Silk Road International Blog

Part I is here.

6.   You will never know when you’ve gone “too far.”

Once, back in ’95 in Chongqing, people were gathering on the street and huddling around me yelling advice at me crowding around me and staring at me while I was trying to take care of my crying 1 year-old son.  I asked them to stop and leave.  (OK, I screamed in Chinese at 100+ mobbing Chinese strangers, telling them to get the hell out of my face and leave me the *&^%$ alone—of course this just added another 100 Chinese strangers to the scrum.)   Other than more of the same, the response from one of the people nearby was this:  “This is China!”  I will never forget that.  You won’t change China. You can either learn how to work within it or constantly fight against it.  I find that it’s usually some of both.

When you make small cultural mistakes like not using the public chopsticks or bowing (Chinese don’t bow) or slapping a female co-worker on the shoulder or a million other little things you’ll be completely forgiven.  It’ll just be chalked up to “stupid foreigner.”  But when you make demands on a broken contract or hold people accountable in public for personal mistakes or force specific processes to get things done you will be punished for it.  I promise.

You many never know what the retaliation will be, but it will happen.  I’ve found out that problems on one project were related to arguments we’ve had over previous projects. Again, Asians do NOT compartmentalize their lives like Westerners do.  And so usually there is no reason for your supplier not to retaliate.  There is no guilt since no one knows if they will ever see you again or if there will actually ever be re-orders.  Right now, in the heat of the moment, it’s all about recovering physical, social (and probably personal) loses.  And don’t ever underestimate the need for a restoration of face.

The most difficult thing about Chinese culture for many foreigners here is the reality that you don’t know when you’ve crossed the line and offended someone that will not forgive you.  Maybe it’s because there is not a defined line for every person/situation.  Maybe it’s because I’m a foreigner and I just can’t tell you where that line is.  My rule is this: separate the argument from the people.  Again, Chinese DO NOT do this.  But you’ll want to keep your cool and avoid as much personal animosity as possible.  To do this you’ve got to consciously talk about things rather than people decisions, comments or anything that can be considered personal.  This will be hard, because when you’re talking about money, personal responsibility, deadlines and names on contracts I promise that it will get very personal very quickly.

7. “We just don’t really work like that.”

The reality of contracts (even the good Chinese ones) is that no one but you has ever read them.  When contracts are broken in China (and court is not an option) your going to just hear “well, we don’t really work like that in China” or something similar.  Your own Chinese staff will of course and help you, because it’s their job to do so, but will also think “my boss doesn’t get it, Chinese just don’t work that way.”  The fact that you don’t know “how to do business in China” is your fault.  Unless you can enforce something in court, no blame (social, financial or otherwise) will be laid at feet of the supplier for breaking the deal.  “Everyone else gets it but you!”  Sure they’ll sign the contracts.  Sure they’ll tell you they do it all the time.  Sure they’ll sign the non-comp.  But I promise you that no one but you will ever look at the contract again unless you force them too in a meeting to review standards/penalties.

If a factory screws up you’ll have to fight tooth and nail to get them to pay for replacements (rather than just “fix” the problem pieces).  If a supplier misses their delivery dates you’ll have to pitch a small tantrum to get them to understand that they are responsible, like the contract clearly says, to pay for the resulting airfreight costs.  You will learn to hate (hate hate hate, I tell you!) the words “chabuduo,” meaning “just about” or “almost” as in “Well, it’s almost right” or “Isn’t this good enough?”  (I always responded to “chabuduo” quality statements with an offer to pay off “almost” or “just about” the full invoice amount.  No one has ever accepted my offer.)

Contracts are only as good as the people signing them.  And if your supplier doesn’t really understand how important the document is and has never had legal experience with any contract, he’s not going to value it at all.  China is just not a “contract” culture; there no cell phone contracts here, apartment lease agreements are a very new thing here, most people buy houses and cars with cash.  The reality is that they don’t have the legal experience that we just grew up with in the West.

8. Hierarchy—use it or be abused by it.

Sure there are bosses and underlings in the West.  Sure there are complex corporate structures all over the world.  China also has it’s own structure and it usually very slender and very vertical with a wide base.  The thing about China’s typical corporate culture is that it’s very limiting.  There are tons of titles in Chinese companies but typically very few people that actually have the power to make decisions and enforce or take responsibility for the results.

Maybe you have worked out a great solution to a problem with your sales rep, but if the manager doesn’t agree, you’re dead.  Ditto working directly with line workers without getting an “OK” from management first.

The opposite side of the coin is that if you know who to talk with you only have to convince one person that you’ve got a solution.  They have the authority to get everyone else on board.

For example, we had a factory that was NOT doing QC on incoming components.  Every one agreed that we needed it, but for some unknown reason, it wasn’t happening.  No matter who we talked with, we couldn’t get past this.  Then, over lunch outside of the factory, one engineer told us that because the components came from a factory that was owned by a relative of the owner of this factory they would lose face if they QC’d incoming components (and rejected some—which is what really needed to happen).   So we drafted a letter from our US office saying that we had to QC on all incoming components ourselves and let the boss present it to the other factory on our behalf.  We do QC there now too.  Problem solved—but only because we had inside info and used the hierarchy.

And other example, we worked with a manager and a couple of engineers to solve a problem for almost two weeks without getting anywhere.   The project was wrong and late and they would neither take responsibility for the mistakes nor correct the processes to stop future bad product from being made.  Finally we realized that we were going to have to kill some personal relationships to get things done.  We went over the manager’s head by cornering the owner and telling how much money in past/current and potential business this issue was going to cost him.  We pointed out exactly what we wanted that was not being done and what we were going to do if things didn’t get better immediately (a law suit).  The manager got fired (not our intention), the difficult engineers got moved off the project, the replacement materials were bought by the factory and the product was redone, correctly, in record time.  While this  is an excellent example of using hierarchy to get things done quickly, this also worked specifically because we’d done hundreds of thousands of dollars worth of business with this factory and were also negotiating another larger order at the time of this project.  I’m not under any delusions that we could have pulled this off if we were not a significant client for this supplier.  But small or large, cornering the boss, and getting his ear for just 5 minutes can save you days of pointless negotiations.

