Tuesday, October 29, 2013

China Revises its Consumer Protection Law

China recently made sweeping changes to its Consumer Protection law.  The changes mark the first time that the law was modified in two decades - brought on by what the Chinese government calls "changes in the makeup and challenges of the consumer sector."

According to an article by Reuters, the new laws “increase consumer powers, add rules for the booming internet shopping sector and stiffen punishments for businesses that mislead shoppers.”

The true purpose of the revisions, according to the article, is so that China can further move its economy away from one that is built on investment-driven growth, and transform it into one that’s led by domestic consumption.

Consumption contributed to just 45% of China’s economy during the beginning of 2013, which is down from about 60% during the same period last year.  The Chinese government hopes that these new law is going to allow consumers to purchase Chinese products with increased confidence.

The new revisions will also strengthen the role of the China Consumers' Association, which sometimes acts as a representative for plaintiffs in class action suits brought against retailers.

To read more, you can read the article from Reuters here: China Overhauls Consumer Protection Laws

Check out some related articles by IPG Legal here:
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team and Entertainment, Media and New Tech Law Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty.

He assists clients in their contentious, non-contentious and business developments needs in Korea and China.

Friday, October 25, 2013

Bo Xi Lai's Conviction Upheld: Life Sentence Still Stands

ABC News, and almost every other international news agency, has recently reported that former Chinese Communist Party Politburo member Bo Xi Lai has recently lost the appeal of his corruption conviction.  As a result, his life sentence stands.

Most commentators, IPG Legal included, seem to agree that the charges brought against Mr. Bo were politically-motivated and the entire legal system in China, particularly as it relates to cases that may seriously affect China’s political or economic system, is still in large part controlled by the Chinese Communist Party.

I have myself observed a Chinese criminal court try and convict a man who had no access to a lawyer.  The case involved a large company suing a private businessman for fraud.  Before issuing her final ruling on the case, the judge went into a backroom where she consulted with Communist Party officials on how the case should be concluded.  Unsurprisingly, the man was convicted, and even more unsurprisingly, the judge was quite frank about what she was doing in the backroom.

This was just one guy defrauding a mid-tier business... so, we can imagine what must be happening behind the scenes when something actually important comes along.

IPG Legal will keep you updated with more news about the case as it happens.  We don’t think we’ve seen the last of Mr. Bo just yet.

To learn more about the case and read the article from ABC News see:
China Court Upholds Bo Xi Lai Conviction, Life Term.
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info@ipglegal.com

Sunday, October 6, 2013

Sean Hayes will be Speaking at MIPCOM

MIPCOM promotional materials regarding Sean's speech:

As the popularity of second-screen apps and automated content recognition (ACR) grows, so do its legal and technical issues.  Do these apps have the rights to use content from television programs?  Who owns the digital fingerprints and who has the right to use them in conjunction with network programs?  Who owns the second-screen experience and the relationship with the viewer?  Our panel of experts will discuss the current law in the TV space and what the future holds.

All legal seminars organized with IAEL are eligible for accreditation for The England & Wales SRA, the Dutch Bar Association, and the New York and California Bar Associations.  To claim such points, fill out your attendance forms at the event!
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info@ipglegal.com

Monday, September 16, 2013

Chinese Set to Finally Assume Control of Gwadar, Pakistan Port

On August 20th, a Chinese delegation visited the port city of Gwadar, Pakistan.  The Chinese government has invested USD 250 million over the past decade to develop the port, which it will eventually control through a government consortium called the China Harbour Engineering Company. The port isn’t fully operational yet, but Chinese media's willingness to report on the issue may be a signal that the port may finally transfer to Chinese control soon.  Pakistan’s government has also publicly made it clear that it would like to hand control of the port over to China within one month.

The port is of extreme geographical significance to the Chinese, who have over the past ten years begun to flex their muscles and expand their influence far beyond their own borders.  China is developing ports throughout South Asia – something often referred to as China’s ‘String of Pearls.’ 

