Entries Tagged as 'Culture'

When 5%-10% more is a bargin

The background on this great idea comes from Wired Magazine.  But more than the great idea, and a Utah company to boot, the look into their issues dealing with China are insightful.  From the article:

Davis has run billion-dollar divisions of global conglomerates with integrated supply chains and the company has produced millions of Orabrushes, but they’ve still faced factory setbacks. The Chinese manufacturer they selected was having trouble molding the critical microbristles and couldn’t properly mold the logo into the handle.

I’m sure that Davis is brilliant at what he does, but even people with a ton of experience still have setbacks in China–it’s part of the reality of working here.  But their solution is even more interesting:

This hiccup spurred the team to evaluate the entire overseas production model.”Producing the product in China, shipping it to the U.S., and then getting it to the retailers is a long cash cycle,” says Davis. “There are also negative rumors in the pet industry about having things manufactured outside the U.S.” Despite manufacturing in Utah costing 5 to 10 percent more in Utah, Davis and his team decided to contract with a local factory.

When timing and  product quality are the major production issues, a higher production cost no longer becomes a barrier to production.  And suddenly China is not as competitive as it was though to be previously.

I have similar discussions with companies just about every week.  Identifying what are the most important current goals and needs sometimes rules out China as a production center even before production can start there.  I would much rather tell a potential client that they need to do their manufacturing in the US, and not use any of my services (read: not pay me anything), and get what they want than have them pay me to get them something that they’ll not be completely happy with.

Things that you need to have researched BEFORE you commit to production in China.

1. Time to market constraints

2. Cash flow timelines

3. Marketing and distribution in your home market

4. Product quality and industry/customer standards and perceptions

5. Mold and product design, production and protection

Just because you have a great idea and have decided that, for whatever reason, China is the place where you have to do your production does not mean that China is the best option once other factors are considered.  Do your homework before committing to any production location simply because you’ve heard or decided that it’s the best value.

The more things change…

…the more they stay the same.

Shocker: Official and unofficial numbers for China 2012 economy are not the same!!!  And, hold your breath…..the official numbers not only aren’t accurate they’ve erred on the side of making last year’s downturn less dramatic and the upturn more impressive.  Amazing how it always seems to happen that way for the govt. fighting for social stability.

All irony aside, the numbers show that growth, while slightly better is not at the 7.5-8% levels that just 5 years ago Beijing was claiming MUST be maintained at all costs to keep employment where is needed to be (one of the arguments for not floating the currency).  Growth at 5.5% this next year without significant reforms for the 400 million still not urbanized and poor job prospects for the recent college grads will mean continuing frustrations for the CCP (especially as housing prices start to tick back up again).

New Business Insight: Don’t transfer Western business practices to China directly without some cultural/market specific adaptations.  Do MBA’s learn anything other than numbers in grad school?  Surely they have to take a couple of OB or corporate culture classes, right?  I’m no accountant, I’ll be the first to admit.  But if I needed one, I’d hire one rather than think that I could do it myself.  Why don’t accountants (not picking on accountants specifically, just making a point) hire Chinese consultants before moving to China?

Amazing Thailand: A Buddhist country steeped in centuries of political corruption and a face-conscious culture chooses the middle ground to keep the economy going and wait out the end of the King’s reign.

Creativity–It’s not that they can’t…

…They’ve just never been asked to do it before.

Interesting article in the WSJ about the lack of creativity in Asian graduates.  But I think that the article misses the point.

The conclusion is that Asian grads aren’t creative because they don’t have he soft skills that come from a liberal education.  Ironic that this is the conclusion since the rise of the liberal arts education in the US is blamed for the demise of the US worker, the plight of the ’00 generation, the worthless degrees being offered (at outrageous prices) at most US institutions, the lack of engineers, etc., etc.

Having worked and lived in Taiwan, Thailand and China for almost 20 years, I don’t think that this is the problem at all.  The problem in Asia, like the real the recent problem in the US is the lack of any development of young people and development of practical skills OUTSIDE of formal education.  Specifically, the first job that most Asian grads have ever had is the first job that they get upon graduation from college.  Prior to that time they’ve done NOTHING but study for tests for 20 years.