9.  If you’re not here, it doesn’t matter what you want or what you say.

Factories themselves tell us this ALL THE TIME!  The client places an order, doesn’t hire any 3PQ and the factory is just left to produce product on their own.  Sure, most of the time they don’t produce complete crap, but who is deciding what’s crap and what’s not?  Yup, the very people who stand to make the most money from doing as little QC as possible.

I’m really tired of foreign clients who counter this reality with “but there is so much potential future business, I can’t believe they’d do this to me!”  Learn this now: there is no such thing as potential when you’re manufacturing in China.  There is no future, only now.  No one feeds their family on potential.  Just think about how may hundreds of clients tell your supplier the exact same thing every week?  Day in and day out, they’re hearing this from everyone of their potential and current buyers trying to cut prices.  Your project is not special (unless your current order is BIG for them).  They don’t know you, they don’t trust you, and sometimes they don’t even have a clue what your product or your market is.  No matter what you say, you are not getting good product if it costs your factory more and you’re not here to enforce your agreements/standards.

So, what to do?  Be here 100% of the time or hire someone to be here for you.  You can physically take control of the manufacturing process by passing or rejecting every single item that rolls down the line.  If you can’t do 100% QC, hire 3PQ for day visits and give them standards that are so high (matching the contract, of course, but letter-of-the-law exacting and demanding) that you know a high percentage of product will be rejected.  Once you’ve got independent QC saying the product sucks—you have leverage!

Again, these are tricks that are ALREADY BEING USED AGAINST YOU now, I’m just telling you how to level the playing field.  If you don’t think that factories are buying testing results to pass EU and US quality standards, you’re just not thinking.  If you don’t believe that entire QC departments are corrupt then you’ve never talked with any Internal Security Officers for large MNC’s based here in China.  Have you ever heard of Quality Fade?  Uh huh, much of it is very intentional.  If you don’t believe anecdotal stories then believe this: the 3PQ industry is still growing, even in a recessionary economy.

10. Know your role to be truly effective.

You have a role to play in China business (in Western Business too) and Chinese history and culture are the authors of your script.  Your role is explicitly understood by the Chinese.  But unless you’re an expert in “China” you’re not going to know what your expected role is.

This is historically true—the Brits coming in the 1600’s didn’t get it.  Bill Clinton didn’t get it.  Bush didn’t get it.  Dannone didn’t get it.  Obama, Geitner and Hillary don’t get it.  Google doesn’t get it (they thought they knew and then were forced to reconsider).  Hundreds of other businesses didn’t get it and have since left China.  There is a VERY good reason why there are entire industries that have grow up around helping foreign companies adapt to the business environment in China.

The protestant work ethic means nothing here.  You are not respected because you yourself work in your own factory back home.  If anything you’re looked down on for being a boss that is still getting his hands dirty (“Must not be very successful if you still have to do it all yourself.”).   You are a foreign buyer, you’re expected to have money.  You’re a guest, you’re expected to be well educated, polite, understanding, generous and above the everyday issues.

Because you are the guest (the owner/manager of your own company even) you need to use your title and talk with someone that is your “equal” or at least a final decision maker.  We typically don’t like to throw titles around in the more socially egalitarian West.  But here in China, titles are basically the only thing that make you different from the billion other people on the streets. If they are going to fit you into a specific role, and they will, then you yourself need to define what that role is as much as possible.  And it should go without saying that it’s ever so much better to play the Boss role than the Worker role.

11. Bridges can only be burned once.

Make each and every negotiation/argument count.  Hopefully you can get what you need without getting anyone fired or destroying relationships.  But the reality is that sometimes your product ($) is more important than the “relationship” that you have with the factory.  If it’s the choice of getting the product correct and being “friends” with someone you may never work with again, there isn’t really much debate about which choice you should make.

Here’s an extreme example.  We had a project that was worth about a quarter of a million dollars with a single factory and the production we were getting was complete crap.  The factory was doing everything they could do to fix bad product.  But in the end it was still bad product.  This was a huge and successful supplier too; more than 1000 employees and only foreign clientele.  Nothing we could do could get them to change processes.  We had paid a 30% deposit and had other projects going on at the same time too.  It finally came down to an end game where if we didn’t get what we had to have to accept the product we were going to cancel the order (and go to court).  They wouldn’t give in and neither would we.  At the same time we finished and took delivery on two other projects that were almost the same total as the deposit we paid for the problem project.  We took these two completed orders didn’t pay and left.  We never worked with them again.  The crappy product was unusable as it was customized and only a part of a larger kit that we had kept from them.  We never saw the bad product or the supplier again (we were told later that it was sold to be recycled and two managers were fired).  We had a Chinese contract that we made sure the owner knew about.  Before we left we paid for additional labor, engineers, molds to the factory and also late fees to the client.  They took responsibility for nothing always, instead, offering only to “re-do” product for later delivery.  This was unacceptable, of course.  We eventually did it correctly with another supplier.  But we also “fired” me so that we could get them to understand the seriousness of the issues we lost an employee (QC) over the issues and were scared for months that they’d come after us (physical retribution).  It cost us 10’s of thousands of dollars in time, fees, airfreight and additional expenses.  Up to that point they’d been one of our best suppliers (for 3 years), of course we could never work with them again.

We were told by a manager involved, who eventually moved to a new factory (and is now one of our regular suppliers again), that they purposefully decided not to change processes to force us to accept poor quality product to meet our shipping deadlines.  It was a calculated gamble that they lost.  They made the decision having been in the situation before—they knew what we were up against and bet that shipping deadlines for a box store, just like with their other clients, would trump quality details.  What they didn’t know was that we had, by design, cultivated other back-up supplier options “just in case.”  We rarely use our back ups, but this time having one literally saved our company.

