Silk Road International Blog

I originally wrote this blog as a list of warning for those who are maybe a bit over excited about coming to work in China. I didn’t mean it as a bash, but just a list of things that are real. After I finished, I thought that it might be a tad derogatory, so I ingested a large amount of chocolate and wrote a second, more Pollyannaish version (and yes, you’ll be glad to know that “Pollyannaish” is an actual work that does indeed spell-check; the word “blog” does not, though. Go figure.). Instead of running two blogs, I’ve just pieced them together.

This is not a rant or a complaint. It’s a real part of doing business in China and I list out the details for those who are expecting a move to China full time (more than a month) to be just like their previous quick trip to China for a factory visit. Nor is this all roses. It’s a real part of doing business in China and I list out the details for those who are dreading that a move to China full-time (more than a month) will be just like any other “business move” since all they’ve seen is China from quick factory visits.

Many will counter with “but when I come to China I get stuck in terrible traffic, I have to go out every night and I live in a hotel.” And I’m sure you do. But that’s not going to happen if you move here. Life of the ground for an expat can been down right plush if you work for the right company. And an equal number of people will say, “When I come to China I have chauffeured cars from the factory, expensive meals and nice hotels.” And I’m sure you do. But that’s not going to happen every time and if you move here it will very quickly stop. This is life on the ground for most expats not employed by huge MNC’s.

1. Time—International hours. One of the most exhausting things about working in China is the fact that the rest of your life is still often going on 12 or more hours “off-schedule” on the other side of the globe. This means that you’ll put in a full day of work at a factory here and then go home to a full day’s worth of emails, calls and meetings; meeting with the home office are at 11PM or 5 AM, calls home to family are at odd evening hours too. This can quickly become more than an emotional drain, it can hurt your physical health too. Balancing the demands of both time zones requires saying “no” and sticking to a schedule. Regular exercise helps as does “losing” your cell phone for an hour or so of private time each day.
1a. Time—International hours. What company isn’t already on this schedule? If you’re used to dealing with China from the US, you’ve now got a better schedule. Besides your life isn’t going on 12 hours off-track anymore; since your family is here with you in China. An added bonus is that when you wake up you’ve got a full day to answer the emails that came in over night. You can start you days early with conference calls in your bunny slippers and bathrobe too. Early to be early to rise…you know what happens! And leaving your cell phone on your desk for a catered lunch with your spouse means some quality personal time is easy to find.

2. Domestic travel—Extensive and exhausting. I’m typically on the road 3-4 days a week. For me “on the road” means that I’m flying, driving or on a train to a factory in one of any of the 7 provinces and 4 countries in which we manufacture goods. Outside of down town in the major east coast cities, most travel in China, even if you have a driver, is over rough roads and to out of the way places. I’ve used 19 different airports in China and, except for the old Shanghai airport, I’m convinced there isn’t another airport in the country that’s less than an hour’s drive from down town—and no factory is actually “in Shanghai” or “in Shenzhen” or whatever other city is on the business card either. Traffic is dangerous and rush hour is as bad here as anywhere else. A “quick” factory visit for me will require at least two hours of driving one way—it’s rare that I can ever visit more than a single factory per day—even if they are in the same city. This makes long hours in the car/plane/train and regular stays in hotels an almost daily part of business in China. Things are certainly getting better and there are even a couple airports in China that are close to what you’d expect from a city of 10 million plus. A couple of specific tips—Shanghai (old and new) are notoriously bad for delaying flights. The commercial air-space between Shanghai and Taiwan is used by the military who do not file flight plans. Second tier cities (Yiwu, Wuxi, Guiyang, Shijiazhuang, Lanchang, etc.) often have little more than an airstrip and a baggage claim—don’t expect to find “services” at the airport.
2a. Domestic Travel—Convenient and comfortable. If you’re on the road 3-4 days a week like I am, China can be a dream. Many of the planes are new (Dragon has a great fleet) and the service is SO MUCH BETTER than in the US. The HK airport is the best in the world and Japan, Korea, Taiwan, Vietnam and Thailand are all less then 3 hours away. Domestic airports in China are improving daily too. Pudong, Shenzhen, Beijing, Taipei, Gaoxiong are world class and with a driver or cheap taxis you never have to find a place to park. My personal on-time flight experience has to be over 70% for the last 5 years. One of the best things about living in China is the time that I have to read in the car. On trips to factories I have time to read, write, catch up on finances and even meet with clients over the phone—since I don’t have to drive myself like I would in the States.