For example, in July of this year, China outbid India to secure the rights to upgrade Chahabar Port, which sits in southeastern Iran along the Strait of Hormuz.  And, in early August, Sri Lanka opened a Chinese-developed port at a total cost of USD 500 million.  In total, China operates 15 ports in foreign countries, with most of them in Southeast Asia.

Gwadar offers China a chance at quicker oil acquisition from countries exporting through the Persian Gulf.  China is the world’s largest consumer of Middle Eastern oil, meeting nearly 60% of its total energy needs from energy exports shipped through the Strait of Hormuz.  After clearing the Strait, the oil must then be shipped east through the Indian Ocean, then slowly ferried through the Strait of Malacca (the narrow coastal throughway between Malaysia and Indonesia).  Finally, it arrives at its destination through various ports in east China.  The oil’s journey, from start to finish, is long and, often, prohibitively expensive.

The port at Gwadar would also give China something it desperately needs – a viable energy conduit that is completely free from a potential American naval blockade.  Control of the port would allow the Chinese to ship their oil through the Strait of Hormuz into Gwadar, and then use overland transport to travel northeast through Pakistan.  Once at Islamabad, the route will then use the also-Chinese-developed Karakoram Highway, and travel through the K2 mountain range, the second highest in the world, which lies adjacent to the Himilayas.  From there, it will travel through the Pakistan-controlled Kashmir province of Gilgit-Baltistan, and will, finally, cross the Chinese border and be sent to Kashgar, a former Silk Road city located in western China’s Xinjiang Province.  China has recently spent upwards of USD 18 billion to further develop roads in Gilgit-Baltistan to facilitate this process, and Kashgar is regularly the recipient of Chinese infrastructure investment.  This all sounds good on paper, but the reality of transporting high profile soft targets, such as oil, through Pakistan is not as simple as our Chinese friends may think.

Gwadar sits in one of Pakistan’s most unstable provinces – Balochistan.  Balochis are a fiercely independent people who are ethnically related to the also-fiercely-independent Kurds.  Balochistan sees regular violence against representatives of the Pakistani government and foreigners (often Chinese).  Balochis have an extensive list of grievances against the Pakistani government and do not like being ruled from Islamabad.  Their situation has even attracted the attention of the U.S. Congress which, in light of China’s attempt to circumvent an American-dominated Pacific Ocean, considered a resolution in 2012 that was to suggest the funding of Balochi separatist groups.  News of the resolution led to protests in both China and Pakistan, with the usual complaint that the U.S. was interfering in each country's internal affairs.

China insists that there is no cause for alarm, and that their ‘String of Pearls’ is designed to support Chinese commercial interests, and nothing more.  They have, for some time, maintained the position that India and the United States are locked in a ‘Cold War mentality’ that sees Chinese overseas ports as playing a threatening host to the People’s Liberation Army Navy (PLAN), as opposed to friendly outposts that exist solely to import/export manufactured goods.  As we know, China, colonized in its past, increasingly plays the role of an international victim and regularly points its finger at Western countries for what it calls repeated attempts at limiting its outwardly-focused posture.

It’s anybody’s guess, at this point, as to China’s true intentions, but history has shown that great empires need not be built on military conquest alone.  The British Empire was founded almost entirely on the establishment of overseas commercial interests – only later, when those interests were threatened, did the soldiers come.  China is rising and, therefore, will begin to butt heads with those who have already risen.

But, for the sake of argument, must the Chinese have a martial mindset at the outset to be accused of doing what they are, in fact, doing?  When is a counter by India or the United States, thus, warranted?  I think that there needn’t be a sinister ‘master plan’ if it leads to the same result as a well-intentioned one.  Chinese expansion, hostile or not, arouses great fear in India and well-founded concern in the United States.  Throughout history, and in every corner of the world, countries have balanced each other, re-balanced each other, and re-balanced each other yet again.  This game of 'balance and re-balance' plays out even between allies - how much more so must it play out between rivals?  Therefore, just as Chinese expansion may not be inherently hostile, China should not consider other countries’ attempted checks on that expansion as inherently hostile either.