12.  Relationships are not the most important thing.

I’ve been here too long, I just don’t buy the standard line “in China relationships are most important.”  When it comes to small orders from unknown foreign buyers they just aren’t.  If you’re not a large percentage of the factory’s total business then your personal relationship is worth next to nothing.  To be precise, your relationship is worth only as much as you’re able to pay in cash right now.

I think that foreign buyers get inordinately worried about relationships when they have small orders.   If you’re not even your salesman’s biggest client, why do you think that you’re a priority to your factory?  You’re not.  They don’t care who you are and they don’t care about your “potential “ either.  Once you re-order 3 to 4 times and/or your volume is something that they actually have to plan for you’ll matter.  But until then, you are nothing but a deposit number.

This should be freeing, in a way. Don’t worry about the conflict of pressing for quality over personal relationships.  Don’t worry about being a bit harsh, you’re not working with a long-term friend.  While a close professional relationship may develop, it will be one that’s based on quality and the fact that you’re setting standards and expecting them to be meet every time (not on “friendship” or nights out or the guy who introduced you).

It’s all about context and China is not Kansas.

Remember, I’m not advocating spitting on anyone’s culture.  Hopefully these attempts at explaining some culture will not be abused or taken out of context.  The point is this: you’re being played if you don’t know what’s going on.  Learn the culture, do the right thing and protect yourself.  You’ll earn friends, respect, get good product and maybe even fall in love with China (or a Chinese).  I did.

Good luck!

Part I is here.

Tags: Business, China, Culture // 6 Comments »

First a quick Healthy Department update:

I just had my annual “health check” for my new visa and my hospital experience was surprisingly good.  “Not really news,” you may be saying.  But the last time I was in a hospital in China I was quarantined for (not) having swine flu.  And the time before that I had to sign a legal waver (not to sue if I got addicted) to get enough pain meds to stop the pain (kidney stones) and the time before that I had to bring my own syringes.  So today was a HUGE improvement.

Today, and I’m not kidding at all, I had an some sort of EKG done with those big black office-style paper clips clamped onto my nipples (sorry, they wouldn’t let me take a picture, I tried), a chest x-ray, a blood test, an ultrasound (no, not pregnant), height/weight/reflexes exam (179cm/85kg/slow), a dental exam (they counted my teeth, 24, neeeaaayyyy) and an eye exam all in less than 45 minutes!!  Everything they poked me with was disposable and over all it was quite a clean facility.  Well, except for the cart with open urine samples in the main hall.  But all things considered, not bad at all.  I’m not saying I’d like to have surgery here, but I wasn’t scared at all and only slightly disgusted once.

Now, on with the show!

_________________

Part II is here.

I originally thought to title this: “How to use understand Chinese Culture to your advantage.” It was written during some serious frustration and was neither helpful, PC or even remotely polite.  I’ve tried to tone it down some and make it more helpful than angry.

Sometimes everything goes bad at once.  At least 5 different suppliers still don’t have enough employees (this was originally written in March).  Two different projects had defects due to miss-communications between factory reps and engineers/line workers and two other suppliers are stonewalling because they’ve done something wrong and don’t want to have to pay to do it over.  I suppose the “bright side” of all this is that in the midst of an historically bad economy we actually have projects to work on.  Or the fact that if factories were problem-free I wouldn’t have a job at all!  But, if you hadn’t noticed in previous posts, I’m probably more Scrooge than Pollyanna.

So, in the spirit of creating a harmonious society, lets look at “culture” and how you can use to get what you want what you may need to know if you get screwed when working in China.

Two quick points about preparing yourself for China (or anywhere else, probably) before I get to the culture specific issues:

First and foremost, learning Chinese is probably the single most advantageous thing you can do for yourself in China.  (This is followed very closely to being an expert in the field/industry that you’re working in.   Having one of these two can make you valuable.  Having both can make you absolutely indispensable.)  Being able to listen to and understand most of what’s going on first hand is a HUGE advantage.  If you don’t speak Chinese then you should get a trusted interpreter (not a translator).

Second, go in knowing that “dishonest is part of their business model,” as one Chinese businesswoman told me.  Note: this is NOT ME saying, “all Chinese are dishonest.”  It’s actually Chinese people talking about doing business with other Chinese people.  (Although I’ll admit that I can’t think of a very effective counter argument if you blamed me for saying this either.)  This is not Kansas.  You will always be an outsider here no matter how long you stay and how much of a China Hand you become.  The rules from “back home” do NOT apply to you and the local rules are not the same for you and for the locals—but there are rules and you do need to know them.  (By rules, I do not mean official laws, which theoretically, apply to everyone equally.)

1.  You will always lose the politeness game (and yes, it’s a game). Chinese are nothing if not polite, and of course you can catch more flies with honey than vinegar.  But do not ever feel guilty about “doing your job” because your hosts are so polite to you. Don’t get sucked into letting little things go because you don’t want to offend.  Don’t let a ride from the hotel or $5 welcome gift and a $50 dinner keep you from bringing up the hard conversations that have to be had to get things done right.

I’ve had more than a few customers tell me that their hosts are so polite and do so much for them on their trip to China that they are almost embarrassed to say anything negative.  So they let little things go (and then get back home and regret it as soon as they deal with customer complaints).  If you don’t think this overwhelming kindness is done on purpose, you’re just not thinking.

If you’re letting the factory pick you up, shuttle you back and forth and plan your time in the factory—you’re not going to be getting a chance to point out problems and have difficult discussions.  You need to step up and arrange the agenda yourself, to be more of what you need.  Commenting over dinner that you’d like to “see a bit more attention paid to QC” may be a very polite way in the West to get a subtle hint across but in China it’s one of a thousand comments that will be forgotten unless it’s repeated with product in hand while pointing to specific defects in a conversation with the QC people and a manager.  And then followed up on later.

