Silk Road International Blog

So let me get this straight…
1.    If my factory makes a mistake I get stuck paying for it or lose my deposit or go to court just to get what I contracted for?  Right.

2.    If my factory can’t hit the quality standards specified I get stuck with lower quality goods, or no goods and no refund?  Right again.

3.    If my factory can’t understand the language in the contract but sign it anyway, I’m at fault for not realizing what they could/couldn’t do before the contract started?  3 for 3!

4.    If my factory is late because of the 0lympics, a typhoon, government raids, not enough laborers, blackouts 2-3 days a week, underestimated schedule or overzealous sales department commitments I’m stuck dealing with missed shipping dates because there is no way in China, to get them to pay penalties except going to court?  Yup.

5.    If my factory runs out of money because of the bad economy (non-paying domestic clients) I’m forced to pay early to get my product completed or just lose everything?  Uh huh.

6. If I want to send samples to a domestic factory or to the US, the (concluded) 0lympic security says that we can airmail flocking but not glitter, and we can’t airmail semi-precious stones, batteries or electronics?  Is it selfish to already be dreading the Shanghai Wold Expo in 2010?  Or the World University Games in Shenzhen in 2011?  Yes to both.

One more point on shipping in China, and this has nothing to do with recent security.  We have accounts with all the big three express shippers but typically only use one of them.  This account has been based in the US for years now.  But this last year we have been getting “hints” from the local office that they’d like the billing to be run through them and not the US.  Hints like, late delivery, hang ups when we call for customer service, double billing, and now outright threats to stop service if we continue to use the US account/billing.  We’ve called the US office and they claim they talked with HQ in Guangzhou and there is no problem.  But the local delivery office in Shenzhen (who I’ve talked with personally about this a number of times) is insistent that they can’t service our account properly unless the billing goes through them directly!  Don’t ever discount the power of a good extortion play.  So if we have 3 accounts why do we continue to use this one?  Well first, it’s actually a bit cheaper to bill though China.  And second, the express provider has a great international network set up.  Much better than the other two.

So despite the extortion our account will move to China–I guess you could say this is economics with Chinese characteristics.  Or maybe just a lesson in getting the same results in a culturally appropriate/different way.

Yes, all of these are questions or situations that we’ve either been in or been asked to solve for others these last couple of months in China.  Still think it’s not worth it to hire someone to represent you in Asia?  No way you can solve any of these problems without being here, on the ground, 24/7.

But it could be worse.  You could be in Bangkok.

1.    The new airport really sucks, and it’s getting worse.

2.    It’s annual protest season again and that means that hundreds of trucks blocked trains, roads and airport access (ok, that’s not so bad) and generally made the GDP sucking BKK traffic even worse. Poor Aussies.

Thailand is unique in that they seem to be able to have total political chaos every couple of years and still maintain a relatively stable work envornment, albeit for the week or so of major protests.

Here’s my take: The protests will get worse next week, there will be a settlement of some type.  Taksin will not be returned, investor confidence will remain high, exports will continue as will economic growth, old PM will step down, a new PM will be “elected” and by October, things will be back to normal.  In the meantime, getting to and from the office or the markets in Sampeang will be tough, but other than that (and wading through all the new political slogans and bumper stickers) things will pretty much go on like it has for the last 25 years.  Sabaay, Sabaay.

3.    The crisp clean smell of teargas is in the air.

4.    Inflation is up.

5.    So are interest rates.

6.    But don’t worry about the economy, political instability is now the biggest concern.

At least the beaches haven’t washed away.  Yet.

*The title is from a client who was visiting a factory and hired SRI to try to solve some QC issues.

Tags: Business, China, Thailand by David Dayton
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I’m really trying to get past the 0lympics, but there were just so many good quotes and pieces that I’m still referring to some of them. But this post is about how attitude affects business, and only slightly related to the 0lympics.

Great article by Orville Schell on what the 0lympics could mean for the future of China.  It fits nicely with what I’ve been saying here about knowing who you are working with. When you know with whom you are working you can extrapolate much about how they will negotiate and where their intentions may be coming from.

One of the best sections of the Schell interview is this:

Q: In the run-up to the Olympics, many in the West have been surprised by displays of intense Chinese nationalism — or patriotism, depending on your point of view. In particular, the young and better educated Chinese reacted with strong indignation over the Tibetan protests. What does this say about the younger generation in China?