3. Pollution—If the recent food scares in the US didn’t make you cautious you need to realize that there are almost NO quality standards for domestic food sales. Outbreaks of disease (like the current blue-ear pig disease) are covered up. Most health scares reach China through Hong Kong media reports of the latest banned Chinese import. Add to that that 16 of the 20 most polluted cities in the world are in China. Most cities in China don’t have water, air or soil that meet anyone’s minimum standards. I’ve read that living in Chinese cities is the equivalent of smoking 2 packs a day of cigarettes. Believe it.
3a. Pollution. Ummm…. Did I mention the Olympics are coming to Beijing in 2008?

4. Low Standard Medical Care—if the pollution wasn’t enough to kill you the medical services will. People with money either go to Hong Kong or Bangkok for medical services. Quality medical services are limited to large cities, are massively over-crowded, dirty, and are plagued with fake medicines and under-educated and over-worked doctors. I’m convinced that its more dangerous to go to a Chinese hospital than waiting until you can get out of China for medical help.
4a. Medical Care—When was the last time you were able to see an emergency room MD in the middle of the night for less than $25?! For basic care major cities in China have good care for excellent prices. Of course, you don’t want to have major surgery here, but you can say that for just about any posting outside of Europe or North America. There are Western standard clinics in most major cities and many of the expat communities have clinics with western trained MD’s on staff (and Western prices to make you feel more at home too).

5. Confrontational communications. The Thai’s have a saying about the Chinese: “Chinese people talk like Thai people fight.” If you’re not used to loud and consistent confrontation China will be a slap in the face—literally. Everything is louder and anything can be an argument. Chinese people just shrug it off, “that’s how we do it,” I’m often told. Parking, shopping, QC, ordering food in a restaurant, actually resolving concerns—just about everything can be confrontational. As I got into a Taxi last night at the airport the driver and another driver almost got into a fistfight over the fare.
5a. Gracious Hosts. There are few places where people take such pride in an opportunity to welcome you into their homes. They are gracious, generous and honestly willing to share with you all that they have. I’ve been to homes where people will give up their bed and sleep on the floor so that I’m comfortable. Other times I’ve eaten meals that cost more than the monthly salary of the host family.

6. Loud, dirty, poor facilities. Unless you are the CEO of a Fortune Global 1000 company, you’ll probably spend much of your time in China in factories and facilities that are less than the standard you are used to back home—but that’s why we’re all here—the low prices. Factories are often not just dirty and loud but downright unsafe. Factory work is tiring even if you have a nice hotel.
6a. Huge, state-of-the-art facilities. There are factories here that are larger than football stadiums—that make bags or t-shirts. There are single-campus factories with more than 50,000 employees. The capacity here is out of this world—literally more space and people than anywhere else on the planet. It’s probably the only place in the world where you can have 400,000 backpacks made in less than 4 weeks—all at the same facility. Not all factories are world class, but combined the number of good and great factories with the sheer number of available workers and total number of facilities and you can see why China is the “world’s factory.”

