Check out China Law Blog. Lots of great recent posts

On getting your molds back.

On being a China “expert”. In this post he points to an older article about ethnicity trumping experience.

While I fundamentally agree, I would say from the other side that I’ve seen no shortage of foreigners with no special credentials beyond they were willing to take the assignment, or as a mandatory part of fast track. Or, to bash our European friends a bit, because only a fellow countryman can be trusted in the wild East. If you’re going to send someone unqualified, why not send someone who may be interested in reconnecting with their heritage, and at least has a third-removed network she may be able to activate?

KTV and entertaining – Set some clear guidelines for your sales staff


An old topic, but the corruption crackdown is changing the game

There’s plenty of ways to do business in China without KTV these days, in fact some are shutting down for lack of business, and Dailan Wanda is divesting it as well.

KTV
KTV, or karaoke, is typically sung in private rooms by the visiting group, and comes in two flavours, family-friendly fun and, uh, the other kind. It’s popular legitimate entertainment, which is what makes it confusing: If your college friends in a mixed group invite you out to KTV, it’s the former; if the big fish your trying to close wants to go KTV, it’s likely the latter, ranging from a hostess bar type, to sex on or off the premises. The facade isn’t a great clue either: I’ve poked my nose into places that I was sure focused on extra services and saw nothing but innocent mixed groups.

Companies may even do team building at KTV, although it can be a strange experience if there’s a core group of guys who hang out until after everyone leaves for more fun. Still, common sense or a trusted local should give you the vibe, and how you play it sort of depends on your position in the company, but I’ll assume you’re in charge.

As corruption comes under increasing scrutiny, your own corporate governance may require you to take a closer look at how business is conducted in China. Most companies I’m quite sure would prefer to say ‘no’ to all KTV as policy convenience. However, depending on who your customers are and the existing company culture, you may find it useful if employed suitably.

First evaluate the status quo. You may have staff that understand and adhere to understood Western practice, even if it hasn’t been spelled out, especially if they deal primarily with Fortune 500 and business is good. If you do big business or anything touching government, stay away from it with a 10-foot pole. You may also have the exact opposite, staff that take advantage of a lack of supervision.

You probably need to have built up some level of trust before your staff give you an honest report of what’s going on. Their receipts will tell a lot of the story, although the savvy ones know that if the commission exceeds the spend, it’s still a good deal for them. Nota bene: receipts in Chinese will often have KTV in English letters on them, so even with no Chinese you can take a quick look. If you have a little Chinese, the words 歌 or 唱 (song or sing) should also stick out. North of 1000 RMB per person it starts getting fuzzy. That may seem low, but remember, laowai are charged a lot more. Also, the final fees may be off the books.

Plenty of bonding and business is done over grey-area KTV (let’s say by East Asian standards) where you are pampered by a pretty girl, but even if other services are offered, it’s left at that. This is likely how your staff will present it to you if they view it as necessary, especially if they know you are uncomfortable with it.

For their own protection, unless you have a few ‘dirty’ long-time expats who have a stay-in-China-forever destiny, there’s no reason your foreigners on rotation need to be exploring the seedier side of KTV for business. They can’t read the greens reliably enough to have good outcomes for both themselves and the company.

Your call on where it all sits in your moral compass, but I feel you do need to reconcile the results and expectations with the constraints and resources. Of course sales training, but also looking at more palatable if equally expensive options–trips, conferences, speaker fees–there’s a whole gamut of what I consider equally questionable but more acceptable practice. Still, sometimes the ahem, heart wants what it wants, and when that’s the case your staff should understand what the expectation is, what the company will finance, and if a personal spend is acceptable.

Whether that’s a monthly no-questions asked budget, case-by-case review, or absolute no, I feel you’re doing your staff a disservice by not scrutinizing the easy way that’s rapidly going out of style. Further, if you’re leaving it to them but not giving them carte blanche, you put them in a very awkward situation. An expensive dinner, never mind KTV, can be more than their monthly salary, so clarity and support helps them act with confidence. If they’ve reported what the upside of an evening out is, (I’d prefer it to celebrate a close rather than facilitate, but there’s all sorts) ask them where the evening could go and set the budget/expectation. They’ll be able to direct the night and make excuses as necessary.

Oh, and if these expenses are considered extraordinary, don’t be a chicken and make sure they have a paper trail with someone’s approval. You’re the one making the real money, it should be your ass on the line–they’re already doing the heavy lifting.