By seeking to avoid a rival's check on its security through development of an overland energy route, China is acting in its best interests, and therefore doing exactly what it is supposed to do - India and the United States will do likewise, and so the world turns.

What do you think?  Will the Chinese find that overland transport of their energy through Pakistan is more troublesome than shipping through the Indian Ocean?
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info@ipglegal.com

Wednesday, July 31, 2013

Managing Trademark Investigations for Nonuse in China

American Bar Association's Section of Intellectual Property Law has an interesting article entitled: Managing Trademark Investigations for Nonuse in China.  The article may be found at the July/August 2013 Landslide Magazine Site.

The article notes that:
 "In sum, one should expect to pay more but get less in terms of quality from trademark investigations in China when compared with their U.S. counterparts.  As trademark practice improves in China, and as competition among investigation firms increases, we can expect quality to improve and prices to drop.  In particular, if the Trademark Amendment Laws are enacted within three years of nonuse disqualifying the trademark owner from claiming damages for infringement, investigations should become even more routine."

The article is recommended for those in need of guidance before retaining an investigator and, also, for attorneys that work with these investigators. 

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To contact IPG send an email to: SeanHayes@ipglegal.com

Monday, July 15, 2013

Basics for Partnering with a Chinese Company: More than Just Due Diligence

The following post was written by, Tom Coyner, MBA, one of IPG's senior business advisers.   Tom has has worked in Asia for over twenty years.  Please read the following post in conjunction with the articles listed at the end of this articles for needed due diligence prior to engaging in any arrangement with Chinese company. 

Many foreign companies in China, for practical reasons, choose to partner with a local company to market, sell and support their products and services. While once upon a time there were legal requirements to do so, now China, in most industries, has a relatively free market in this regard.

Frankly speaking, finding a China partner company can be ridiculously easy. Finding a successful partnership, however, can be ridiculously difficult. That is, many China companies are willing to partner for all of the wrong reasons. And this may be said for a like number of foreign firms attempting to do business in China.

Many China firms look at partnering with overseas companies as a cheap and easy way to  become "international," or at least more international, via this foreign partnerships. Partnering can add to their market prestige and provide new products and services the domestic competition lacks, or that they cannot easily develop on their own. Thus, in their reasoning, sales may often be secondary to domestic market positioning.

Foreign firms often regard the China market as the most important international market for the next decade and that if they are not in China at this time, they better be in China quickly.   As a result, they may be tempted to do a "quick and dirty" market entry, finding a China company selling into the right market niche and boasting a glib speaker of English or some other appropriate foreign language. After the China joint venture agreement is inked, its back on the plane without much expectation to return to China for another six or even twelve months.

These two descriptions are stereotypes, but unfortunately they are closer to the reality mark than many Chinese and foreign firms may like to admit. So what may be a better way to find and develop a successful partnership?

First, look carefully at the company and the key people on whom you will depend. Many China firms look absolutely great on paper, but it will be a couple of key people who will largely determine whether your joint venture will succeed. Certainly the Chinese company needs to be financially stable and credible in your market niche. At the same time, that company must have individuals with sufficient authority to ensure commitments with the foreign company remain at a mutually appropriate priority level.

Key people include the CEO, marketing or planning director, sales director and product support director. If you do not perceive a personal stake in the venture for each of these people, your partnership with the Chinese company may be in danger from the beginning. You should be able to accurately articulate from the Chinese perspectives why this venture is personally important to each key person. Then you should honestly compare their motivations with your own. Even if you like the company and the people, if there is a not a good match, its time to move on.

Second, consider how and with whom your company will be able to communicate. Assuming you do not have Chinese speakers in the home or regional offices, it can be critical to ensure there are capable English speakers at least in the marketing/planning and product support groups. Ideally there should also be a strong English speaker representing the China sales team, but that may be harder to find. Naturally, the larger the company, the more likely the China partner will have employees with foreign language skills.

That brings us to our third point: It is important to partner with the appropriate-sized Chinese company. It is surprisingly easy to go too big or too small. The big companies are usually part of the giant business conglomerates. Their prestige often brings instant credibility to the market for your products, but their ability to sell to other companies within their group is usually exaggerated.