7. Language—barrier and additional study time. There are three ways to deal with the Chinese language. You can hire a full time translator to accompany you; you can just say, “screw it” and force everyone else to learn English to accommodate you; you can learn Chinese yourself. Each has it’s own advantages and disadvantages. Miscommunications cost time and money—but so does learning Chinese. No matter which one you chose you will have times of frustration and it will take you longer to communicate than back home.
7a. Language—a look into a new world. Learning a language is an exciting experience. And even if you don’t turn out to be fluent you’ll make a lot of life long friends trying. But moving to China and learning Chinese gives you (and your children) the opportunity to be on the cutting edge of communications as we start the “Chinese Century.” There isn’t another language on the planet with as much opportunity as Chinese—and moving here puts you right in the middle of it all. But if language is not your cup of tea, there multiple quality options for translation.

8. Personal relationships—lack of associates/family time during week and divorce. Because the hours are long and the culture and conditions are so different from the West family issues can be a major emotional distraction in China. Studies have been done about the higher than average rate of expat divorces and moving teenagers (ok, doing anything with teenagers) can be a nightmare. But I find the lack of daily association with others that know a joke from a Seinfeld episode or remember an obscure song from the 70’s or can talk about NCAA football or can just relate to me from a shared cultural understanding to be one of the things that I miss the most. If you don’t live in an expat community the associations with other expats will be a cherished return to the familiar.
8a. Personal relationships. The ability to spend time with your family, if they come with you, can be significant if you have the right opportunities—namely a driver and a maid. These two people can give you as much as 2-3 hours a day more time to spend on personal/family relationships. In addition to more time, there is sizable expat community in the large cities in China.

9. Chinese business hours—evenings and weekends. In addition to the fact that your home office is probably just getting to work when you want to go to sleep each night the Chinese seem to have endless amounts of time to entertain on nights and weekends—not to mention the fact that factories run 24/7. Late, long dinners and business meetings/trips scheduled any time of the day or night (except during the three “Golden Weeks”) are the norm. Most companies have a huge entertainment budget for client’s nights out (dinner, drinking, karaoke). While all this late night carousing may seem fun at first (or may seem like a waste of time) it will quickly get old and just as quickly become an invasion on your “personal time.” But to some degree, this is how business is often done here.
9a. Chinese Business hours. The ability to have huge shifts of workers online 24/7 is a major advantage over production in other countries. Chances are you can meet with managers or decision makers at just about any time of the day or night. You can also expect nights out at factory expense and good food and drink on a regular basis.

10. Petty crime and theft. Getting better? Yesterday the Beijing police said: “Crime cases such as murder, rape, arson and explosions which have seriously threatened people’s sense of security have dropped greatly.” So glad I don’t have worry about explosions anymore; that’s a relief. But there is still a reason that Chinese all have bars on their windows, guards at all gates and doors and don’t like to go out into the nights alone. Plan on getting pick-pocketed or mugged. Don’t leave anything valuable out in view. Only park your car in a guarded lot. When we bought a car they told us to never leave anything valuable in the car or people will break the window and steal it—even just a phone. License plate theft is a big deal recently too—not sure how to hide those.
10a. Um…. I mentioned the Olympics already, right? How about “explosions” have dropped greatly. Good news, eh?!

11. Poverty, prostitution and corruption. No matter how honest you are, these three things will find you in China. First, you can avoid the sex but a knock on the door or a phone call into your hotel room to offer a massage is common—often calls come multiple times as late as 1AM. The karaoke and nights out come with “companionship.” Shenzhen is said to have the most sex workers in Asia outside of Bangkok. Second, get out of the office, get off the Bund and get out of the exclusive expat villas and you’ll see the “other” China—800 million subsistence farmers and another few hundred million $80 a month factory line workers. You will be hit up for money in your car, at the entrances to subways, on walkways to shopping malls. Stories about kidnapping and maiming children to work as beggars are not unusual. Even the biggest and most cautions companies (Apple, last year) find out that their factory’s that force overtime, don’t pay minimum wage and fire people for getting injured. Despite the decades of 8% growth, China is still a developing country. Third, maybe you don’t have to have back-door personal access to officials to get the rights to do things any more but corruption is still a huge problem in China. Paying off officials to stamp documents that are required for opening an office in China goes without saying (you have no choice). Factories that start production before any licensing or registration is complete are the rule, not the exception. Kickbacks from factories to employees or third parties are openly offered and are expected in return. Buying or paying off 3rd party QC and strong-arm QC departments that force payments to approve goods are rampant.
11a. Over the past decade the disagreeable aspects of living in China have been sanitized, if not eliminated, to a large degree. 5 star hotels, a higher standard of living for approximately have the country’s population and “modern” cities and amenities that rival any other world city. Beggars, prostitutes and corrupt officials are regularly rounded up and shipped off to less visible parts of the country. And while have indeed been a number of quality scares with Chinese products recently, the majority of products are, according to the govt, safe and do indeed meet international standards.