It’s All Lies! Part II

Listen to Obi-Wan: Many of the truths we cling to depend greatly on our point of view.

Obi-Wan-Kenobi-min

In our self-obsessed culture, I hear, “why don’t they just…” a lot more than, “What do I have to do to…”. This is fundamentally why we’re not only terrible communicators, but terrible managers and partners–a complete inability to put ourselves in others’ shoes for even a minute.

I won’t abstract too much about binary concepts of surface truth versus total harmony here but I’ll just illustrate: ever give a friend a better recommendation than he deserved, or tell your server your over-salted brick of a steak is fine? Imagine every interaction in China like that, where your outsider status gives you no priority on truth. This has of course wide-ranging consequences, but I’ll concentrate here on a customer perspective.

You may have heard the expression 顾客是上帝 gukeshishangdi “customers are gods”, and so don’t understand how this jives with the experience you’re having.

Let’s put this in context: do you believe your contractor is going to build your house exactly how you want it? Believe that your ERP roll out will go smoothly after the kickoff meeting? No, you have constant interactions, clarifications, and adjustments throughout the process. And this with vendors with no language, cultural, or even time zone challenges.

So what makes people believe they can get it done in China with less effort? The answer is generally that it’s just too much work (perhaps coupled with a resentment at being forced to go to China in the first place). So there is a serious mental wall to climb that tends to manifest itself in finger-pointing, excuses, and anger. I may be asking for a little too much introspection, but it’s often a morale, resource, and leadership problem.

A Chinese customer is in constant contact, has realistic expectations, and an ear to the ground. So she is treated like a god, especially compared to an unprepared foreigner. But perhaps more tellingly, the ‘god’ part is really a matter of face and respect. And a Chinese customer understands what’s courtesy and what’s real.

Here are a few ideas that should inform your communication process:

关系 guanxi or relationships – your vendor has a wide array of obligations that he will attempt to integrate your project into. That includes putting certain manpower on it, using certain vendors, and keeping harmony within his organization. Some of these obligations are related to face, but I’ll give a few examples more purely relational.

Sub-vendor selection – This drives people mad. Sometimes, the best case when you tell them, ‘use vendor X’, is they hear, “give me quality similar to vendor X”. While this can be a pure cost decision, it’s also highly related to the relationship (both paid for and ‘natural’).

Ever toss a lawn mowing job to your neighbour’s kid instead of the landscaping company your wife saw an ad for? That’s about how seriously they take your suggestion until you: a. explain exactly why this vendor must be used, and b. help build the relationship yourself by introducing them and having some sort of joint meeting. Explaining your reasoning is very important in all aspects of managing in China. I’ve found people have a hard time with it because goes against the perception that Chinese are docile sheep that just follow rules. You assume blind compliance at your peril as you discover how creatively they can bend the rules.

What drives people especially crazy is when vendor X knows they’re being bypassed but doesn’t report it. This is because they know this would further damage their relationship with your vendor, so you must be proactive in making this happen, while respecting vendor X’s concern. You can’t make them out to be the bad guy. Once they’re used to one another, it gets better.

Sales – You have the better, maybe even cheaper product, yet your sales partner seems to keep pushing product Y more than yours. Why is that? He’ll tell you all kinds of reasons, such as, “our customers are used to brand Y”, or “so-and-so uses brand Y” but at the end of the day you need to evaluate how important you are to them. Are you bringing them prestige with your brand but less profitability? Do they have a stake in brand Y? This can take some sniffing around, but you need to get a handle on that one, as IP becomes an issue also. Someone on the ground that reports directly to you will help. A short term solution is to direct more of the sales/marketing process yourselves. Provide localized assets and develop a promotional campaign with them. In short, invest in helping them they way brand Y probably is.

面子 mianzi or face – You may have heard that the Japanese have thousands of ways of to say ‘no’, none of which entail the word. There’s a similar idea at work here. Refusal, reports of failure, assignation of blame, etc…are all very difficult to pin down to save face for themselves, the company, a colleague, or you. This should not be mystifying once you ask yourself how you much you would like your boss to burn you in front of the board if there were a softer way to frame it.

