Managerial Implications

You are CEO of a large publicly traded company. You are negotiating several contracts with foreign governments in Vietnam, India, and Brazil to provide hardware and software to government agencies. Are you interested in including an arbitration clause in the contract? What are the pluses and minuses of such a clause? What alternatives do you have? How does your plan change, if at all, if you are dealing with multiple corporations in the same countries? What if you are dealing with one corporation in the United Kingdom and one in New York? Discuss how these variables may affect your decision.

I am in favor of including an arbitration clause in the contract because it can help both parties avoid a large number of uncertainties such as breach of contract or other disputes. In addition, all disputes should be subordinated to the arbitration clause. However, it also has some disadvantages. Because of the limited resources, maybe sometimes the adjudication is unfair. The arbitration clause will result in sacrificing fairness on this occasion. The alternatives I have are mediation and litigation. If I am dealing with multiple corporations in the same countries, I will choose mediation to resolve disputes at first because all of us are from the same countries, it is the fastest and the most convenient way for us to resolve disputes. However, if we are not able to solve the problems by mediation, I will choose arbitration because it is more formal and fairer. If arbitration also does not work, I will choose the final alternative – litigation. If I am dealing with one corporation in the United Kingdom and one in New York, I will start by using arbitration because compared with litigation, it’s faster, cheaper, and more efficient. What’s more, it is often used in international business disputes. Then I will choose allocation that is mutually convenient for us to arbitrate. Similarly, if it is not able to work, I will choose litigation, which is used frequently in the United States.

Chapter 4 – pages 117-18

Managerial Implications

You are the vice president of sales for Down Pillow International, Inc., a U.S. manufacturer of bed pillows. The raw materials needed for making pillows are all sourced from suppliers overseas. Your firm purchases feathers from exporters in China who maintain large flocks of geese and ducks for breeding and cotton ticking and other textiles from mills in Germany. Every year you show your products at the International Bed Show in New York. This year, a delegation of Japanese buyers, representing several well-known Tokyo stores, showed interest in your best quality pillows. The president of your firm expressed interest in these contacts because although Americans use the same pillow for long periods of time, the Japanese are fastidious about their bedding. You followed up with samples, product, and pricing information. After several discussions and months of correspondence, you now expect to receive your first overseas orders.

You are to meet with legal counsel next week to discuss this opportunity. What questions might you want to ask about entering a sales contract with a Japanese buyer? If a buyer shows interest in purchasing large quantities, should you consider a visit to the buyer’s Tokyo office? What would you accomplish? Should your attorney conduct negotiations there for you? If you and your buyer agree to put your agreement in writing, what terms might the document contain? Your customers want assurances that their pillows will be made of the finest white goose down, with less than 10 percent feathers. What assurance will you be able to give them regarding product quality and specifications? What factors might influence the selection of a choice of law clause? Do you think your lawyer will insist on a force majeure clause? Can you suggest some of the things Down Pillow might want in its clause?

If you anticipate having several accounts in Japan, and each of them will be sending in purchase orders for each order, will you need a confirmation form? Will your attorney recommend that you develop a standard form to use for confirming all export orders? How will this form differ from the form you use for domestic shipments? What kind of provisions should it have?

How might negotiating your supply contracts with the Chinese differ from dealing with German textile mills? You have some concern about making sure that the quality of the down from China remains consistent. What will assure you that you will receive goose down and not duck down? What other precautions should you take? The German mill wants you to mail in or fax your orders. Your lawyer recommends that certain terms be put into your purchase order form. What might they be? Your purchase order states that the seller is liable for consequential confirmation damages for late shipment. The mill’s states that “the liability of the seller is limited to the replacement of returned goods.” In the event of a dispute, which will prevail under U.S. law? Under German law? Under the CISG?

Your contract with the Japanese buyer specifies that the CISG is to govern the transaction. Your pillows arrive in Japan and the buyer discovers that they contain only 13 ounces of down instead of the full 16 ounces of down as promised. You admit the error and want to resolve the problem. However, the buyer has just been offered the same quality pillow at considerably lower prices from a firm in Taiwan and wants to cancel the contract. Discuss the rights of each of the parties under the CISG.

Down Pillow International Inc. is up to now ding its business concerning the local market but due to their view of expansion company is going to enter into the overseas market. The first contract is from a Japanese company and as a Sales Vice President I would like to research on many areas to see the viability of the contract.

Some products are subject to export restrictions.

It is important to discuss with the lawyer of the company regarding whether we will require a special export license

Should analyze the risk of non-payment by the Japanese company because of the difficulty of collection in a foreign land

Currency fluctuation- our company is planning to deal with dollars but if the Japanese company requests any other currency we should face issues related to currency fluctuations.

