Entries Tagged as 'Business'

Guanxi and Contracts–A Chinese explaination from the US.

Some fantastic opportunities to learn about China are more and more available in the US.  While in the US this month I attended a couple of sessions of the UVU Doing Business with China seminar in Utah.

First, Andrew Hupert presented a great keynote address on Guanxi.  All that needs to be said/known about this can be read in his great ebook: Guanxi for the Busy American.  You can buy it at Smashwords.  Some highlights include:

1. Relationships come before any contract (Guanxi as Due Diligence).

2. Relationships come after all contracts and work are completed (Guanxi Best Practices).

3. Get these relationships right or have never ending frustrations (Guanxi Myths and Realities).

Second, in a follow up on this, in a break out session on working with Chinese in the US, the Chinese speaker said two things that I found very interesting.

1. There is a “misunderstanding” that Chinese don’t follow contracts.  She said, this isn’t true, they just understand things differently.

2. To support this position her example was this: Chinese buyer signs a contract with the US supplier.  Exchange rate changes dramatically and now the funds that were guaranteed just days prior are not longer available.  Chinese client comes back and says that the contract must either be re-negotiated or cancelled.  Chinese buyer is outraged that the supplier was not willing to change the order (that was already in place and financial commitments made on the supplier side).  So the buyer disappeared and blocked payment.

This example was supposed to show how both important Guanxi is and that Chinese do keep contracts but just understand them differently.  Everyone in the room exchanged awkward glances and I don’t think that anyone of us made the same connection that the Chinese speaker had.

It reminded me of something that my graduate professor said to me.  In a moment of truth while talking about gift-giving in Thai business, she turned to me, dropped the academic façade and said something along the lines of, “It’s all just bribes, isn’t it?  We can call it whatever bullshit we want.  But it’s really just bribery.”

In the same vein, Chinese can call it whatever they want, but if you sign a contract and make both financial and legal commitments and contractually obligate your counterpart to do the same and then want to change because it’s not convenient for you any more that’s called: “not following a contract.”

Now sure, things change, money moves, opportunities disappear.  That’s what due diligence is for.  That’s the point of a contract—to confirm that each part has both what they claim to have and are willing to follow though regardless of the extenuating changes.  Can true partners be flexible?  Yes, to a degree.  Can people with Guanxi make changes?  Absolutely—but often after money is spent, you can’t just “call in a favor” from a buddy and expect a relationship (which the American partner doesn’t value nearly as much as the Chinese counterpart does) to cover those costs.

Third, with both the political and economic clouds Chinese with money (i.e. those with influence/education) are leaving in greater numbers.  This can’t be seen as a good sign for the future of China.

Un-Fair!

You’re playing with a stacked deck when you go to fairs and trade-shows.  It’s best to do some due diligence work beforehand and keep you cards close to your vest while there.

Part of the problem is that you likely don’t speak Chinese, and English may or may not be good enough to negotiate quality or delivery issues.  Sure, everyone speaks “numbers.”  But quality, packaging and any degree of customization can be next to impossible to confirm without help.

Another issue is who you’re really talking to.  Often times groups of small suppliers (vendors, factories, trading companies) from a specific area (or even a group of classmates) get together and create a single “supplier” for a number of different items/services that they want to offer at the Canton Fair but otherwise couldn’t afford to do on their own.  This means that the person you’re talking to may not even work for the actual factory that you’ll be ordering from.  They likely will commit to just about anything you ask for as they don’t want to disappoint their “boss” from the other company in their group.  Bottom line, it means that you often can’t count on the quality of info that you’ll be getting from many suppliers.

In addition to that, the show may be good place to order stock-items, but it’s not the venue for discussing custom work with a potential supplier.  Not only will you likely lose all your IP to each factory that you share your ideas with, but they don’t have time on the show floor to talk about future opportunities with you while other paying customers are waiting to buy current product.

Here are some practical tips to getting the most out of your week in China.

First, know who will be there and what they offer.  There is nothing worse than getting into GZ and realizing that you’re attending the “wrong” week’s show!  While you can avoid this with a little research, it’s much harder to figure out if the people that will be there will actually have what you’re looking for.  For example, the craft and hobby industry in the US has shows that are specific to their industry.  But in China, craft and hobby is NOT it’s own industry and the suppliers that would be at a craft and hobby shows in the US may be at any one of the three different weeks of the Canton Fair.  If you’ve only scheduled 7-10 days in China, not following this one tip could ruin your trip and waste thousands of dollars.

Second, talk with (via email/Skype) and set up meetings with potential suppliers before the show.  Confirm what they can’t and can’t do, make an appointment to meet that at the show and also see if there will be anyone at the factory to meet you during show week.  Doing all of this BEFORE you fly to China.

