6 conversations and a couple of cultural lessons

I had some very interesting conversations with friends recently about the economy and what they are seeing. Despite the very different industries and even the direction of business they all had the same conclusions—things were bad but are looking up. Cautiously to optimistically up.

First, a friend from an MNC in China for a week on business said that second quarter of this year seems to have leveled out—we’ve hit bottom. This is about what most of the foreign folks that I talked with all seemed to believe. His company numbers don’t show things getting all the much better in China than anywhere else in the world. But over all things are not getting worse. The hope is that it will last.

Second, a foreign friend that owns a factory here said that they had a pretty good first half of the year but had done tons of marketing in the previous year and the new business that that campaign brought in is just keeping numbers even.

The predictions for third quarter from these two guys were very tentative—most other people I talk with here hope that it will be at least as good as (only as bad as) the flat second quarter numbers. A couple people have told me that they are VERY worried that second quarter was only good because retailers had to refill stocks and had to order for the fall/Christmas seasons. There is still no money in the US/EU and so the worry is that exports from China are not going to improve yet.

Third, the buying of imported goods, which is still down in China, means the market for foreign companies isn’t necessarily improving with the flattening out mentioned above. A salesman for a US company making testing equipment made it very clear that their company is moving both less total volume (about 85%, he said) and at much smaller margins than before. This was the most interesting (sorry no sharable details) and most pessimistic conversation I had while at a golf course, no less. While all the news is pointing to an Asia first (China-led) recovery this individual was quite the contrarian.

Fourth, in support of the China-led recovery theory, today a factory owner told me that business is so good right now that they are both building a new building and selling more volume than last year. All of their clients are either foreigners coming to them directly or Hong Kong trading companies bring in foreign buyers. This I didn’t expect and haven’t seen in other factories—although there does seem to be much more optimism now than 6 months ago.

Fifth, talking with another factory boss today I got another surprise. He mistakenly assumed that I since I was here now (with a Chinese family) I was going to spend the rest of my life, by choice, in China. And so, as a little secret between friends, he told me that the group of factory owners he knows don’t really have any desire to move to the US or even out of China. He said that in the US it’s “too fair.” In China, he said “if you have money you can solve any problem and you can do whatever you want.” You just don’t have that freedom if you move to the US, he told me. Here you can get a massage, you can pay your way out of problems, you have bars, nightlife, cheap girls and you just don’t have any of that in the US.

While I don’t agree with all of this, I have to admit that I’ve had this conversation before. Just last month when my in-laws were denied tourist visas to the US my father in-law said, “The US government is worse than the Chinese government. At least in China you can pay to get things done. With the US (embassy) you pay and get nothing!” I had to agree.

Sixth, we moved into a new office this week—the first one that we’ve owned since we came to China in 2003. But to move in on an auspicious date we had to end our current rental contract early. (Yes, we hired a fenshui/numerologist to help us both pick a good move-in date and organize the layout of the office. “15 years of good fortune” is the prediction. Woo hoo!) We negotiated the early move-out on the condition that we find a replacement renter and get new contracts signed and taxes all paid up though the end of July. If we met all these conditions we could get our deposit back. We did so but when we brought the new renter to sign the paperwork with the landlord we were told we were not getting our deposit. Of course we pitched a huge fit and got into a long (3-4 hour) protracted argument about the landlords about face. When the new tenant had left after signing all the paperwork the landlord looked at us and said “Didn’t you see me wink?” The whole argument was just a ruse to make sure that the new tenant didn’t expect to get his deposit back if he ended his contract early. The landlord was a bit chagrinned that we had had the argument but told us that our deal was still on and the argument was really our fault for bringing up the details of our agreement in front of the new tenant. We were so surprised that my manager said: “how are we supposed to know that?!” My response was: “If Chinese can’t even figure out their own culture together, how the hell are foreigners supposed to figure it out?!” We all had a good laugh and a nice dinner together after all the paperwork was done.

While we were closing up all the legal lose ends with the local tax office I had to show ID and sign some forms and pay some money to end the contract. I did so with my new passport. I was anticipating that there were going to be problems since the numbers on the forms were all from my old passport (which I’d forgot to bring). But the tax official looked at me, looked at my photo in my passport and said “I can’t read any of this. He paid the fee.” She shrugged, tossed my passport back to me and that was it.

Finally a lesson learned and a lesson taught. I was doing QC for a shipment of product samples going to the US today. The quality of product is quite good. The qtty’s are correct, the packaging is good. We approved each step of the process all the way through the final painting. Everything was correct. The problem? We didn’t watch the paint dry. Really. While drying, the dust and spray from other colored projects blew onto our white product thus giving everything a speckled coat. First lesson, if you don’t approve and QC each step of the process chances are no one else will either.

The painting was done off-site at a second factory. So I spoke with the owner about the QC that they did on the painting—he talked with a few managers and then told me that since I checked it last time they hadn’t done anything. Since I had approved it they figured it was OK. Product was paid for and shipped back to the original factory for packaging with no other QC. Now the original factory is in a fight with the painting factory over who will pay for the dirty paint job (and the cost of repainting). Of course the paint factory says that since it was approved it’s not their fault. And the original factory claims that the paint, not the dirt, was approved so they shouldn’t have to pay to have it redone. I completely empathize with the original factory not only because I think that they are right but because I have been here so many times, that I can’t even count them all.

Lesson two: Chinese factories ALWAYS sub work out to other factories. (And no, I’m not exaggerating. Always is the right word.) But they never do QC. I have not, in 7 years, ever had a factory do QC before they accepted product from a factory that they’ve sub’d work out to. They always act so surprised that we reject sub-standard product that comes from someone they’ve “cooperated with for many years.”

I talked with the owner about our own processes (that fact that I live in China for this very purpose — to QC product before it leaves the factories) and told him how much money we save by paying for QC to go out to factories to check components before they are shipped rather than after they arrive at a fulfillment location. To his credit he very honestly told me that if they did that they’d lose face and damage relationships with their sub-suppliers. So, for our products we worked out a deal where they will tell the factory that we have to check the components before they are shipped and they’ll pay for the transportation costs. If they need help with other foreign customers they can use one of our QC for a day and, again, blame the foreigners rather than make waves themselves.