Use the fact that you just flew half way around the world for this visit to get what you want.  Make sure they know that you are frustratingly aware that if there weren’t any problems you wouldn’t have had to pay for an international flight, hotels etc.  You’re here because they couldn’t do it on their own—you mention that once and you’ll get embarrassed but knowing smiles.  And results.  Once everyone is on the same page you can eliminate some of the BS that usually accompanies factory visits.

Don’t misunderstand, I’m not advocating being rude or insincere.  Quite the opposite.  Be overwhelmingly polite to them as you make very pointed comments about quality and ask for specific verifications, signatures, confirmations, contracted conditions to be completed, etc.  Do this publicly and follow up your sweet talk with pointed and polite private conversations afterward.  Get people on your side and make it just as difficult for them to refuse you as they are (consciously) trying to make it for you.  Then follow though with EVERY ONE of the issues that you raise in public—make sure that they know that the consequences for failing will be made as public as the praise for success.

2. Dinners—pay for them and demand pay back. If you want to put someone in your pocket, pay for a dinner that they know they should be paying for.  And specifically tell them (politely, of course) exactly what you’re doing.  This works very well if a boss or higher up is in attendance and may lose a bit of face by the exchange.  They will publicly complain and “fight” you for the bill…you know the drill.  So after you’ve paid and they are still complaining you hit them with, “Ok, I’ll tell you what.  Since I paid for the dinner you can make it up to be by…”  And then of course you follow up on this too.

(One of the best ways to pay for dinner is to get up and go to the bathroom and pay the bill before it ever gets to the pretend fight over the check stage.)

If you don’t know already, dinner is just part of the game (and your check is included in the fees suppliers charge you for product).  I can’t count the number of times I’ve had factory reps stare at me with their mouths open when I reject product.  Time after time they say to me something like this: “But I thought that we had good cooperation on this.”  Which really means “Hey, we bought you dinner, gave your rides back and forth to the factory and played bball together.  How can you bring up QC issues with us now?!  I thought we were friends.”

This is a little window into what’s really going on—there is 5000 years of culture going on behind everything that’s said, every dinner that’s hosted, every ride, every cola, every “extra” that you’re given, and you, the foreigner, are usually the only one that doesn’t get it.   All those “polite” little things that make China so enjoyable to visit are really hooks into your wallet—each is expected to be paid back at some point in the future.

Bottom line, your Chinese supplier either thinks you don’t get the culture and so will use it to their advantage or they don’t know you don’t get it and so can’t figure out why you just don’t seem to get it.  (A third almost never seen option would be that they know you don’t get it and they help you out.  This despite the obvious disadvantage to them it would be to have you know what’s going.  This will only happen if they, like you, have never read The Art of War.  Don’t get your hopes up as most suppliers memorized it in school and are living it.  Daily.)

3. Shame is the guilt of the East. Guilt is a monotheistic concept based on an absolute truth and the concept of a conscious.  In the karma based, polytheistic Asia (and especially in the officially atheist and socially unstable China) there is little if any guilt because there are very few things that are absolutely wrong all the time.  Everything is relative.  Things are not done for our western “right reasons” but rather for convenience, opportunity, necessity, duty, honor, pride, face, etc.  (Not a criticism, just an observation.)  Most lives in Asia are lived much closer to the scarcity side of the economic equation than the abundance side and so moral dilemmas, in my opinion, are just not dealt with all that often (e.g. who cares about morals if you’re starving/poor/needy/see your self as being historically oppressed by the West/etc.).  The point is that you’re not going to get someone to do you a favor if it costs them money just because it’s what “ought” to be done. (And no, I’m not saying the “West” is better, I’m just saying it’s different here.  Save your “yea, America sucks too” comments, I won’t post them.)

Again, in telling you how you can use these things I’m not advocating humiliating other people.  But I am talking about publicly using cultural expectations and the loss of face to coerce people into performing the way you’d like.  You have to be very careful in “shaming” people in Asia (or anywhere) into doing things, even what they previously contracted to do.  Asians will generally NOT be able to compartmentalize their personal face separate from this one single business transaction either.   This is a one and done option.  If you are not careful you’ll get worse product, less friends and no options. You’ve been warned.

A group of foreigners get together to play bball every week in Shenzhen.  There are often a few Chinese that join in too; usually they get offended and don’t come back after a week or two (they probable get hurt too, especially if I’m guarding them).  But a few that have either been over-seas or are from HK stick it out.  The one local Chinese guy that has been playing for 5 years now has told me a number of times that foreigners (mostly North Americans in our group) play ball very differently than Chinese.  Chinese are very polite and much less physical so that there are no fights, he says.  A Chinese bball group knows each other from other parts of life and connections made on the court lead to other interactions.  Foreigners, he tells me, are very aggressive and fight and curse at each other on the court but then go out and drink and eat together afterward.  At first he was totally stunned at how personal the verbal “attacks” were.  But after a while he realized that once the game was over the egos were usually over too.  He realized that foreigners compartmentalize (sports, business, family, social groups, etc.) but says that Chinese do NOT and so they must be very polite in basketball games so that they don’t have lingering problems in business later on.

But you can very effectively put people in uncomfortable social positions that will get you what you want.  For example, instead of pushing a solution onto a manager, engage him and get his buy-in, even let him take credit for the solution (even though it may have really originate with you).  If his name/rep is on the line with this solution, you can bet that it’s going to work (or at least be completed).  Most managers are not willing to lose face if they can get done what they’ve demanded with a bit more of someone else’s overtime and some yelling.

Another example.  Use names—don’t just name drop to give face, but bring up names of managers in discussions (with the managers there) that forces them to publicly support the position or lose face.  Similarly, bring up private conversations and comments with people that force those people to pick sides in public.  Sure, it’s not fair and it can get you in trouble.  But it can also help if you do it right.  Most people would rather, I think, have a bit of ground to stand on, even if it’s not in the best part of town.  So be fair, but use what you know to get what you want.