Furthermore, big companies typically have annual or even more frequent organizational reshuffles. The net result can be that the Chinese in whom you have invested a great deal bringing them up to speed on your company and products may one day, perhaps without notice, be reassigned to other departments. Major corporations anywhere in the world tend to be systemically arrogant, holding the unstated assumption that you need them more than they need you.  Chinese companies are no different.

Partnering with too small a company, meanwhile, may entail another set of traps. The good news is that they may need you as much as you need them - or even more so. Consequently, insure that they will be putting enough skin into the game to consider you more than simply another arrow in the quiver. The personnel you train are probably more likely to stay dedicated to your products than those of the larger firms.

However, if you are selling large capital assets, these smaller firms may themselves having to partner with other local China firms to be credible producers, marketers and supporters of your products for future customers. Additional, de facto partners mean smaller pieces of the shared pie of profits and/or higher pricing that may make your products less competitive.

Finally, even if you are able to get the right mix and balance, you have just begun the partnership. Chinese, generally, look at all written agreements as just the launching of a new relationship that will need to adapt to unforeseen circumstances. So the foreign firm should not be shocked if, almost from the very beginning, the Korean partner asks for variances from the written partnership agreement as the first real sales opportunity approaches.

Such requests for variances might be justifiable in some cases, but there are also times when the Chinese partner has not done adequate due diligence in selling or preparing support for the foreign products. At these times, one needs a reasonable adjudicator who can advise from ground zero on how to handle variance requests.

Established foreign firms usually have local representative offices with enough employees to act as the local eyes and ears and advise home office management. Those firms not yet ready to set up representative offices can outsource to consultants.  IPG works with some of the leading consultants in Asia. 

Some articles that may be of interest:

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To contact IPG send an email to: SeanHayes@ipglegal.com

Friday, July 12, 2013

Hiring Employees for Positions in Asia by Senior Advisor to IPG

“Hiring is your most important task,” said the late Steve Jobs. Considering a wrong hiring decision can be extremely expensive to repair, let’s look at some recruiting options.

Ideally, a succession plan will have an internal candidate ready for promotion: advancing a rising star’s career and providing continuity with minimum controversy and a positive message to the workforce that capable people who do well will be recognized and rewarded.

Often, however, hiring from outside is required. If the company has a competent HR recruiting function, direct ads and in-house screening may be effective for lower and some midlevel positions.

For more important midlevel management or specialist positions, outside assistance may be needed. There are many recruiting companies. By going to any networking event, it is hard not to collect business cards from such firms.

Most recruitment firms offer contingency searches. Usually the process begins with interviewing the hiring managers and agreeing on a job description and compensation range. The recruiter ideally provides a long list of candidates and works with the client in coming up with a short list. In reality, the contingency recruiter usually relies on names from their database, or active job seekers. The recruiter may do some fundamental reference and credential checking before the final offer is made. The success fee is normally in the range of 20 to 30 percent of the first year compensation, including regular bonuses.

For lower-level positions the contingency approach is preferred, since a wrong hire is not likely to be a strategic setback. However, a hire of the wrong senior manager can be costly in terms of negative impact on the organization and lost time.

Some recruiting companies claim they do both retained and contingency searches. In reality, these are contingency recruiters that are thrilled to be paid up front - but still deliver a contingency-class service.

There is also a small number of retainer-only search consultancies that focus on identifying, evaluating and attracting “C-suite” executives (CEO, head of region or country and positions reporting directly to the region/country head) - and sometimes accept engagements one level lower. These senior professionals partner with the client in a consultative process aimed at selecting organizational leaders. Success in these partnerships depends upon a shared focus built on trust, candor and responsiveness throughout the process.

The search is conducted through an exclusive engagement with fees billed at the start and throughout the process. Consultant and client collaborate in determining leadership needs and defining executive positions. The consultant leads in identifying well-qualified individuals, selecting those best suited through a comprehensive evaluation process, and convincing them that the company/opportunity is a proper step in their career progression. Meanwhile, retained search consultants provide employers regular, detailed progress briefings.

