Silk Road International Blog

IP owners of the world unit! The end of piracy in China as we know it is at hand. The numbers of article in the news yesterday about Beijing’s new efforts to confront (Olympic only) piracy was more than on just about any other topic outside of Hu Jintao’s latest trip to Japan.

Which means that the government is really going to take this seriously…this week. I hope you didn’t have your hopes up.

Of course I’m pessimistic. I live here. I’ve seen it all before. Specifically, there are three reasons why I think that IP enforcement is not going to change much in China after this week.

1. It is in the government’s personal and direct financial interest to protect Olympic IP. They are the sponsors of the games and they directly benefit from the sale of legitimate products. Not to mention the face they lose when their “own” officially licensed products are knocked off. This means that while protection of Olympic IP will be stellar (as will the games in general—regardless of your politics, if you don’t think that the CCP will make damn sure that this is the best Olympics ever you’re nuts!) protection for the rest of us will be business as usual.
2. This week just happened to coincide with a new round of US complaints to the WTO about “rampant” copyright violations. Within the same week of the US complaints China just happened to have 42 million pieces of illegal media?! If they can get that much in a week they have the best police force in the world and are just sandbagging the other 51 weeks of the year (likely sandbagging), or they stockpile over time just for events like this (VERY likely) or piracy is so out of control over here that 42 million pieces is just a drop in the bucket and it really only does take a week to collect that much (also VERY likely). Point being, once this round of bad international press is over so to will the enforcement.
3. All assumptions aside, the press said that 25% of the destroyed media came from Guangdong Province (where I live). If so, how is it possible that I’ve still got 4 illegal shops operating within a block from my house and twice that many on the block around my office building?! I’ll believe that copy right protection will improve when they can close down the stores selling nothing but knock offs.

But that’s how things go in China. Enforcement du jur is the MO here. If you get caught doing anything illegal, I’m convinced it’s just dumb (bad) luck.

Take street cops, for example. The traffic police don’t chase pick pockets or clear away illegal street vendors. They just watch traffic—and then they only watch for specified violations each day. Think I’m making this up? I once chased down two guys hacking the lock off my bike. The traffic cop on the corner box couldn’t/wouldn’t even call the police station. Anyone else that’s ever driven here knows that “random” police stops means white vans on Mondays, black sedans on Tuesdays, right turns against the light on Wednesdays, etc.
Boarder security is another great example. All of the Shenzhen boarders have luggage scanners. For fun stand by one and listen to the boarder agents talk about who they’ll stop next, watch them take fruit (and then watch other’s in back eat it), watch how many people DON’T put their luggage through the scanner (I almost never do—I walk fast and pretend to not speak Chinese; they almost never stop me). There is nothing “secure” about it. The only people that ALWAYS have to scan their baggage are Middle Eastern looking folk.

This is not meant to a call to illegal arms. Rather, I’m just pointing out the fact that while sale of Olympic paraphernalia will be outstandingly legal for the next 18 months there most likely will be little if any change in any other IP protection in China; except for the random weeks of enforcement due to external circumstances.

Waves in….waves out….in…out…

Tags: Business, Culture, Politics by david
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No one single person should be allowed to have this much fun in China. Ok, I suppose it’s alright for Tim Clissold considering the years of his life that he undoubtedly sacrificed to Baijiu, factory pollution, stress and deadly bus rides to distant factories. Absolutely enjoyable and a bit scary at the same time.

Mr. China is the book that tells the stories that many have of us have lived being in China over the last 20 years. Clissold is the man who did what everyone just talks about—he put all the stories down in print—and what a job he did!

Quite an uncensored look at what “business” has been like in China for the last two decades, and an equally exposing look at both backward Chinese practices and ignorant Western boardrooms. Mr. China provides great insight into both the Chinese business environment and the mentality of many of those doing business in China.

In addition to the fantastic shake-your-head-unbelievable stories the value of the book is the fact that many factories, Chinese businessmen and Westerners are still doing business like this today. This is not a history of what-china-was-like-in-the-past as much as it is a look into the deep dark insides of what China can still be like today.

I highly recommend that anyone working or planning on working in China read this book as a cautionary tale of what could happen to your best intentions (and investment dollars) if you come to China with more optimistic than realistic expectations.

Tags: Book Reviews by david
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Just spent a week in the US—a family wedding, chocolate Easter eggs galore and some visits with clients. While I was there I was asked by just about everyone that finds out I’m in China if they should move their business into China for sales, production or both. To be honest, I don’t have a clue if you should move here or not—that’s really not a decision that should be made over appetizers at a wedding reception.

But if you must have it quick and dirty, here you go. This isn’t your typical advice column about China though—nothing about guanxi, Chinese language or strange food. I’m going to give you the basics of what I’ve culled from 15 years over here in schools, factories and government offices.

First, you’ll get out of China exactly what you expect to get. If you hate China, complain about the dirt, the problems and the lack of QC, etc., etc., that’s what you’ll see everyday and that’s what you’ll take home. This doesn’t mean you have to be Pollyanna and only see the sun that shines through the outhouse window—some things here really, really stink. But it does mean that if you expect to be disappointed or plan to fight for everything you’ll do just that. Do you homework and know what you’re getting into before you come over.