Third, don’t walk the floor—the best way to waste time and be sure to miss some hidden gem is to just aimlessly walk up and down each isle to “see what’s new.”  Unless your goal is to rack up miles on your pedometer, going just to go will likely get you few if any tangible results.

Fourth, hire an interpreter and a driver.  Your goal is to get to “PO” within a week.  To do that you need to be asking very specific questions and getting full detailed answers.  Most “sales-person English” will not give you this level of detail.  And most sales-people will not give you all the info that you want.  An interpreter will be able to ask the “other” people in the booth the more important questions and also be able to tell you (since they work for you) what’s really being talked about when you can’t understand.

There will be more than ½ million additional people in GZ for the three weeks of the Canton Fair—it will be next to impossible to get a taxi, subways are packed to the hilt and there is no way that a hotel will have any free shuttles other than back and forth to the airport or Fair venue.  Hire a driver and he can not only get you around town where and when you need to go, but he can also get you out to factories.  Since he’s on your schedule you can leave early and stay late; you can even go out of the way to other cities (likely necessary if you want to see as many suppliers as possible).

Fifth, take copious notes on conversations, who said what and get THEM to write down prices/dates and other important information that you don’t want to be “updated” after you leave.  Also, make sure they have a copy of the same infor that they’ve given to you.  If you have one set of notes, the sales person then leaves (goes back to college since they may not be a full time employee) and someone else has to then negotiate follow up with you, chances are slim to none that you’ll be talking about the same times two weeks later when you and they get back to the office.  And remember, they’re following up with hundreds of buyers all about very similar items (and they may not have ever even met you in the first place).

Included in the notes would be photos of both product and notes/prices written by the sales person—email them back what they gave you so there is less chance of misunderstanding.

If you’re still looking for more info on the Canton Fair specifically, there is a white paper on the history and culture of the fair—While it’s a great resource, I think that it significantly whitewashes (sorry) the problems of the fair and the nightmare that is Guangzhou city for the months the fair is in session.

Shows are shows.  Taking notes, meeting them before and after and also visiting the actual factory are really the only ways to know with whom you’re working and if they can actually do what you want.  My opinion is that you should be spending more time on vendor qualification and follow up before and after the fair than time traveling to China and actually being “at” the fair.  If you’ll do this, you’ll likely have a much more successful experience.

Good luck!

Talk with People who really know (i.e. people who are here)

Tivo is great.  I can watch TV from the US on my computer in China.  One of my favorite commercials from the US that I’ve seen while watching the NCAA Tourney at 4AM list last month is the direct TV commercial that ends, “Don’t have a grandson with a dog collar.”  Yup, using the wrong service provider can lead to many unintended consequences.  So choosing who you listen to and work with is of vital importance when you’re new to China.

It’s pretty easy to tell the difference between people who really know about working in China and those who are just here for a trade show or a “drive-by” media visit.  To me, defining characteristics of those who “get it” almost always include, some degree of fluency in China and extensive time (years) in country.  What’s great for those of us that work in and study China is that these people with real experience are writing some great books and articles.

Some of the authors that I’ve really been impressed with in the last 5-10 years are include, Bill Dodson, Andrew Hupert, Leslie T Chang, Gordon G Chang, Michel Chevalier and Pierre Lu, Peter Hessler, Scott Tong and Frank Ching.

I bring this up because of this article in the New Yorker (h/t WSJ China Realtime Report).  Ms Chang gets it right.  China cannot be understood by people whose only point of reference is only the West (my interpretation of what she is saying).  When your starting point, socialization, processes, lifestyle, education and end-goals are different, not to mention the fact that the social/political/economic infrastructure is different as well, the cross cultural comparisons and conclusions are almost always completely inaccurate.  This means that “news” is usually agenda rather than fact driven and “in-depth” pieces are often more about connecting with emotional currents back home than actually doing “in-depth” research into China.

I started my work experience in China in Thailand in “89–I learned the language as a missionary.  I taught English at a University in Chongqing China in “95.  I went back to BKK in ’97 and did graduate work and also translated for foreign consulting companies helping PTT and Shinowatra in BKK.  When the Thai economy crashed in ’98 I wanted to stay in Asia.  So I moved to Taiwan and taught English at a high school in a small town so that I could learn Chinese.  A couple years later I started SRI, again in Thailand, but within a year moved to China in 2002 to manage the SRI China office full time.

What’s the point of this little trip down memory lane?  Two things.  First, I’ve been a missionary, a teacher, a translator, a tour guide, a business owner, project manager, a QC engineer, a father and husband, a tourist and have lived in 4 cities in China/Taiwan in last 17 years (not to mention 6 cities for 4 years in Thailand).  And while I lived in Asia for a decade before I started SRI, I wasn’t a very useful source of business information while I was ensconced at a university or high school.  When I tell you that missionaries are wonderful people whom I admire greatly but who typically do not have extensive business experience in China, I’m simply speaking from personal experience and a desire to direct people to a better source for business advice.  Ditto English teachers.  Foreign English teachers live in a parallel world that has little or nothing to do with the actual business world in China (unless they are managing their own schools/businesses).

