Follow-Up (June 1, 2012): Jacobs Trading Co. of Hopkins, Minnesota thought it would be a real bargain to buy Comobar espresso machines from Ningbo Hicon International Industry, Inc. in China back in 2009. It was very wrong. (The $140,000 worth of machines were allegedly counterfeit and U.S. District Court Judge Joan N. Ericksen (D. Minn.) has now told Jacobs it has to go to China to settle up…)
Original Post (March 29, 2010): One does not have to go to business school to know that businesses save a great deal of money by going to China and other far-flung places for goods and manufacturing for the obvious reason that the costs are a fraction of what businesses have to pay if they buy domestically. Nor does it require any sophistication for businesses to factor in extra shipping or import costs into their cost/benefit analysis.
But what about other costs that are much harder to quantify or even predict at all, such as the cost of litigation if something goes wrong?
Are international transactions more prone to dispute than domestic transactions? What are the relative costs of resolving domestic commercial disputes versus international business disputes? (Note this scholarly work on the relative costs of incorporation trade usage into domestic versus international sales contracts.)
Minnesota-based Becwood Technology Group, a supplier of inulin products to bakeries, yogurt, sports drinks and specialty food manufacturers, “celebrated” its first anniversary this month of battling with Dingxi Longhai Dairy, Ltd., a China company incorporated in the Province of Gansu, China. The saga of the journey of tons of inulin, its rejection by end-purchaser yogurt-seller Stonyfield Farm for alleged mold contamination, and who will ultimately bear financial responsibility, is long and the battle has been undoubtedly costly.
Becwood won dismissal on several of Dinxi Longhei Dairy’s claims, but is doing battle against a remaining breach of contract claim and is affirmatively seeking damages for counterclaims.
For mind-numbing detail regarding the long journey of inulin, how it was packed and how it should be packed for travel, a historic Chinese snowstorm, the problem of condensation, the battle of forms” under the United Nations Convention on Contracts for the International Sale of Goods (CISG), see briefs on summary judgment are here and here.
There is no reason to suggest that Becwood could have avoided this costly battle by buying domestically. It is unclear that inulin is manufactured and sold domestically. On the other hand, the description of this dispute and Minnesota Litigator’s experience with other cross-border disputes prompts the question whether such costly disputes may be an underestimated cost of international trade.