Second, practical experience will do you more good than any degree, guide or guanxi. In coming to China this means know your industry and stand firm on your established standards and experiences. And then, when you’re here spend enough time to understand how your industry works over here. If this means that you fly over four or five or ten times before you close any deal, so be it. Get into factories more than once and more than for the guided tour. If you are going to invest hundreds of thousands of dollars suck it up first and invest in a hotel for a month or three and actually live and work here for a spell. Get to know, not just visit with, the principles involved in your future. And become an expert on what’s going on in your potential partner’s production floor. I’ve seen more than one person come over and make a poor deal worth hundreds of thousands of dollars because he was rushing to catch a flight worth $1500.

Third, invest in your supplier and supply chain. If you expect better quality products you’d better start at the source of the products and spend the time (and money) that it takes to teach multiple levels of the supply chain what you expect, why you expect it and what it will mean to them to meet those standards. If you’re here for the long haul, invest in what it takes to create the supply chain that will justify your investment and provide you the ROI that is expected. Just because your finishing/packaging factory is world class doesn’t mean that their materials supplier is.

Fourth, be willing to learn from the factories and people here. This doesn’t mean that you need to sacrifice any of your standards. But it does mean that due to technology, logistics, politics and even weather you may have to alter your standard production processes. And heaven forbid that you should actually learn something from China!

Fifth, if you expect your suppliers to follow their contracts and respect your IP then you’d better do the same. If you bust your supplier’s butt over IP violations and then have the factory driver take you to the local knock-off golf or DVD shop, what message are you giving to the factory?! Yea, what you do personally does influence how you are seen by your Chinese supplier. Make sure all your legal issues are taken care of in China (and back home) so that the law is always on your side, just in case. Get the right visa, file copy right and trademark applications both at home and in China, if you are going to get an office here in China, do it right.

Sixth, when visiting provinces far inland don’t eat seafood. Oh yea, and never eat anything that is still moving either. (Sorry, I couldn’t resist.)

Tags: Business by david
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With all the daily optimism about China and the China market, it’s necessary to regularly and consciously take a step back and look at China from a different perspective. “Will the Boat Sink the Water,” is just that perspective.

If you’re reading this blog, you’ve got a computer and a degree of education and distance that means you will most likely never personally see this China. Sure you may travel through it, but you will never experience the China of the 900 million peasants that have been literally passed by as the other 40% of China rushes head long into the 21st century.

Based on the 3 years of research by a Chinese husband and wife team, this book illuminates the troubles and personal impacts what the last thirty years of Reform and Opening up have had on most Chinese people. Stories of horrible corruption, extortion, abuse and ultimately, stories of a loss of hope for the future for many peasants that can’t reach the wealth that they see in the east coast cities.

This is the story of many of the workers that we, Western Businesspeople, see when we place orders, inspect factories, check production and ship products. This is the story of the families behind the rows of uniformed, 20-something, factory faces.

Tags: Book Reviews by david
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I am not a China apologist. I know first hand how uneven the playing field is here for foreign companies in many industries. I agree with many critics on issues from barriers to market entry to individual freedoms. I think that the artificial valuation of the RMB not only hurts foreign economies but it also hurts the Chinese economy. The inflation of the RMB against foreign currency hurts individual Chinese factories and entire industries by allowing them to complete at an artificial advantage. That advantage will eventually be taken away, sometimes rather abruptly as WTO violations are taken to court.

But the calls by the US for a Change in Chinese State policy to “preserve” American (manufacturing) jobs or to level the playing fields because it’s unfair to American’s is hypocrisy of the worst kind.

Name one country on the planet whose domestic policies are not geared specifically to support (at the cost of other countries) their own domestic market?! Similarly, US and Chinese (and all other) foreign policies are designed to promote individual domestic interests abroad.

Make no mistakes, China makes the same stupid calls for the US to ‘recognize Chinese national interests’ when considering trade policies. But that’s the dance of politics—howls of mistreatment appease the masses at home and do little to affect the real negotiations happening elsewhere, in closed government offices.

The recent change in US policy concerning the status of China in some markets (paper) is a great example of these stupid “whose side are you really on” kind of foreign policy. Newly classified, China is no longer a developing economy and therefore subject to the full weight of the anti-dumping and other restraints of their WTO membership. I had a business associate call me and talk about the impact that the tariffs with have on this industry—up to 12% duty levies on imported Chinese paper. That not only makes them “competitive” with the US domestic market, it effectively blows them out of the water.

On the surface, the purpose here, it seems, is not to balance trade but indeed to protect a few industries that otherwise can’t compete. But wait! What about all the other US companies in related industries that are importing from China and will now take a 12% hit?! Surely the lager market of associated goods outweighs protection of one industry (indeed on the complaints of one lobbying group from Ohio).

And when this new classification starts being applied to other industries? Yup, the consumer is the one who’s going to get hurt.

I suggest that the WTO start regulating stupidity—both the Chinese and US governments are dumping toxic amounts.

Tags: Business, Politics by david
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