This methodology proves to be the wisest option for senior leadership and other strategically critical hires. Some employers avoid retainer search due to the perceived costs, although in reality the total amount is not significantly higher than a contingency fee, and the risk of lost opportunity cost or reputation damage is greatly reduced. Most retained search firms are paid the equivalent to 33 to 35 percent of the total annual compensation, or in some cases a fixed fee not linked to compensation.

According to the Association of Executive Search Consultants, “Retained executive search consulting is a specialized form of management consulting. In addition to locating high-quality candidates, the retained search firm should provide information and feedback that not only helps direct the client’s search for executive talent but can also be used to run the client’s business more effectively. This feedback may include general market research regarding how the client’s organization is perceived in the market, competitive intelligence, and what kind of recruiting strategies may or may not be working at any given point in time.”

Retained searches most commonly take place when one or more of the following conditions apply:

Replacement of incumbent: There are times when a very high level of confidentiality must be maintained. As with other professional services firms - attorneys, accountants and strategic consultants - disciplined senior executive search professionals fully understand how to work with total discretion.

Difficult to find individual: Access to high-level executives who are not on the job market is fundamental, as is capability to invest time and resources thoroughly researching the target universe to identify key players.

Difficult internal promotion: Shareholder compliance (or internal debate) may necessitate a thorough look at external candidates in conjunction with independent evaluation of internal candidates.

The retained consultant will invest much more time than a contingency firm in understanding the client’s corporate culture, key executive personalities, vision, strategy and business objectives, and will be able to communicate this effectively to qualified individuals. Out of this process may emerge the “compelling story” critical to attracting a star executive.

A retained search firm will rigorously conduct reference checks with a broader range of people than those suggested by the candidate. It is in the best interest of the consultant as well as the client to flag concerns before an offer is finalized.

Most companies say “people are our most important asset,” yet often default to hiring friends of friends, applicants from newspaper or Internet ads, or resumes thrown at them from many sources. This may work for lower/midlevel positions, but tossing the dice when filling any key leadership role isn’t acceptable in today’s corporate environment.

In summary, there are a broad range of situations requiring different hiring strategies. The hiring executive has several options, and one recruiting strategy rarely fits all needs.
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SeanHayes@ipglegal.com

IPG is not engaged in the executive recruiting business. We have advised clients on the use of headhunting firms in Korea and China and have found, only, two companies we have worked with satisfactory. Please choose carefully. 

Tuesday, June 11, 2013

Importance of Contracts in China

The following is from a blog post I put up a few years ago and although it is brief and not as verbose as my other posts, it is certainly in my top ten favorites.

It is not surprising how many companies and entrepreneurs are in such a hurry to get started in manufacturing, partnering or marketing that they totally disregard the need for a contract, a simple memorandum of understanding or something written on a cocktail napkin. It’s also not surprising anymore (after 10 years in the Jungle) that people come to me looking to recover losses incurred with Chinese suppliers, factories, or partners and they don’t even have a basic agreement. Usually I have to tell them that without an agreement, you really have no chance to recover and that there are very few lawyers or legitimate collection agencies in China that are willing to work on a contingency fee basis, including yours truly.

So, as we enter the second quarter of 2013 and try to reach our manufacturing goals and sales targets for the year, it might be time to conduct a thorough review of your contracts. Do you have them? Are they written in English and Chinese? Are they written by your U.S.-based lawyer who knows nothing about China? Are they written by your Chinese lawyer who has little or no obligation to advocate on your behalf and has never even traveled outside of China?

I thought I would share this blog posting from The International Technology Law Blog as a reminder that you shouldn’t start without a contract, and if you have started you must conduct a thorough contract review or you risk not having any recourse for recovery when you get shafted by your Chinese factory, supplier or partner. There are many factors that must be considered when presenting and negotiating a contract with the Chinese and you better have someone skilled and experienced in China looking out for your best interests.

by Frank Caruso
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info@ipglegal.com

IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

www.ipglegal.com