Again, this is the reality of doing business in China. Maybe these things are not unique to China, but China’s what I know and where I work. These aren’t just a list of personal bad experiences either—I feel like I’m not just average but probably pretty lucky. In the last 5 years: I’ve only been pick-pocketed twice, I’ve have had three phones and a bike stolen, I’ve only had to pay one official just to do his job, I’ve only gotten debilitating food poising once, I’ve flown more than 250 domestic flights and had probably 75% on-time flights (20% on-time out of Shanghai), I’ve only had to fire 4 of 25 employees (all QC) for taking money from factories, I’ve only gone to a Chinese hospital once (kidney stones). And I live in “Chinese” areas of Shenzehn; I don’t live in an expat community and I don’t have a driver. I also argue with factories daily and I work 70+ hours a week. But I do choose to live here. I live here for a reason: there are opportunities here that I don’t have in other places—I choose to live here. But that doesn’t mean that it’s the best quality of life. You’ve been warned.

Tags: Culture by David Dayton
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With all the recent news about the Mattel problems and the resulting suicide I found it interesting what the Chinese were saying about the issue. First, the view of the boss that killed himself is very very positive. Apparently he borrowed a ton of money and paid all of his employees prior to ending his life. The Chinese I’ve talked to say that it really wasn’t his fault; he was lied to by a friend about the chemicals in the paint that he bought. When I replied that he should have done QC on the incoming product the response is often: “yea, but this was a friend.” As if friendship makes procedures unnecessary. And yet almost to a T everyone’s conclusions all seem to be the same—“you can’t trust anyone.” This is important for anyone doing business here—because so much of business is done through friends there is a huge amount of trust between friends and a serious lack of QC. I was told it would be an insult to do QC on goods from a friend. What does that mean for you, the out-sourcer in China? It means that you’d better be hiring 3rd party QC/testing or your just asking for trouble.

Second, my wife, who is Chinese, said of all the recent bad press about Chinese products: “China is killing China!” She has this week used this poor image of goods made in China as a tool when talking with factories about quality issues. This is the reality of the educated opinion in China—but will this opinion and the loss of face or poor international image ever change the way things are done here? My contention is no—at least not until the FDI starts showing up with tighter strings attached. Emotional decisions are, as we all know, prone to become less and less effective over time. The fact that people are riled up today doesn’t mean that production in China is going to change next month. It probably won’t. Immediate money issues are much more impactual on daily decisions than is an elusive “image of China” abroad.

Third, what I’m really please about though, if there is a silver lining to a bad situation, is that every factory that I’ve visited in the last two weeks has brought this up to me—from Jiangsu to Ningbo to Shenzhen to Taiwan. They are all talking about it. It certainly has people worried. And that, I think, is a first step in seeing some positive result come of this.

Finally I’m amazed (maybe I shouldn’t be) at the complete disconnect between what’s happening on the ground and the response from Beijing. The govt, almost in unison, has responded by attaching foreign governments for protectionism, blaming toy companies for causing an unnecessary scare, retaliated by “you do it to” product bans and basically done everything but take responsibility for the lack of enforcement in China.