There are always exceptions and I’m not trying to be rude to these folks in anyway.  I was “these folks” for many years (and I’ll likely be them again after I’m retired–service is a good thing).  I’m saying this to point out English teachers and missionaries (among others that you’ll meet in airports, restaurants and churches) are not the people that you look to for advice when you want to start a business venture in China.  When you don’t even know China yet, you don’t want to have to do due diligence on your due diligence sources!

Second, the people that will be most helpful to you are people that are actually doing business in China.  Like the people on the list above.  Yes, you can learn a ton from the successful business person that flies to China a couple times a year for a show, but you can likely learn even more from the guy that lives, works and manages projects there.  China changes quickly you need to be here to keep up with it.

Maybe this all goes without saying–of course you wouldn’t take advice on how to set up a business from someone who hasn’t done it before, right?  But my experience is that when coming to China (typically the very definition of “foreign” for most people) advice is too often solicited from anyone that can say 你好 or can use chopsticks.  I’m not exaggerating.  The two groups of people that most often come to SRI with projects that are in need of rescue (they’ve started but can’t be completed correctly or can’t get started or have been ripped off) are people that didn’t do enough due diligence (with the right people) before they paid a stranger to start a project or people that ordered product online (paid in-full up-front) and can’t understand why it doesn’t work as well as Amazon.com.

Another great source of practical and useful business information is the FREE Global Sources Conferences in Hong Kong this next month.  There are presentations on marking, testing, sourcing, project management, avoiding problems, finance and exchange, QC and audits, and all from professionals with decades of actual on-the-ground business experience in China.  And no matter which GS show you attend, there are conferences every day of every show!

Oh, yea.  I’m speaking there each week as well. 😉

Who do you like to work with?

Probably who you identify most easily with.

A year or so ago my then 5 year-old told me, in all seriousness, “Dad I’m like Kobe, not white like you.”  Suppressing laughter I responded, “Actually, you’re more like Yaoming than Kobe.”  But he was insistent.  He was “black like Kobe” he told me.

Now he wants a Knicks jersey–bet you can guess which number.  Yup, 17.  Jeremy Lin.  My boys are all over him.  Of course so is everyone else with any connection to China.  Or the NBA for that matter.

But it makes sense.  Not only is he good, but generally people more easily like what they can identify with–educated, christian, Chinese, underdog story–he’s hitting just about all the right buttons.  Similarly, Obama gets 90% of the black vote regardless.  Ditto Mitt Romney and the Mormon vote.  And Lin and the Chinese community are the same.

So it should come as no shock that Chinese people like to do business with other Chinese people.  Or that foreigners often “just don’t get” how things are done in China.  One of the most telling examples of this was a young lady that I played basketball with in China a couple of times.  She was an ABC (American Born Chinese) who had lived her entire life in the US.  She is 100% ethnically Chinese and speaks fluent Mandarin–but for all cultural intents and purposes, she’s American.  She plays ball with the guys, wears pants not cute dresses to the office (her comment), talks like, thinks like and acts like a 20 something American.  She hated living and working in China.  Why?  Because while she “looked” like all the other Chinese, she was not the same inside.  People immediately identified her with “Chinese” and not “foreign” like can be done with white or black people.  But she didn’t “get” China and it drove her and the people she worked with crazy.  Last time I spoke with her she was on her way “home” to the US.

Whether it’s the language barrier or the cultural differences, the are assumptions made on initial meetings that are often wrong and subsequently can take years to overcome (if they ever are at all).  I’m a firm believer that you can’t drop into a country and do business and expect to be successful without some significant language and cultural training.  Of course there are exceptions to every rule, but the vast majority of experiences follows the rule.

When SRI works with Chinese from Mainland in the US they have the same problems here that Americans have in China.  They don’t understand the extent of the law, the nature of the market system (in my opinion most Chinese don’t know the difference between freedom and anarchy, but that’s a post for another time), they don’t realize how independent or religious or legally minded or linear (processes) American’s are.  They are completely blow away by the levels of trust and often confused when told not to “pay” for extra services.  They often comment on how “different” it is from China.  Most have commented to us something along the lines that since the US is “free” and a market economy that it would be more like doing business in Shenzhen (anarchy) and much less “legal.”

SIDE NOTE: One of the funniest things I’ve ever read on this was the anger of the Chinese government at the government of other countries during the 0lympic torch runs.  The Chinese were insistent that the participating governments control the demonstrations against the Chinese that was making them look bad all over the world.  When the governments told them they could not control free speech, the Chinese just couldn’t/wouldn’t believe that it was that simple.  During the 2004 winter games in SLC, it was the same.  The Chinese asked the SLC/Utah government to take down Taiwanese flags on balconies and windows in prominent buildings in the downtown area.  Of course they wouldn’t do it.