4. Without real leverage your just being a jerk. If you can’t back up what you’re saying and all the games you’re playing by withholding some cash or having the ability to make the final decision on product quality then you’re just abusing people.

If you have a contract you’d better follow it for many reasons. Just a few would include:  One, you signed it–that’s your name on the paper.  Two it’s the right thing to do.  And three, not following your own contract is the surest way to cut your own feet out from under you.  But if you’re being lied to and yanked around and you can get product from someone else, I believe that turn around is fair play.  String out payments, cancel orders that don’t meet standards, don’t send components to or refuse shipments from the supplier—always keep your word, but keep the very strictest letter of the law.

I am not talking about cheating someone that has cheated you just for revenge.  I’m saying be painfully, brutally, excruciatingly honest in all minutia.   It will soon get to the point when it will become very financially painful for your factory to continue to repair/replace items or hold onto product for you unless you accept the product and pay the balance.  When they are physically coming to your office for payment, you know that you have the leverage you want.

The only way doing any of this is justifiable is: 1. If you’ve been wronged by a supplier who is refusing to rectify the problem, 2. You’re just trying to get what you originally contracted for, 3. You have the authority to make the decisions that your forcing on others, 4. You don’t have court as an option, and 5. You’ve been honest and upright in all your doings with the supplier up to this point.  Do NOT do this just to get upgrades/changes or revenge or free meals.

Don’t be fooled, though.  There is no guilt on the other side.  Your factory will use their leverage to get early/extra payment even if there are no previous problems or reasons to doubt that you’ll pay.  I’ve seen factories withhold perfectly good product for full payment even if there are clearly contracted terms.   And if they have financial problems (Chinese New Year, bad economy, other defaulting foreign buyers) not related to your project you may still get blindsided through absolutely no fault of your own.  Which brings us to #5.

5. The rules in China work for only one party, and that party ain’t you.

First, it is not unique to China that laws favor the locals.  Don’t complain about the fact that the field is tilted against you—it is.  Deal with it.  Second, unless you’re a big deal (e.g. you are spending 6 figures per order) you’re not going to get any special attention, so take your ego down a couple notches before you start working here—you, the Westerner, are not that cool any more (Dollar and Euro are not worth that much, your market isn’t that big any more, and you’re not a “secure” payment source anymore either).  Now, you may have connections and you may done everything the right way but if push comes to shove you’re the outsider and you’ll lose.  Sure the legal system is getting better and you can certainly win court cases.  But who wants to go to court over a $10,000 or $20,000 order?!   No one.  It’s just not worth it.  And, don’t forget, China has regular bouts of “we hate everything foreign” where embassies get stoned and foreigners get intimidated (anti American and anti Japanese as recently as 2007).  Know that all your hard work could, one random morning, turn out to be for not.  Third, the culture favors those who know what they are doing in it and you, being foreign, most likely don’t have a clue.  Don’t take that personally.  It’s not just you.  The longer I’m here the more I realize there is so much more going on than I ever knew.  The adage is still true—you don’t know how much you don’t know.

The answer to this?  Ironically, play up your roll as the stupid foreigner.  Force them to spell everything out in simple terms (e.g. get everything in writing).  Compel them to include you in every discussion because it’s just too much of a pain to have every discussion twice or to do everything over again because you didn’t see it/approve it the first time.  Play up every misunderstanding, ignore every Chinglish sentence and make them show you every process, every step, every carton of product.  Be exacting, condescendingly simple, and don’t accept anything until you have it both in writing and a perfect sample in hand.

If you think that you’re not getting exactly what you’re asking for, maximize your advantages.  The quickest way to shut down an interfering sales person is shame; either correct their English translations (if you can speak Chinese) or speak more quickly and in more complicated English than normal and then have them explain back to you what they translated to the engineers or what they are going to do.  This is, of course, very rude.   But so is pretending that they understand what you want when samples show that they obviously do not.  This forces them to show you, rather than just nod their heads, that they know what you are taking about and forces them to listen to what you really want.

None of this is new.  I know all of this has been done to me (and millions of other foreigners) at one time or another in the past 8 years of negotiating deals and solving problems in China.

Part two in a couple of days.

Part II is here.

Tags: Business, China, Culture // 8 Comments »

If you’ve got kids at home, you’re probably worried about, or at least interested in the decisions made by your local school board, PTA and teacher’s unions.  You may even be involved to some extent in the process (kudo’s to you if you are).  At the very least you’re paying taxes and helping you child with homework.

But if you’re doing business in China, there is another school system that you should be at least as worried about: The Chinese System.

In case you had any delusions where this was heading, let me quote from one of the best new blogs on China that I’ve come across, The Diplomat’s China Power Blog and their recent series on Chinese Education:

This system has made Chinese students literate and knowledgeable, but it also has also too many times made them incompetent and stupid. Let me emphasize this: the people best known for their respect for education and love of knowledge have constructed an education system that makes Chinese students, the very same hardworking and brilliant students who dominate international mathematics competitions and science laboratories, incompetent and stupid.

I’ve been making the same points ever since I taught English at university in Chongqing 15 years ago.  Aside from the fact that you should question the quality of any school that gave me an English teaching position, the system in general is not helping China’s future in any way, shape or form.  The best and the brightest (or at least those with the richest parents) are fleeing the country for better schools and “real” education elsewhere–at least they’re getting a lesson in capitalism, eh?!

A couple of personal examples.

1. MA student in English can’t speak to random foreigner on the street.  Has a grammatically perfect 150 page thesis about a book (he later admits) he never read.

2. Parents of 10 year-old student hire professional business translator to write “student’s own” essay for school competition.  They spent a few hundred US dollars on 2 pages of Phd level grammar/vocab that the student couldn’t pronounce and didn’t understand.  They then tried to hire me to “coach” him through it.