Schell: This is an interesting question. How has it come to pass that the latest generation of Chinese, who are better informed and educated about the world and more well-traveled than ever, and consequently more deeply involved in the world than at any time since the late 1940s, has ended up being even more nationalistic — sometimes even xenophobic — than earlier generations who lived much more cloistered, isolated lives under Mao in the midst of an anti-imperialist revolution?

Part of the answer may well be that in ways which are difficult to actually quantify, the Party’s own propaganda has helped distort their perceptions of history and made them feel a kind of acute “virtual” victimization that, while historically true in the past, is far less true today.

But, I suspect equally as important is the innate yearning of most Chinese to once again see their country restored to the status of a well-respected and great nation. However, what often seems to be missing from the equation of this yearning is the recognition that global respect is something that is not earned by “wealth and power” alone, but comes just as much from a country’s constructive deportment as a global citizen in our new multinational world where everyone is now ineluctably connected to everyone else. Here China is far less mature than in the area of development and marketization of its economy. One must raise sensitive questions here such as its opportunistic relationships with the governments like those of Burma, Sudan, Zimbabwe and Iran.

I’m constantly reminded that many managers, 40 years old and up, came from very austere backgrounds and can, quite literally, out wait, out work and out strategize you—because you most likely don’t know where they are coming from and will more than likely underestimate them since they are certainly not as sophisticated as you or their younger employees. But the people whom you may be working with most directly, the mid level managers (30 somethings) and (your) professional staff (20 somethings), also have completely different histories and attitudes.

I have always felt that younger Chinese professionals are typically much better educated, more international, patriotic, and very sensitive to any (perceived) criticism of China.

Pierre Xiao Lu lists out the generations and their general attitudes in “Elite China: Luxury Consumer Behavior in China” (excellent info in this book, by the way—review coming next week). Briefly, according to Pierre, the urban Chinese generations are:

The New Generation; born before ‘45. Witnessed a half-century of incredible change; well educated, in important sociopolitical positions, parents of Transitional generation, about to retire.
The Lost Generation; born before ’60. Victims of CCP social upheaval, lost educational opportunities in the 70’s and jobs in SOE’s in the 80’s and 90’s, first/most affect by one child policy too. Parents to the One Child Generation.
The Suffering Generation; born before ’70. First generation to really “see” the world and work with it, also saw the events in T!ananmen Square, conservative, well educated, current source of most of China’s “elite” class and much industry upper management.
The Transitional Generation; born before ’80. Grew up in stability, reform, opening up, money. They are optimistic, well educated, confident and pushing the “New China” forward.
The One Child Generation; born before ’90. In or just out of university, internationally oriented but very nationalistic, affluent, trendy, morally relativistic, aspiring professionals.

Each of these generations sees China very differently—indeed the lives of the New Generation and the One Child Generation are as different as Mars and Venus. If you count urban and rural populations, each of these generation encompasses 200-300 million people (or just about 1 entire USofA each).

Anther good article that addresses the attitude of the Chinese about the Olympics—they were “owed” this.  And it was much more than a game—it was about showing the world that they have “arrived” and are a “strong and powerful” nation.  Again, if you clearly identify who your hosts are and what they are thinking, in general, it helps with negotiations, relationship management and problem resolution.

Finally, a very practical piece about priorities in your China operations.  How much due diligence are you doing on your factories before you buy in China?  I would dare say that it’s not as much as Coca-Cola.

Two very interesting items I take from this article.  First, the number of factories in the food industry that are substandard (more even scarier food news here) that are substandard is enough to make you want to stop eating. (What does this say about other factories in other less regulated industries?!)

And second, the level of importance given to employee training by Coke—again what does this say about where money and priorities should be here?  This is a heads up!  You should be investing in your suppliers.  I have a friend in the furniture business that has been here for 20 years.  This is his contention too—invest in people and you’ll get what you expect in quality product.  More so than a complex contract, more so than even dedicated QC.  Investing in the people who are touching the product will get you better results than investment in any other single area of production.

Tags: Business, China, Culture by David Dayton
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So now that it’s all over, what’s next?

First a couple of comments on the 0lympics and then some application to doing business here.

I’ve said for 8 years—this will be the best Olympics ever—and it appears that it was.  Was there any other choice?  With more police than foreigners in the capital, control of the weather, no protests (no iTunes), people so happy and proud of China you’d think you were in Disneyland instead of a “real” country.  It was bound to be perfect.  Congrats to the Chinese.  They’re proud of themselves, and that was the goal.

