Welcome everyone to another edition of my China Tech Law Newsletter. A short post today. Lately I’ve been finding myself doing more and more Asia wide licensing or other commercial deals, where the China market is key but not the sole consideration. This is part of a bigger trend I see for professional advisors with China experience. A lot of friends these days who have worked in China for decades have taken that experience and also applied it to other developing markets.
For example, in the world of startups where I am also an advisor to a China-based fund that invests in emerging market startups, the business models and technical competences that Chinese firms drove to new heights, particularly in e-commerce + services, have for several years now been the benchmark for startups across Southeast Asia and Latin America (and even North America to some extent) to try to replicate. Where certain Chinese companies’ innovations are best in class - Tencent (Wechat), Alibaba (Ant Financial especially before regulation stepped up), JD.com (smart logistics), SF Express (smart last mile delivery), Meituan-Dianping (the super-app for ordering everything on demand), Bytedance (recommendation algorithms), Pinduoduo (group discount shopping), Shein (fast, customized fashion), Red (a female lifestyle social APP). Understanding how these models worked in China gives folks an advantage in spotting winners to invest in other emerging markets.
In the world of manufacturing and supply chain management, the experience of China is also incredibly helpful to figure out quality assurance, inventory management, customs navigation, and other logistics planning now faced in Southeast Asia as global companies try to diversify sourcing.
So it should come as no surprise that for advising on legal issues in commercial agreements, the China experience transfers over quite well in dealing with issues in other emerging markets:
IP risk – Local patent registration is something that is still key for direct enforcement of rights in China or [insert other emerging market here]. In case you need to get an injunction to stop ongoing infringement. In case you need to get damages in country because the infringing party has limited assets outside of the infringing party’s home market. Making sure in the contract that you own improvements made to the products by your partner.
Contract enforcement – Choosing arbitration or local courts (see earlier post here), choosing in country or out of country dispute resolution. These issues apply to other markets in Asia as well.
Local Language - The importance of having local language contracts for registration - to remit funds, per regulatory requirements, or simply as a means of enforcement to show the other party understood its obligations clearly.
Vetting partners – Spotting red flags in finding reliable distributors, contract manufacturers, or other partners, and then doing due diligence backed by meaningful representations and warranties in the commercial agreement can be a similar challenge.
Tax Awareness - Withholding taxes(e.g. for royalties) or value-added tax (for exports) and shifting or reducing overall tax burdens among the parties is an important consideration as well as customs duties (as applicable).
Payment terms – Building in protections against insufficient quantities, late, or defective product.
Finally, there are just for lack of better way to put, certain instincts you get in working in a country for decades that is going through rapid social and economic change, where laws are constantly evolving to try to keep up with that change, and how that effects how local and international companies do business there.
OK that’s it for a short post today. I’ll keep trying to share what I’m seeing in my daily work, and if there are topics you’d like covered here, please feel free to reach out and suggest!
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*This blog may be considered attorney advertising. It is for informational purposes only and does not constitute legal advice.