3. English teacher starts talking to me on the street, she can’t understand a word I say.  Asks me the same question (“how are you today?”) over and over again but each time translating a different Q&A back to all the people behind her who are asking questions about the foreigner (not knowing that I understood everything they all said).

4. My wife needs to write a thesis to graduate from University in Shenzhen.  She is told to “copy it off line” so that the prof doesn’t “need to spend much time reading it.”  She was told that since her husband was a foreigner, her “English should be good enough.”

5. We have neighbors and employees that have told us that if their kids do not finish their homework, often falling asleep while doing it, the parents will do it for them so they don’t lose points in class!!

There are many books and blogs that have nothing directly to do with foreigners doing business in China.  But many of these other source materials provide significant insight into the mindset of Chinese in general and, in this case, the educated your urbanites that you’ll most likely be working with.  I highly suggest that you read this, if for no other reason than to understand the back ground of those whom your working with.

I’ve detailed the background of bosses:

Factory owner and millionaire, 35 years old, tells me that the road out in front of his factory he built with his own hands when he was in high-school. The local govt required all households to provide unpaid labor for specific lengths of the new road. His father was a teacher and away at school and his mother was over 40 and the only one home. So he had to miss much of one year of high school to fill the State-mandated labor quota. These are the type of people that you’re dealing with in China—you need to know that they can wait you out. They are not intimidated by your pressure. They know they can dump your product in the local markets if you back out. You need to understand that you’re probably not nearly as important to these many factories as you think you are.

and employees:

Nobody in any office under the age of 25 has ever had a job before the job they’ve got now.  Chances are, Chinese people under 35 have only ever worked in one industry in one city since college.  They have never had part time or after school jobs or had to put themselves through college.  They never rebuilt their first car (or any car) when they were 15.  The can’t change a tire, the oil, wiper blades or a taillight.  At home, they don’t know how to change the lights, build Ikea-type furniture or wire a stereo/TV or fix anything when it breaks.  Why?

The One Child Policy and Low Cost Labor.

and even commented on students a few times too.

When I was teaching at a university in Chongqing in ’95 I had a student say something to me that I will never forget, “at least, well, I haven’t forgotten it yet.” She told me that when she was young she had the bad habit of telling the truth.  After getting both herself and her family in trouble a number of times her father sternly taught her this lesson, “Never tell the truth to anyone but your parents.”

This was one of my first major lessons about how different China really is.  There is no “moral code” no “generally accepted morality.”  Not even an overly trite “Confucian values” system in place here, really.  I believe that one of the lasting legacies of the current government will be that they amoralized an entire country.   I’m not talking about the vilification of organized religion I’m talking about the creation of a system that punishes honesty.

But this review of the education system (and indirectly, the students themselves) tells you what’s coming next, what you’re new hires are thinking (or not thinking, as the case my be).  Basically:

1. Students are not taught to think.  In fact they are taught not to.

Western observers say that Chinese lack ‘independence and initiative’ and ‘critical thinking skills.’ Both are true, but another explanation is that Chinese don’t understand ‘process.’ In a society where students’ futures are determined by their ability to get the right answers quickly in three days of multiple-choice examinations, ‘process’ is in fact an alien concept.

2. Students are taught to memorize, finish assignments and obey.

3. From Kindergarten to College, there is very little time to play, date, think, develop personality, etc.  While many students are in involved in extracurricular activities after school these activities are classes, not (sporting) events.  I hate all the homework my 5 year-old already has each day IN PRESCHOOL!

4. Why do 20 something Chinese girls like the same things that 12 year-olds in the West like (Hello Kitty back packs in the US, Hello Kitty cars in Asia)?  Because, for the first time in their lives they can choose for themselves.

Do NOT misunderstand me.  I’m not saying that Chinese are dumb.  Quite the opposite.  They are VERY smart and they will out-test anyone else on the planet.  But they typically don’t out-perform others in random applications of applied knowledge.  Well, sometimes they do.

Westerners typically are (or at least used to be) taught to be independent individuals.  Chinese are taught to be cooperative members of a society.  The differences for how work in an MNC is done, how instructions are understood, how leadership is perceived and how following is affected couldn’t be more disparate either.

I’ve mentioned before the record setting 13-minute silence that my friend once sat through in a meeting with the “best and the brightest from China’s universities” in the boardroom of a VERY large MNC here in China.  He had asked for the 10+ MBA graduates to “brainstorm ideas” for a new program to improve their logistics in southern China.  He asked the question knowing that it would be hard to get them to make suggestions and open up, but then he timed the pause and waited… and waited.  Have you ever been anywhere were 13 MBA’s didn’t talk for 13 minutes?!

In my own company there are two important points in relationships that we recognize and sigh in relief when we pass.  The first is with employees and usually takes about 6-8 months to achieve.  This point is the: I’m going to make a suggestion, contradict my boss, or make a comment that obviously and openly shows I disagree.  I always smile and point it out “Hey, Vicky is finally comfortable enough to disagree with me,” and she’ll turn away, blush and giggle uncomfortably (just like I expect a 12-14 year old back home to do).  But the point is made—she knows that it’s both ok and expected for her to disagree.  It doesn’t change who makes the decisions, but it’s an important point in their employment with us—they are now really valuable to me:  I know they will question me if I do something they don’t think is the best option—and I need that back up to confirm where were going in the often confusing for westerners Chinese environment.

Relationship point number 2, with factories.  It usually takes about 3 orders for factories to come to us and admit: “We didn’t think that you were serious when you told us that you wanted us to call you when there were problems so you could help out.  But now we see that you really do want to help us get it done right.”  At this point I can expect that they’ll call me or a project manager at all hours of the day or night (and they usually do it a couple of times at like 4AM just to see if we’re really serious).  This is a great place to be—trusted.