Best Olympic quote, by David Zweig, China expert at Hong Kong University of Science:  “I think there was over-expectation from the West,” Zweig said. “China was authoritarian on the way into the Games and it will be authoritarian on the way out.”  This is likely to be the case for many years to come—can your “China strategy” deal with that reality?

Second best Olympic quote: “This is the beauty of dictatorship: They can do many things that other countries cannot do,” said Guoqi Xu, a historian and author of the book “Olympic Dreams: China and Sports, 1895-2008.” “You have to remember they even controlled the weather. No other country would do this.”

The sad thing is not that China held an honestly great event or took the most golds but that Thomas Friedman (NYT, The World is Flat) and others are jealous of the Chinese govt’s ability to “get things done.” They whine about the fact that in democracies projects can’t move as fast (due to unions, human rights, legal statutes, contractual obligations and other worthless democratic bullshit).  They think that infrastructure and events are more important than people and freedom.  Pathetic really.

So now that it’s over, what has changed about working in China?  Nothing–except maybe the attitude of your Chinese supplier.

You still need to ask the right questions to the right people.  You still need to be on the ground as much as possible and you sill need to QC, test and recheck everything.  But now, you’re not so hot any more.  China “has arrived.”  At least in the minds of 1.6 billion Chinese.

Hopefully there are a few other things that we all learned from the 0lympics too  First is that China is GREAT at presentation.  Know this before you go into a factory.

Second, the priorities of your China supplier are most likely NOT the same as yours.  You may be “partners.”  You may be working for the same physical end results.  But do you know what their expectations, goals and priorities are?  If you don’t, you’re going to be on the short end of the stick when it comes to price/quality/timing/etc even if you do get what you asked for.  Know your partner or, like the IOC, you’ll get caught with your pants down when the final product is revealed.  Third best quote about the 0lympics (but I can’t remember the source): “Probably not much will happen (with the Chinese gymnasts issue).  The IOC just wants to get out of China in one piece.”

Finally, English didn’t take as a permanent fixture in China, so you’d better hit the Chinese lessons again.  I’m a big proponent of people learning Chinese.  Not only is the only way to assure you get exactly what you want, it’s polite and it shows commitment on your part.  And, as the medal numbers suggest, it’s probably just future smart.  Besides, it’s not that difficult—honest.  Maybe you’ll never be able to write, but with computers now, you don’t need to.  If you can sing you can speak in tones and there is no conjugation of verbs!  Grammar is pretty simple.  Besides you’ve got more than enough available tutors who are all dying to trade you English for Chinese lessons–just go to Starbucks, sit down and start smiling at people.

Here’s a great example of what you get if you speak Chinese.  This is a great site, by the way.  I don’t always agree with some of Jon’s politics, but he plays basketball, speaks Chinese and is here for the long haul, so he must be a good guy.  As for the blog, great language postings (most of the time), good business-applicable comments (some of the time, even though it’s not his focus), a fun blog with some fantastic language tools (all of the time)–check out the pages other than the blog.  No, I don’t know him.

A couple of other sites for either beginners or intermediate learners of Chinese.  Serg has a great site with simple lessons that start from beginners to advanced.  He updates them weekly and you can buy worksheets and activities too.  CSLPod is one of my favorites.  You’ll have to have at least some basic Chinese to use this, but once you’re past 102 level you can lean current events vocab on your own.  You can get both of these in pod-cast format too on iTunes (not blocked any more–Yeah!  And yes, I bought the T!bet album just because it was blocked–no such thing as bad publicity, eh?).

*The title quote comes from my kids’ favorite Disney movie, The Emperor’s New Groove. (OK, it my favorite Disney movie.)  At the beginning of the movie, the emperor is changed into a llama.  In the end, while trying to change back to a man, he gets changed into a number of other animals, one of which is a llama, again.  Thrilled to back to “normal” he says—Yea!  I’m a llama again!  Welcome to China after the 0lympics.

Update–some other Post 0lympic Articles of value.

Washington Post

Asian Sentinel

International Herald Tribune

Open Democracy

WSJ Online

SECOND UPDATE. One more GREAT!! Post 0lympic article from the Times Online.  This backs up my contention that many (under)educated (or extremely liberal) journalists wish they could just “fix” the rest of us without having to deal with the democratic processes.

Tags: Business, China, Culture, Politics by David Dayton
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I’ve written a number of times about Inland Western China vs. Eastern Coastal China and the advantage and disadvantages of each and how to decide where to locate.  There are certainly hundreds of other city and country specific comparison pieces online too.  Some of the best are at the All Roads Lead to China blog, in particular the reports on China’s Other Cities.  This last week, once again, Richard Brubaker at the All Roads Lead to China blog has listed out some great questions and comparisons between China and Vietnam.  Read the full post here.  Dan at (China Law Blog) beat me to commenting on this.  His post is here.