It’s no surprise then, that foreigners that don’t speak Chinese like to work with companies like SRI, or 3PQ and testing companies that have a “foreign” interface between the Chinese factories and the client themselves.  Not just for translation of language but for a translation of culture.  And even when great ESL is involved, an accent is still sometimes hard to deal with (it’s embarrassing to repeatedly ask someone to repeat themselves, pretty soon you just stop asking and realize that you’ll just have to deal with understanding 1/2 the information).  Ditto for Chinese in the US, they want to work with Chinese that are here already, that have gone through the culture shock and acclimatized already.

So how much of this is learned an how much is subconscious?  I don’t know.  For my son, he recognized a difference between me and Kobe and despite the fact that I’m his dad, he identified with Kobe (I hope that he get’s Kobe’s bball skills instead of mine!!).  For most adults doing business in a foreign culture for the first time, it’s probably mostly a conscious choice based on past experiences (of other foreigners they know or directly with other Chinese).

For now, I’m happy to be in the middle of business.  I do wonder what my boys will grow up and identify with though. In the meantime, while I can’t cheer for the Knicks yet, we certainly could do worse than someone like Jeremy Lin as a role model.

Chinese New Year And Other Reasons Why You’ll Be Late

If you’re starting projects this month chances are, unless you’ve already had very explicit conversations about delivery dates with your supplier, you may be shocked when your supplier (and everyone in his factory) goes on vacation in Jan and you’re left waiting around for two weeks for an update on production status.

There are two months each year that are horrible to schedule around—the month before and the month after Chinese New Year. (I guess the month of Chinese New Year would be a third, but we’ve learned just not to schedule anything this entire month so I’m not counting it.)   This year, the official Chinese New Year is the 23rd of January, but the traditional family-gathering days start a few days before that.  AND…and with millions of people heading for home from the east coast provinces the holiday can start as early as a week before the actual day since people can’t get seats on plans, trains or buses back home.

If you’re planning on anything getting done after the 15th of January you’re asking for trouble.

The Holiday can last anywhere from 5 days (officially) to two weeks for some.  Again, add in the difficulty workers face getting a train back to work and the vacation can stretch into February.  While all that time off can be a problem, the biggest problem is the fact that many workers will stay home as long as they can afford to.  And when they do come back many do not return to their same factory—at least they’ll spend a few days looking at other options before making a commitment.

All of this means a few important things for foreign buyers.

1. On Dec 1st you may place an order that usually takes 30 days only to find that it won’t ship until Feb 1st—a full 30 days later then you expected.

The month of December is SUPER busy for most factories.  They are taking orders like usual but all along knowing that they’ll not be able to finish many since their workforce slowly fades away as CNY gets closer.  Over booking, under capacity, and the inability to schedule maintenance or raw materials (since their sub-suppliers and service people have the same labor issues) is typical at factories of this time of year.

2. Of course this means that the month of January, the actual holiday month, can be a complete wash.  From the 20th to the 29th there will be nothing done.   Sure factories will be open for 15 days of this month, but that doesn’t mean that they’ll be getting much done.

Expats and overseas Chinese are also taking advantage of this too.  These are the folks with vacation and sick days built into their packages—what better time to use them then the days before and after the official holiday when nothing is happening anyway?!

3. As bad as that can seem to buyers trying to order and take delivery on a deadline, February can be even worse.  Why?  Because it’s the great unknown.  No one knows who is coming back or when/if they’ll actually be back.  Some years there is a real glut of workers and factories start back up on time and are full quickly.  The last few years though, there have been jobs vacancies at many factories stretching into March!

The keys to Chinese New Year is patience and flexibility.  There are a few things that your supplier honestly can’t control—a lack of labor around CNY is one of them.  So you’ve got to be able to roll with the punches over the next 90 days.

  • Don’t place time sensitive orders in December or January.
  • Don’t change existing orders or ask for rush service during this time of year.
  • Plan ahead—it’s not like Chinese New Year is a surprise, you can plan for it each year.
  • Don’t get mad at your supplier when they tell you that production times are double what they were if the same project had been started in November.  Likely, he’s pissed too, but he knows he can’t do anything about it (and he thinks you’re a jerk for not understanding that too).
  • If it sounds to good to be true (“Yes, we think we can just fit this in before the holiday starts”) it probably is.  Only you’ll not find out about the soon-to-be missed delivery date until mid January when it’s too late to do anything about it.

Most importantly, for 1.5 billion people this is the most important holiday (and also the only holiday, for some) of each year.  No matter your order/emergency, it’s not as important to them as their time off with family that they haven’t seen since last Chinese New Year.