Certainly there are problems is other countries. Sure there are foreign firms working in China that are culpable. But the scares are real too. And enforcement in China is notoriously bad and nothing is being done to fix that at the level where it matters most—the production floor. It seams to me that regular Zhou-on-the-street understands that China is killing China, not foreigners in these cases.

Tags: Business by David Dayton
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The popular image in the West is often “the Chinese government” as a single, wealthy, corrupt and motivating force driving 1.5 billion people to world domination. This monolithic image continues to wrongly be the scapegoat for many of the world problems—from environmental pollution to mercantilist energy purchases to an artificially inflated currency.

Much of this imagery is a hold over from a China of three decades ago. Some of it stems from the simplistic understandings of China that most in the West get from education that does not focus much, if any, time on Asia. And some of the misunderstanding come from the fact that much news that comes from China is written by people who either copy the People’s daily articles (assuming that they are legitimate news) or who are just in China for a week to “get a story.” The results are the poor understanding and masses of misinformation that currently constitute a very contrived opinion of “the Chinese government.”

Those of us on the ground in China often see a much different China—a fractured chain of command, various and competing power centers, local power brokers and the central government as not much more than the lead story on the nightly news. Regardless of the industry, talk with people working in China and you’ll here the stories of local power and regional authority contradicting if not openly defying the central government. Drive through China anywhere off of the East Coast and you’ll think you’re in a completely different world—8% growth, IP violations and BMW’s haven’t made it to most of the country yet.

But at the same time that many in the Western media and governments are discussing the issues they miss the bigger picture: misappropriated education funds, the current food and other product scares, local land grabs, individually corrupt local officials and a complete lack of enforcement of most central government policies are just the highlights on the long list of “this is not a centrally controlled state.” An article in today’s Asia edition of The Wall Street Journal specifically notes that there are sectors of the government/economy/legal system where there are “no legal framework to govern [local officials]” thus giving them tremendous amounts of power over local activities (13 Aug, 07; p.9).

Despite the obvious evidence that China is not as centrally controlled as the Western powers and media would lead us to believe there continues to be article after article bashing a singular authoritarian “Chinese Government.” I’m not defending the Chinese government but I am frustrated by an image that both hurts political relationships and damages business opportunities.

For example, the continued pressure by the US Congress on the Chinese government to revalue the Yuan (RMB) mostly hurts individual Chinese employees, US companies and US consumers. Basically it’s meant that politicians can court labor unions in the US and then never disclose that fact that their anglings have made the price of everything produced in China go up about 9% over the last three years.

In addition, much of the trade deficit itself is a big media and political scare tactic—60% of that huge trade deficit (at least 60% of the annual exports from China) is from subsidiaries of foreign companies. The trade deficit has, in large measure, been created by US (and other foreign) companies moving production to China and shipping cheap goods back to the US not by the Chinese mercantilist government. US tax structure even supports these shifts to overseas production.

But even as I write this, Beijing is doing it’s best to prove me wrong and give the West more fodder for their China bashing. But oddly enough, I support most of it! Outside of the increased controls over the media and dissidents recent policy from Beijing is excitingly pro-environment and pro-business. New controls by the central government over land appropriations, pollution, energy policy, and a desire to slower down the economy before it overheats all show that Beijing does want more actually control to do what’s in the best long-term interests of China.

What does this mean for SME’s? It means that you’ll get to ride the coat-tails of the big business and their lobbyists in the US when it comes to free trade policy making (good). But you’ll also get take a hit to your profits as the US continues to pressure Beijing revalue it’s currency (bad). In the coming years you’ll see much more environmental control by Beijing resulting in a better working/living environment in China (good) and more standardization in business and legal practices across China (better). There are still serious questions as to China’s commitment to other freedoms (I have to watch my working here so I don’t get block) but efficient (yes, you read that correctly) and clean growth are indeed central government policies—let’s see if they are enforced.

Tags: Business, Politics by David Dayton
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I’ve had two questions come to me this week about tech in China—both about IP protection, really.

