Contracting for Success with Chinese State-Owned Enterprises

This is an excerpt of the original article. It was written for the March-April 2018 edition of Supply Chain Management Review. The full article is available to current subscribers.

March-April 2018

"Inflation creeps into U.S. Supply Chain.” So said the headline on a Wall Street Journal article I read this morning before writing this column. The Journal went on to write that U.S. companies are grappling with rising material and ingredient costs on top of pressure from higher wages—a potential double whammy— and noted that companies like Whirlpool and Ford have already issued warnings to the market.

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Even after several decades of reform, state- owned enterprises (SOEs) in China continue to account for a significant portion of the Chinese economy. In fact, the central government, under President Xi Jinping, has made clear that the prominence and power of SOEs will grow.

Foreign firms doing business in or with China are likely to sell products and services to Chinese SOEs. However, doing deals with them presents very different challenges when there is a dispute—in sharp contrast to contracting with privately owned firms.

When a dispute with a Chinese SOE requires the Chinese legal system for resolution, the harsh reality is that Chinese courts typically do not view the parties as equals. This puts foreign firms at a significant disadvantage.

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