Here’s a great look at the life of the typical student in Asia.  They are not only forced by their parents NOT to do anything but school work, they don’t have time to do anything else even if their parents would let them.  And most parents won’t let them do anything else–because an education had traditionally been seen as the THE pathway out of poverty not just for the student but for the entire family (two to three generations prior as well as the future children).

The onus isn’t all on the parents, though–they are well intentioned and other factors play into this situation as well.  The economy in most Asian countries is such that many or most of the menial tasks that kids do at home or in a family business in the US are done by (very) low wage laborers in Asia.  Sometimes, kids are not even allowed to have jobs outside the home anyway.  Kids never get to build a tree house, never get to work on a car with their father, never get to have an after school job, never build Ikea furniture (it costs 10Y to have someone off the street do it for you, so why would you?).

The knock on the US education is that while it’s broad and pushes independent thinking, kids spend time in the most stupid of majors.  But kids graduating from college in Asia with their skulls full of more info than American kids could ever imagine don’t know how to use any of that info because they’ve never had the chance to try.  Stupid as basket weaving or X studies may be, the life surrounding the typical US high school and college campus forces most students to at least learn to budget their own time and money and often work at a job too. Internships in Asia are few and far between and not valued anyway.  After school jobs are seen as both socially demeaning as well as a waste of time.

This is why you can hire someone with straight A’s from a great school and they can’t solve practical work issues or won’t do anything that isn’t specified in their job description.  Liberal arts classes might give them some thoughts about diversity but not practical application skills.  My own personal theory is that this is why 20 something Chinese women still love Hello Kitty–they’ve never had the chance to “do their own thing” prior to graduation.  And this doesn’t even address the concept of work-place (and certainly school) pressure keep your head down and to follow the crowd and not promote yourself (at the assumed expense of others).  Work and school in Asia just typically are not safe places to be creative.

I do not believe that the education in Asia is the problem.  Nor do I believe that Asians aren’t creative.  But I know that most of the kids I taught in High School in Taiwan, College in China and the recent graduates we’ve hired in China and Thailand had little to NO practical experience doing anything other than school work up to age 25.  They’d never been allowed to be creative before.  When your entire developmental stage of life is managed by your teacher and mother, you can’t be expected to be a “leader” in the workplace no matter what school and what grades you’ve achieved.

How to get off the negotiations carousel.

Great post by Dan over at CLB again today.  Talking about the difficulty in getting your supplier/manufacturer to give you and then stick with a fixed price.  Basically, it’s not going to happen.  But there are things that can be done about it to save both your bottom line and your sanity.

Price changes happen all the time and it’s a source of never ending frustration to just about everyone working in China.  But there are other parts to the issue beyond just changes input costs.

One that Dan mentioned is the reality of changing nature of raw materials.  But other companies in other countries deal with this all the time.  Is China more volatile than anywhere else (Vietnam?  Indonesia?  India?)?  NO.  The real problem with changing prices is not that they change but that there is a serious lack of forecasting by any chinese supplier/manufacturer.  Basically, this practice just does not exist in the Middle Kingdom.

While changes in prices (due to a lack of forecasting) is partial understandable, what’s not acceptable is the fact that prices will NEVER go lower than the contracted price.  If the supplier gets a raw-materials windfall for some reason, there is no sharing of the profit.  Price changes ONLY go in one direction.  I think that this is explained/justified by the ideas that a) Chinese think of business as a relationship and not just a transaction.  The contracts are never the most important part of the negotiations so there is no reason to not go back and negotiate again. b) Unless you’re getting completely ripped off, profit margins are typically so thin in competitive industries that there isn’t any room for raw-mateiral price changes and there is no way that a Chinese factory owner will lose money just because his salesman signed a contract with you. c) They think you can afford it.

Another issue is that it’s not just materials costs, but labor, electricity, taxes, transportation, holidays, water, etc.  can be used to ask for a cost increase.  Any current item in the news can be (and will be) presented as a reason for rising costs that were not considered before.  The list of possible factors for price increases is practically endless, leaving the buyer constantly on the defensive and constantly on the look out for (conscious) product fade.  I know that there are legitimate fluctuations in China that can’t always be accounted for, but I also know that actively taking advantage of the fact that most foreign buyers are ignorant of the Chinese market is a conscious method to getting more money in many many deals.