We regularly get requests for info and pricing/production options for factories in Vietnam and other SEA destinations; we have an office in Thailand to take advantage of these very opportunities.  In the last couple of years we’ve done work with factories in Thailand, Vietnam, Malaysia and Cambodia (as well as China, Taiwan and South Korea).  Each project not done in China had a specific reason: some for tax/tariff issues, some for publicity, some for price and availability of materials, some for quality concerns and some because of existing relationships.

Regardless of the product though, the process of supplier (and city, country) selection is one of the most important things you can invest in pre-production.  Oddly enough, I find that it’s often a secondary thought for folks coming to Asia for the first time.  Often times visiting a trade-show is given more time than selecting the correct local for manufacturing.  I can’t stress enough how important the location you select can be–it will affect everything from price to how you negotiate that price; from what materials you use and their quality to the quality and experence of managment and labor.  This decission should be investigated and invested in (yes, spend $ on chosing your supplier) as a major priority in the production process.

Brubaker asks several great questions of those considering a move:

1. What’s your China platform?  This is a serious question and the one that most people get wrong.  Honestly, are you here for a single production run, to buy stock items, or to set up a manufacturing base/logistics and sourcing center.  More than one of the “fix it for us” projects we’ve done is because someone that should have a presence here is using a HK trading company to manufacture custom product.

2. Where is your market?

3. Where are your competitors?

4. Where are your suppliers?  News flash–moving to an ASEAN country is not going to get you away from Chinese suppliers.  In fact, the Chinese are probably both the suppliers to and the largest investors in your ASEAN factory.

5. Is your product high tech or high labor?

6. Were you previously compliant?

I would add a couple of additional questions to this list.

1. Why are you considering moving?  Really.

2. What are the domestic and international tax/tariff structures where you are considering moving to?

3. Can you find the professional support (staff, legal, IT, translation, etc.) that you’ll need?

4. Are there outside factors (environment, social compliance, media) influencing your move and will these really be resolved by moving somewhere else in Asia?

There are of course tons of other product specific questions that you’ll need to ask (and answer) yourself.  But Brubaker’s advice on the various areas within China and his comparisons in his post give you a great starting point.

Tags: Business, China, Thailand by David Dayton
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If you’ve read this blog for any amount of time, you know that I love basketball and the US.  (While at the same time choosing to be fat, eat chocolate and live in China.  Go figure.)  Mixed in with numerous Jazz home games over the years, I saw the US Olympic team play in Guangzhou in ‘06 and the Orlando Magic play in Macao in ‘07 and the “Redeem Team” play against Spain last weekend in Beijing.  It’s corny, but I love this game and I love my country.

That’s why, when I heard about Kobe’s comments about America I was honestly excited–could it be that a superstar was actually going to take a positive (political) stand on the USA?!  Yes, indeed.

WSJ supporting opinion on the Kobe interview here.  Videos are all over the net.

While I love that someone famous is taking this position, I’m disheartened that the current state of affairs is such that hating America is the default assumption and being patriotic is so “uncool.”  Other people can love their home country, why won’t Americans?  Would it hurt so much to fight for the positions you believe in, fight against the politicians and issues you dislike and still admit that your country is great or at least likable?

I love the US–worts and all.  My great grand parents immigrated from England and Denmark to the US; one leaving money and family and living in a grass lean-to on the Central Plains for her first years in the US.  My Grandpa was a Air Force Colonel who served in WWII, Korea and Vietnam.  My grandmother graduated from college when she was 55 and coordinate a July 4th pageant at her church every year for decades.  My mother is a state senator for Utah.  I have an uncle and 4 cousins who have before or are now serving in Iraq.  I thank God for all of their sacrifices for me.

Everyone, Chinese, American, and all others have the right to love their country.  Kudos to those who stand up for it in public.  While doing business over here, I can both be grateful for the countries that I work in and respect the people while still loving my own heritage and country at the same time.

PS-since I’m waving the flag already, here is a list of some great books about the US (sure, there are others too).

1776, David McCullough

Alexander Hamilton, Ron Chernow

Team of Rivals, Doris Kearns Goodwin

Flags of our Fathers, James Bradly

Founding Brothers: The Revolutionary Generation, Joseph J. Ellis

Tags: Politics by David Dayton
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