Should get companywide commitment to run the contract successfully

An International business plan should be created

Should plan at least two years for market penetration

Investment needed for the project

If the Exporter shows more interest in our company’s product having a visit to the Tokyo’s office is recommended as we can explore and get more details about the Exporter. Getting legal experts help and support is very important to run the project without having any unwanted issues.

Terms to be included in the Sales contract

Precise description of the product including each and every detail

Price of the contract should be mentioned properly

Detailed delivery terms including insurance, transfer risk, import duties etc

Delivery time

Payment conditions

Documentation details

Inspection of goods by the buyer if needed

Retention of the title clause where the seller retains the ownership of the item until the exporter settles the payment

Force majeure- subject to force majeure or hardship clauses that excuse the parties from performance when their failure is due to uncontrollable conditions

Resolution of disputes

In order to assure high product quality, we can share following information with the exporter.

Using our past performance records can give a positive impression about the product

Quality policies adopted by the company

Details on standards of sampling and examining

Internal quality standard

Recording and reporting

packaging

Distribution and transportation

Total quality management

Selection of law clauses should go along with the mutual concept of both the parties. The lawyer should consider force majeure clause as international trade with a company from Japan may face many natural disasters while in transit. Other closes are Intellectual property license, Confidentiality, Audit rights, Termination rights, Limitation of liability, Indemnification, Privacy, Government policies, Social responsibility, Insurance, Governing law of Jurisdiction of US, Relationship of the parties, Waiver, Language, Notices etc.

Confirmation form is very important if the company is going to expand its sales in Japan as it will reduce risks in future. If the lawyer suggest we can have our own confirmation form including all important notes. Domestic sales will require less terms and conditions in a confirmation form but when it comes to overseas we are in a need to include many terms and conditions clearly to avoid legal problems and disputes.

The company buy raw materials from China where China buys from German. If we create a direct contract with the German company it will be much more efficient for us to deal with the overseas sales orders. China is providing us materials from the beginning so without their contacts and dealing directly with German might bring some issues but still we can maintain good relation while having proper communication. As the Chinese company might not send us the product with the defined quality better to deal directly with the German supplier. Purchase order relating to this includes,

Details of the seller, buyer

Order number, date, credit terms

Full product details

Freight details

Terms and conditions

We should go according to the CISG law as it is a universal framework to govern international trade. According to the scenario the rights both these parties possesses are,

Buyer

Buyer can declare the contract avoided

Failure of the seller in fulfilling contract terms

Seller does not send described quality product

Seller

Fundamental breach of the buyer- according to this the seller can take legal actions as suddenly the buyer cancelling the contract

Buyer’s failure to comply with Ultimatum – the seller may fix an additional period of time for reasonable length for performance by the buyer of his obligations

So according to these the company can go for CISG to best protect its trades in overseas market and contributing to the evolution of global commercial norms.

Chapter 5 – page 149 – question 1

Prepare a pro forma invoice giving your buyer several options for shipping the pillows. Consider how to pack and transport them to the closest or best seaport. What facilities are available for handling containerized cargo or for multimodal transport in your region? Using Incoterms, present a breakdown of the shipping alternatives and costs involved in the transaction. Contact a freight forwarder and inquire as to what services it can provide. Can the freight forwarder assist you in obtaining the information you need to prepare your pro forma invoice?

Pro Forma Invoice

A pro forma invoice is an invoice form that provides information like quantity, quality, price, transportation options and tax etc. information to the buyers before the actual shipment of products can be made (Bejanishvili, 2018).

The assumption here is that the pillows company that want to buy the desired pillows is based in Japan the producer is based in USA. The following route options could be considered.

The first option is UPS, which is one of the largest transportation company in the world (“How to Ship Internationally | UPS – United States”, 2018). This company can also ship to Japan and could be a choice.

DHL is another company that can help in transportation of large amount of products to around 200 countries of the world, Japan being one of them.

FedEx is another good option because it is also one of world’s leading transportation company which can handle the transfer of 5000 pillows.

The packaging will be done within the company in New York with the help of the transportation company that is selected. The involvement of the company is important because it might have their own terms and conditions of how they transport goods around the world.

The contract that the Japanese company wants is called contract based on D Terms in which, the seller has to take responsibility which is a lot greater than usual contracts. In D term sales, the seller must be responsible for the delivery charges that is included within the agreed upon price and for any damage that might occur during the transportation (Schaffer, Agusti, Dhooge & Earle, 2011). We would insure the pillows before they are send to Japan to avoid any financial liabilities in case any damage occurs. This will also provide a piece of mind to the buyers setting in Japan.