The only way to beat this is to have a well designed and informed plan BEFORE you get started in CHina.  a) Have good contracts.  Sure they may not save you in the end, but if you’re bases are all covered before you start then you’ve got both ground to stand on and some amount of legal leverage if things go really bad.   b) Try to have more knowledge about your industry (in China) than your supplier; or at least be as well informed as he is.  This means that you have to do homework and you likely have to speak Chinese (or hire someone that you TRUST that can do it for you).  This may also mean that you’re slower to market than you previously expected.  But, in my experience, you can take time up front and learn the road ahead of time or you can use at least as much and likely much more time later down the road in unprofitable re-negotiations, rejects/replacements and missed dates later.   c) You must also have constant on the ground monitoring/testing to assure against quality fade.  If you don’t have a & b (maybe you’re already into production) this can often make up for your lack of preparation–it won’t solve any pricing or contractual problems but it can at least defend against poor quality due to a factory trying to save money when you won’t pay the additional requested costs.

Culture of Copy

The money quote from Bianca Bosker, the Author of Original Copies, in an interview with the WSJ China Real Times Reporter James T. Areddy:

“In the West there is a sense that copy is very taboo. It’s a terrible thing. It’s a sign of a lack of imagination.

“In China, copy doesn’t have the same stigma. You can have a copy and it can be a sign of technological achievement and cultural achievement and it’s not inferior.

“It’s not to say that originality is not prized; it’s to say you can copy something and that it can retain – more so than we think in the West – character and essence of the original. Likewise, to copy something can actually be to show mastery of something, both figuratively and literally. I talk about the imperial landscape where rulers would replicate the kingdoms of conquered people within their own domain to show their superiority.”

The author is specifically talking about architecture but the cultural mentality applies to manufacturing as well.

For years now, I’ve been trying to help smart people (with MBA’s and lots of experience) understand just why their NDA’s and other expertly written contracts continue to fail with China suppliers.  They look at the words on the paper and can’t understand what went wrong.  They always come back with “we followed the law” or “our relationship is so valuable they’d never do XXX,” or something of the sort.  To be honest, they are likely right on both accounts, they did it the “right” way and their relationship is very valuable.  But that’s not all that is going on.

As much as we’d like to think that everyone speaks the same language (money), there are often many other factors involved in decisions that contracts and straight-forward business deals don’t account for; not the least of which being cultural demands (that most westerners don’t even know they don’t know about) and even more money (from other deals that you’re specifically not being told about).

Probably the biggest barrier that I have in working with western companies is the belief that “culture doesn’t really matter that much” when compared to legal contracts, money, etc.  I partially agree.  You must have all your legal ducks in a row BEFORE you start working with a Chinese manufacturer (or any one, for that matter).  And you definitely need to run the numbers on both your investment and the investment (time/money/opportunity cost) of your supplier in China as well.  BUT when you’re doing all of this you must realize that even the very idea of “doing business” likely does not mean the same thing to you as it does to you Chinese counter part.  As I’ve said many times before, for most Chinese win/win is a panda bear, not a business philosophy.  Sure the business offices look the same, the books (the copies you see) look the same, the software is the same (although it’s a copy too), the suits are the same and you’re likely all speaking English too.   But the motivations, the responsibilities, the opportunities, the goals and the perceptions of who you are, what the deal means, who should get what, your ethnicity and country’s history with China, etc. are all definitely NOT the same.

The point being, just because you’re dealing with an MBA in a suit in English in an office in Shenzhen does not mean that you have anything in common whatsoever–especially your motivations and values.  To reduce your relationship down to signatures on a paper after chatting on line a few times and now meeting for the first time means that you’ll likely not get what you want this time around AND that you’ll be missing out on so many other opportunities to make money (and friends) in the future as well.

If knowing really is half the battle (thanks, Joe) then knowing who you’re working with (read: their cultural baggage) is or should be one of the most important parts of due diligence that you do when working overseas.

On a related note, here’s some background on what your Chinese counter-part is likely most worried about right now. H/T Dan Harris at China Law Blog.