In both situations there is a process of overcoming cultural misunderstandings that were taught for decades—one, the respect for title over correcting mistakes in public, and in the other, admitting to mistakes early on to achieve better results later.  Neither these two new skills nor the ability to adapt to a fluid situation is natural to Chinese employees but both can be learned (or the inabilities can be UNlearned).   We’ve had employees and factories both tell us that they are uncomfortable with these things, but they understand that that’s how it’s done and they make adjustments (amazing what people will do when there is incentive, aka money, on the line).

Here are the latest posts on education from China Power Blog:

Education in China

The thinking Process

Head Teachers

Education Games

Tags: Business, China, Culture // 4 Comments »

It seems to me that one of the hardest lessons that we are constantly teaching factories in China is the sometimes there just isn’t another chance.

Chinese factories certainly know that they usually only have once chance to get a client with a bid or a sample (hence underbidding and Golden Samples).  And factories know that if there’s bad quality product they won’t get any reorders.  They know all this.

But I’m talking about something a bit different.  Once production has started and mistakes are found, it’s usually the position of the factory, after much negotiations, to offer to redo, fix, replace or repair the product.  Of course who pays for this and how long it takes (and who pays for the resulting airfreight costs) are also always up for negotiations.  And here’s where the lesson comes in.

Sometimes a redo, a fix, a replacement or a repair just doesn’t cut it.  Sometimes it’s just too late.  Sometimes the window of opportunity has passed.  Sometimes a missed date is the death of the project.

I’ve seen this happen a number of times, and it’s not all the factory’s fault.  Usually (most of the time) it’s initially the fault of the buyer.  They are on a very strict time line.  They miss a couple of small design/art dates in the beginning but continue to push the supplier to meet the delivery dates originally agreed too.  The supplier agrees, of course, as they want to cooperate and hope to build some type of relationship that will turn into future orders.  They also assume that since they accommodated the client, the client will do the same later.

Now factories always have issues.  Some are small and can be fix with little or no impact on the delivery date.  But some are much larger and change dates dramatically.  But when push comes to shove, the factory thinks that it can bank on the store of good will they have built up with the client.

Only they can’t.

What factories don’t understand is the West’s infatuation with contractual dates.  You know that if you’re planning on getting your product into a any of the box stores you’ve probably got a 72 hour delivery window that if you miss you’re completely out of luck.  Your factory doesn’t know this.  And the factory’s rework is almost never that fast. Further, if you’re shipping by sea you may have already scheduled your goods to go to port on the closing date—meaning if you miss that date you’ve got to wait at least a week to get on another ship.

Because EVERYTHING is negotiable in China, this almost never happens.  Dates are missed and everyone understands, or at least compensates for the change/delay.  I believe that factories honestly don’t get how important (devastating) a missed date can be.

Because it’s such a huge deal to get a factory to take responsibility for problems (just like it’s so tough to get individuals to loose face and admit mistakes) it’s like they assume that just the fact that they’ve admitted to it and will fix it should be the end all of all negotiations.  But sometime sorry isn’t good enough.

What the buyer doesn’t understand is the quid pro quo that is part of the Chinese business culture.  All those little favors are counted and recorded.  There is a very tacit expectation that each one will be paid back.  The supplier knows that they’ll have issues in the future and while no one likes delays, I know that factories love to have a client in their social debt—it makes the inevitable problems so much easier to work through.  This is, of course, if the client understands the implicit cultural expectations.

Often the buyer gets bugged, rails on the factory for agreeing to dates (repeatedly and even after delays) and then falling through.  The factory feels like they’ve been hit upside the head with a frying pan.  They went out of their way to help and this is how they are repaid!?  Now the project is late, the relationship is flushed down the toilet and it’s a fight just to wind things up.

Once it gets to this point the factory has no incentive to help the buyer.  There is no trust at all that the buyer will keep their word.  The buyer just wants to get their money back, which is not only unrealistic but probably impossible.  The opportunity has passed and late product does no one any good.

Bottom line?  If you expect your factory to go out of their way to cover for your “little mistakes” then you’d better be willing to do the same thing for them later.  And later is ALWAYS more expensive.  Plan you time, your negotiations, your requests and your projects very carefully and with as much knowledge/foresight into future costs and delays as you possibly can.  Do NOT take anything for granted and never ask for favors, even small ones, that you’re not willing to return.

Tags: Business, China, Culture, Uncategorized // 1 Comment »

First, Whither Shanghai? As I’ve been saying for years now–Shanghai, smanghai.  Who really needs 18 million people all in one place and all those overpriced-buildings and traffic jams?!  It’s not like the mag-lev is really helping out your daily commute, is it?  Now, I’m sure Shanghai is great for some, but it’s not for everyone–just like China is not for everyone.  Just like with each of your suppliers, you need to pick your city to base your operations and even the country that you’re going to be based in very very carefully.  Research, not hearsay should be the rule of thumb.

Here’s an interesting take on what’s “really” going on in Shanghai.  By the way, the book that they review, I reviewed last year.  And it was already not “new” then.  But at least they got around to it.  The point though, is really this:  just because Shanghai has got the expo doesn’t make it the best option for everyone.

And if you’ve not read “Capitalism with Chinese Characteristics” you need too.  I now think that it’s the BEST BOOK I’VE READ ON CHINA. PERIOD.

Second, General State of Chinese Manufacturing. The demographics of manufacturing in China and East Asia are changing.  And not just changing in slow, cyclical patterns, but rather in large lurching jolts (that most recently coordinated with Chinese New Year).  Here is a copy of an exchange that I had with a colleague from Singapore last month.  His question:

I am trying to get my facts straight about the current state of China’s manufacturing sector. What are the implications of minimum wage increases? Are companies going to start looking to build manufacturing facilities outside of China where there may be lower labor costs? Are there any general trends to be looking at?

I was wondering if you could write back with your understanding of what is happening in China’s manufacturing space, and where you see things headed.