First was a question in response to the news that Microsoft is lowering its prices (drastically) for Vista in China to compete with pirated copies. The new price of real software is about $65 USD; that’s about 65% less than what it was before. But even at that discount price its still about $60 more than what you can buy a knock off copy for here in Shenzhen—of course, I only know this because I’ve seen posted prices in shops; I wouldn’t buy one since I use Mac. But the question was—why is it so cheap there and can you buy me a copy (or 10) and mail them to me in the US?

No, I can’t buy you a copy. Sorry. But I’ve got a better answer for why it’s so cheap.

Without asking MS themselves, there are a couple of theories on fighting piracy. The first is to compete with piracy head on—push for enforcement and cut prices to make real products attractive enough that morally minded citizenry would buy the real thing (if its cheap enough). The second is the theory that piracy actually helps build brand recognition and MS will make a show of fighting it but can deal with loses in the short term for the development of market familiarity and the potential of the long term.

I think that the first theory is doomed to failure in China as the ideas of Western morality are not common here. Chinese are not guilted into doing the right thing. They do it out of choice, force or shame. But not guilt. I think that the second is equally prone to failure, as MS can’t foresee what the future of legitimate software will be in China. Nor can it see the future competition. To bank billions of dollars on the hope that people will simply buy what they are familiar with instead of any other (currently unknown) option is pretty weak knowing how fast things in China change. Sounds too much like the old British pipe dream “if each Chinese would only add an inch to his shirt tails…”

I think that the reality of China is much less sexy and much less strategic. The fact is that there is very little enforcement of IP laws in China. Indeed, I believe that there is a certain national promotion to catch up with the West at any cost. And until this reality changes, MS and others are left with little choice but to minimize loses as best they can. There may be a degree of brand development and certainly a lot of PR about enforcement, but the bottom line is profit—if you’re selling relatively few real copies of Vista now, more copies sold at less $ per piece is better than nothing.

The second question I was sent this week was more practical: what can I do to protect my IP in China? This has been covered before by me (here) and by others (here). But in brief there are a couple of concrete steps to take and concepts to understand. First, if it’s worth protecting its probably worth stealing (obviously). Without much actual enforcement in China you can pretty much bet that you’ll get some “leakage” (as I heard it called here). So even before you come to China you need to asses the cost of doing business here—which will, most likely, include IP theft. If you can’t handle this, stay home (and if your product sells well someone will buy it, reverse engineer it and you’ll have “leakage” anyway—just latter than sooner). And remember, IP theft is not unique to the Chinese, although they may have found a way to mass-produce it.

Second, if you decide that coming to China is worth the risk (and it obviously often is) than you need to file for all legal protections available to you in your home country BEFORE you come to China. Think this is a no brainer? You’d be surprised.

Third, now that you’re legally protected in the international arena you should find a good law firm in China (I recommend Harris and Moore) and do the same thing here—file for all legal protections available to you in China. Now if there is not much enforcement in China, what’s the point? The point is that while there is not much enforcement you can take your case to court and you do have a chance of winning and the situation in China is getting (incrementally) better all the time.

Fourth, there are physical steps that can be taken to protect your IP.
•Build good relationships with your factories. If your relationship is worth more than stealing your IP you’re probably pretty safe—I personally think that this is your best defense.
•Divide up the sensitive parts of the IP so that no one single factory has access to then entire product.
•Have your own personnel on the ground looking after your interests here—this needs to be someone that can speak and read Chinese and maybe Cantonese if you’re in Guangdong.
•Remove all molds and samples when projects or parts of projects are completed.
•Sign contracts and then live by them and expect your factories to do the same. If you are lax on your contract enforcement they will be more than happy to be lax too. You can’t pull your contract out at the last minute before you ship and try to beat them over the head with it if you’ve been accepting and making changes for the previous few months.

Tags: Business by David Dayton
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