought would be a 6 inch product, but upon delivery is a 6.25 inch product. A quarter of an inch you say? Well this quarter of an inch just reduced the value of this product (it’s actually more a component than a product) from about a million dollars to scrap value of at most $25,000. NOTE that I greatly modified all of this information from this new caller so as not to reveal anything about it.
First though, I cannot resist telling (retelling actually) my North Carolina blue story. That matter involved a North Carolina (NC) company that called us wanting our international litigators to sue a Chinese company that had provided the NC company with “bad” shirts. The NC company had sent a sample shirt to a Chinese manufacturer for color matching and the Chinese manufacturer in turn sent the NC company a sample shirt back to the NC company. Based on the high quality color matching of the Chinese manufacturer’s sample, the NC company ordered nearly a million dollars worth of North Carolina blue shirts.
One problem. The shirts that arrived, though blue, were not North Carolina blue. And as every reader of the above Wall Street Journal now knows and as every college basketball fan already knew, the University of North Carolina has its own specific shade of blue. And for reasons normal human beings cannot fathom, there are a horde of people who want only that North Carolina blue color in their jerseys and there is no way those people are going to buy an ordinary blue jersey. All of this meant that instead of this NC company being able to sell its jerseys for maybe $30, it would maybe be able to get $3 a shirt. The NC company had obviously suffered major damages.
We turned down the North Carolina case because we did not want it on a contingency fee basis, nor did we want to charge our hourly rates on a case we did not think could be won. We did not like this case because generally if you are in front of a Chinese court and something is not specifically in your Manufacturing Agreement, in Chinese, and sealed/chopped you are going to have problems. This NC company had only some English-language emails saying it wanted the shirts to be like “the sample.” What sample?
Yes, this North Carolina company could have sued its Chinese manufacturer in a U.S. court and won. However, because China rarely enforces U.S. judgments, and because the Chinese manufacturer did not have any U.S. assets, the U.S. judgment probably would have been worth less than one of the wrong color shirts the NC company received. Yes, the NC company was stuck, out nearly a million dollars over a few shades of blue.
This new phone caller is better positioned to pursue its Chinese manufacturer based on its emails, and yet it would be way better positioned if it had a manufacturing contract in Chinese, and not just a bunch of English language emails and a purchase order.
What’s the moral of the above stories?
One, be super clear about what you are ordering from your Chinese manufacturers. Two, use an effective and China appropriate manufacturing agreement that either sets out with massive specificity exactly what you will be ordering. Three, get that China manufacturing agreement signed and sealed/chopped by your Chinese manufacture. These three things do not guarantee you will have recourse against your Chinese manufacturer, but they sure do greatly increase your odds.