The Chinese Dichotomy

I spent 12 hours in a factory on Monday resolving concerns, fighting with resistant engineers, negotiation with managers, hobnobbing with the owners over lunch, discussing solutions with line managers, reviewing standards with QC/QA folks and generally working though every single production issue imaginable to try and jump start a stalled project. What did my 12 hours get me? A signed agreement that the factory will deliver the promised product a month late and I won’t be charged for it! I was quite pleased. Really.Now this factory is world class—in terms of production capabilities, machinery and facilities, that is. They have over 3000 employees, are privately owned and some minority owners are Japanese technology companies who are also the biggest customers. But problem solving, customer service, real-time communications and “win-win” are concepts that management has yet to embrace (or even define).This is nothing new in China, of course. While China leads the world in growth rates, largely on the back of manufacturing for export and domestic infrastructure, it is in no way anywhere near the top in the “science” of business management and customer service. In fact it’s probably one of the world’s worst.For example, China has gone from almost no cars in the 1980’s to the second largest market in the world twenty five years later. Ditto for the airline industry, home computers, beer and many others. But the average education level is still less than 6th grade. Technical skills and science are a focus for education in China but the application of that education, the ability to use abstraction and social sciences education are more than a little weak. Specifically, while China pumps out 3-4 million college grads every year, less than 10% of them are of the level necessary that they could work in an international company.What this meant for me at the factory on Monday was simply this: the factory can manufacture just about anything that I want, but if there are problems or if quality standards are not meet, resolving concerns and meeting international standards are difficult requests to accomplish. Changes are often difficult to accommodate even with Western educated engineers—even when the changes are coming from the factory engineers themselves in response to production problems.In China the typical answer to production problems or QC issues goes something like this: First, try to convince the client to accept the completed, but inferior product. Second, if that won’t work, stall, delay, and find whatever excuse there is to force the client into a time crunch so that the inferior product looks better and better in relation to a whole new production run. Third, if the client is still insistent on original standards, negotiate new prices. Fourth, present new samples, new production schedules for approval. If new samples are not approved return to step number one.In most Chinese companies the mentality is still “duck and cover” when there are problems. This is not surprising when the costs of mistakes are often taken directly out of the responsible party’s salary. And since upper level managers are never told bad news, when they are finally brought in it’s usually pretty late in the game.That’s where I was on Monday.Discussions about our production started with the engineers saying how badly the factory (they themselves) had underestimated the difficulty of the project and how much it was costing them. No matter how many times I hear this excuse it always shocks me. Basically, their saying: We were dumb, it’s our fault, but we’re not going to take responsibility for it. But this seems to be a standard line regardless of factory size and international experience.The conversation then moved to how difficult and inflexible my standards were. Of course I’d been hearing this same story for the last week as various sample products were rejected, so I waited until they were done before reiterating the same standards that we’d established together months earlier. Now, it’s not like these standards were new or had changed—they are listed clearly in the PO that the factory signed (I know, that’s my mistake—I assumed that a signed contract actually mean something!).There was no mention of why there were delays or problems, rather just how much it was going to cost to finish the project. Managers, new to the discussions on Monday, were initially angry with me for not being flexible enough, changing standards and not giving them enough time. At this point, when I was being falsely accused, it was time to go on the offensive. I brought out all the contracts and PO’s, the photos, the samples, and every fax and email the factory had ever sent us concerning this project. I knew going in that the managers had never head the whole story and probably hadn’t even ever seen the PO. My strategy was to answer every single objection and misrepresentation with the facts. Since I knew that I didn’t have the clout (small $200,000 order) or the inside track I had to help the managers see the whole story and “shame” them into honoring their previous agreements. To get the mangers on my side I also had to give them a way out—and that way out was to identify two engineers as the culprits.Throughout the day there were some moments of joking, some angry yelling, a lot of discussion of specifics by me each time they voiced a concern over price, process or standards. By Chinese design it was a contest of wills—who was going to give in first (sometimes called the “iron ass” strategy)—and I was already 3 months and $100K into this so I wasn’t about to cave.In the end, I got what I expected to get—I got them to retract their demands for more money and to complete the project according to the previously agreed to standards. Basically they’ll complete the contract late and not charge me for it.So what’s the Chinese Dichotomy? It’s the contrast between the most modern technology and the absolutely parochial mentality of some of the people running it. It’s the size and incredible growth of the Chinese market and the scarcity mentality that still pervades both domestic politics and business in China. It’s the advanced education necessary to use modern technology and the simplistic short sightedness of single project profit maximization. On a physical scale, it’s the few hundred million urban residents with money, education and exposure to the world vs. the eight hundred million rural peasants. As one of my friends described it “it’s like the Flintstones meets the Jetson’s.” That’s China—same planet different worlds.