My Response: Wow, that’s a big question.  Let me see what I can do for you.  I don’t have any actual stats.  But I can give you some anecdotal evidence and personal experiences that points to some shifts in Chinese manufacturing.

1. VN and other cheap labor countries are definitely having some effect. Some, not a lot across all industries, but definitely some effect in some specific industries.  The interesting thing is that a lot of the factories in VN that we use are Chinese owned (Taiwan and HK) mostly that have moved from China specifically to VN for the cheaper labor rates.  This will certainly continue in SEA as the govt’s there invest more in infrastructure.  China’s logistics (infrastructure and supplier density) are still so much better than anywhere (but Singapore and BKK) that even with higher labor rates most people can still get what they want here.

2. Tariffs. We’ve worked on 5 projects (2 in VN, 1 in BKK, 1 in India, 1 in Malaysia) where we were there specifically because of the US tariff and duty laws (rather than anything that had been done by China or other specific countries.  I don’t know how exactly this type of thing will continue but it will continue and I know that it has affected a number of industries in China (furniture, plastics, clothing) already.

3. Domestic stimulus and other In-land projects (5-year plans). One of the surprising things that we’re seeing right now (as opposed to before CNY) is that labor is NOT coming back to Southern China and inland factories and cities within China are starting to show up in our sourcing results.  We have had 5 projects in last 3 months that have been delayed specifically because hundreds of people didn’t come back to work in various factories (wood, plastics, clothing, metal—across all industries).  I see two things here.  One is that govt jobs (construction, mostly) is taking up much of the migratory labor.  And with better infrastructure inland factories are moving to take advantage of the cheaper land and (now larger) available labor pool.  This means that costs will rise in Guangdong and all along the East Coast; this trend will most likely continue.

4. Internal competition in general is changing. We’re seeing much more development of markets, infrastructure and general standard of living inland than what we saw even 5 years ago.  The recent growth (off of the East Coast) has been noticeable.  This will, I think, make manufacturing in general in China more like Zhejiang (lots of smaller, family owned, limited int’l experience factories) than Guangdong for the next decade.  It will increase cultural differences/conflicts with foreign buyers, increase secondary costs of doing business in China even though primary COG may go down, and will increase total production times and extend supply chains into new locations.

5. Specific industries. As I mentioned before, it’s hard to generalize to such a big questions.  So, in a bit more detail (without having much more detail!!) there are specific industries that are big in certain locations specifically because of either foreign tariffs or govt incentives.  Much of the furniture industry has all but moved out of China in the last 5 years.  Plastics and clothing are in the same boat.  Tech is located in SZ with pockets in Sichuan, Xi’an and Beijing.  Factories that rely on large (cheap) labor forces and are not demanding for quality or tech (bags, mold injecting) will be leaving GD if they haven’t already.

Finally, the unwritten rules for working in China (yes, and other developing countries too; China-apologists can just keep their knickers on.)

My List of Rules for Working in China.

1. The number of factory visits you make before and during production directly equals the quality of the product you’ll actually export.
2. No one cares about your product as much as you do—don’t expect them to.
3. You will never guilt a Chinese factory into “doing the right thing” if it costs them money.
4. If you don’t do QC you might as well take your money to Macao (or Vegas or Monaco).  You’ll get about the same odds and have a much better time losing your money.
5. Never pay any money without doing some (a lot) due diligence first.
6. Always pull your own samples for QC and testing.
7. Technology is great, but fax, phone and email are not enough to manage production from overseas.  You can’t do QC via video conference either.
8. If you (personally) didn’t record it and can’t reproduce it then it never happened.
9. What you see online and what really exists can be two completely different things.
10. Quality issues are really money issues.  Every time.  Without exception.
11. You can have any two, but not three, of the following: high quality product, low prices, quick production turnaround times.
12. K.I.S.S. your communications over and over again..  Keep It Simple, Stupid.  Remember while English may be your second or third language, it’s definitely your supplier’s second or third language too.  So be VERY clear in everything you say.
13. Register your product/brand, Research your potential suppliers, Visit production sites, contract-out all specs and details, QC every order multiple times, and Confirm everything over and over again.  Do these things for every supplier, every product, every time.
14. The more customization your product requires the more problems you’ll have and time you’ll need to get it done right.
15. Sometimes paying more to get only what you originally contracted for is the best option.
16. The more time you have to ship your product the lower the cost will be.
17. Payment terms (Net 30, for example) and INCO terms (FOB, DDP) are not the same thing.  Learn the terms before you buy.
18. Unless you’re using prison labor, you should always be able to go into the factory and do your own QC.  And even if you are using prison labor, you can still hire local Chinese QC to go in and represent you.
19. Factory MNC or ISO certification means nothing.  At best, it’s a double-edged sword.  Yes, it can give you an idea of the capabilities of the factory.  But do not assume though, that because they’ve met this standard once for an audit that they meet these standards every time.  Yes, certification means that they’ve been, to some degree, tutored and managed (at least once) by an international team.  But each MNC’s standards are very different.  And an “audit” my have been a 30 minute visit designed specifically to check off a box on a corporate checklist rather than to actually critique a supplier’s capabilities.
20. Under-promise and over-deliver has not made it to China yet.  So the samples you get are always going to be better than production—expect this or learn to live with disappointment.
21. Much of what you cut out when you go direct has value—you must make up that value on your own.  QC is the most obvious piece, but there are others too—auditing, social compliance, printing, packaging, licensing, exporting, international shipping, customs clearance, product warranties/guarantees, return policies, etc.  These things will cost you time and money.
22. Suppliers will NEVER offer to pay for the cost of missed delivery dates.  And they’ll only pay for anything “extra” if they are either contractually forced to or if you have the cash leverage that allows you to withhold payment.
23. Bad product will NEVER be returned to China for repair/replacement.

Tags: Business, China, Culture // 3 Comments »