Case 4.1.

Negotiating in China: “Bilingual Labels”


Canada’s largest importer of mobile phones and accessories, Nor-Phone Ltd. of Toronto, decided to start sourcing accessories in China. From an industry contact in Chicago Vice President Pete Martin learned about Ever Sharp, a large manufacturer in Shenzen specialized in supplying the U.S. market.

After months of email correspondence Pete flew to Guangzhou to finalize the purchase agreement for 10,000 accessory sets. Discussions with the Ever Sharp people proceeded amiably. Pete and the Chinese team needed a week of meetings to agree on specs, packing, delivery, price, payment terms and the other details of a large transaction.

Exhausted from these lengthy negotiations, Pete was really looking forward to the signing ceremony. At this point however Pete learned that Ever Sharp had not yet exported to Europe or Canada, and thus might not be familiar with Canada’s bilingual requirements. So he explained that all goods sold in Canada must have all product labels printed in both French and English.

This news caused the Chinese concern. They lacked French-language expertise and could only work with Chinese and English, but did not want to admit this to the buyer. So Managing Director Wang replied with a smile, “Mr. Martin, I am afraid that supplying labels in French and English will be a bit difficult. This question will require further study.”

Pete Martin politely repeated that bilingual French/English labels were required by Canadian import regulations. “Please understand that we really have no choice on this – it’s the law.”

Mr. Wang replied with a smile: “Mr. Martin, we will give your request serious consideration. It will be quite difficult. We will do our best to solve the problem.” Relieved to have settled this final detail, Pete signed the contract and said his formal goodbyes to Mr. Wang and his team.

Three months later Pete got a call from the quality-control chief at Nor-Phone’s warehouse. “Mr. Martin, we have a problem. You know those 10,000 sets that just came in from China? Well, they’ve got bilingual labels all right – but they are in English and Chinese!”

* * * * *
Pete Martin was stunned. Obviously Nor-Phone’s local quality-control service in Shenzen had missed this very important detail in their pre-shipment inspection. But still, Ever Sharp had agreed to supply the sets with labels in French and English, right?

How would you explain to Pete why that did not happen?


Case 4.1.

Negotiating in China: “Bilingual Labels”

Solution and Discussion

This was Pete Martin’s first visit to China. He had obviously not learned that Chinese business people tend to use indirect, vague language to avoid losing face or disappointing a customer. That’s why he was unaware that Mr. Wang’s replies were actually various ways of saying “No, aren’t able to make labels in French and English.” Had Pete understood Mr. Wang’s high-context language he could have easily solved the problem by either providing Ever Sharp with the French-language text or by producing the labels in Toronto and shipping them to Shenzen.

It is not clear from the text whether the purchase contract included a clause requiring bilateral French-English product labels. If it did not, that was another mistake by Pete Martin. However, even if labeling clause was included, Nor-Phone should still have arranged for professional inspection during production, which would have revealed the incorrect labels in plenty of time to solve the problem. They did arrange for a local (Chinese) company to do a pre-shipment inspection, but the inspectors apparently were either incompetent or were bribed to release faulty merchandise. The failure to have the goods properly checked by a reputable organization was still another mistake by the Canadian buyer.

Taken together, these mistakes caused Nor-Phone a major financial loss. Since the accessories could not be legally sold in Canada with English-Chinese labels they had to be unpacked, laboriously re-labeled and then repacked – all at high North American labor rates. Because payment had been made by letter of credit upon shipment from China weeks before the shirts landed in Canada, N-P had no recourse. A claim against a Chinese seller in such a situation is most unlikely to be honored – especially if the English-French label clause was missing from the contract.