However, our ‘results driven’ mindset thickens the barrier, because not only are we perceived as bristling with hot buttons, but we often take no interest in the holistic view of the situation, pointing instead at the fine print of a contract. It is incorrect that contracts are meaningless in China, but they are more properly viewed as aides to a meeting of minds. And as the situation changes their position shifts as well. The problem is, it often isn’t heard on our end.

The most basic communication strategy should avoid yes/no questions or ultimatums, and include multiple confirmations of true agreement by asking for their opinion/plan as well as giving them an out on anything you suspect may be too good to be true or beyond their ken. Also, I would suggest to:

Listen. The first step is taking more time to learn and listen. Time to know them, the changing status, time to take a deep breath rather than turning red-faced and yelling, which will only lead to further disengagement.You may not ever appreciate the full pregnancy of a well-timed phrase, but you’ll eventually get a sense when there’s more beneath the words.

They may offer very subtle cues on deviations, and you have to draw things out with non-threatening dialogue. “Some problems at the factory” may be muttered as if it were inconsequential to you, but it could mean anything from, “We’ve got a handle on it” to “factory burned down due to violent strike, and I’m stealing the rest of the money because they owe me back pay.” By the way, this works both ways. Take the time to explain why criteria A or timing B is so critical, and they will tend to listen and sympathize, just as they expect you to do for them.
factory fire-min There will be a slight delay in delivery.

Let sleeping dogs lie. Secondly, don’t get caught up in assigning blame or obsessed with getting to the bottom of something. Leave it as vague as necessary to move forwards and ensure some kind of organizational learning came out of it. Everyone will be more comfortable working with you, and that way you’ll slowly come to the truth you need.

Language Barriers – Finally, the language and idiom gap is usually wider than we think. They will often not ask for clarification and worse, imply agreement, both for convenience and to avoid embarrassment. Take some time to gauge the English level of your contacts, and adjust your diction and pace accordingly. This includes not shouting at a glacial pace to someone who is essentially fluent. Bear in mind when your POC is not technical and there primarily for language skills.

One real annoyance here: Americans can have a very narrow listening window for accents. Rather than grunt, “huh?”, how about apologizing for not being used to her accent (not “funny” or “strange”) assuring that you’ll eventually get used to it, and just cracking on with the pace and repetition you both need?

Written minutes can be useful, not necessarily for enforcing action, but confirming understanding. Many Chinese write much better than they speak, so take advantage of it. Write precisely, even pedantically, as they’ll spend much more time with your documents than your words, and yes, perhaps not ask for help even if they need it.

It’s All Lies!

A review of the scale and boldness of lies told in China

One of the top questions people ask me is, “Why do Chinese people lie so much?” Before reviewing the cultural milieu and communication modes, I thought I’d revisit some stories of lies told on a colossal scale. First because it’s fun, but also to drive home that the primary way you deal with the big lies is similar to how to see through the small ones: be there and look them in the eye.

siwei-min Caterpillar buys Siwei – A $580 M write off on a $677 M deal based on a guy who knows a guy. I believe since Siwei had US investors and could put an American face behind the deal, red flags were overlooked partly because it was likely thought that a purely Chinese deal would raise similar flags without the warm fuzzy. I won’t comment on how deliberate Mr. Williams role was, but I do find it improbable that he had the wherewithal to truly know what was going on or do anything about it, so why trust in your American partner if that’s the case?

While it’s true Chinese accounting practices lag world standards, especially at any company that was once state-owned, it is ludicrous to believe that the rank and file didn’t know exactly what was going on at the transactional level, or that the executive wasn’t appraised of the strategic situation. At least they were a real company with actual assets, which leads me to the next story…

Aluminum_qingdao-min Missing collateral used to secure $10 B in loans, centered around Qingdao. My first thought when I read this story was, “You mean they didn’t check before they gave them the money?!” I’ve done more due diligence to extend better payment terms to a customer for $20,000 than it seems they did to lend millions, and I’m pretty sure even the most junior banker is paid enough to take the pains.

It’s understandably hard to go through the paper work, especially when they limit access, but many deals could have been done without any metal there at all, simply because no one went to go look. This is the country where a man claimed to own a bank to secure a micro loan. Speaking of fake banks…

fake_bank-min  Fake bank takes over $30 M in Nanjing. What is there to say? You had a physical building scamming locals. How can you make sure that even your trademark lawyer isn’t fake?

You can’t. You can just do your best, and I think my point from the above examples isn’t that these people were duped, that can happen to anyone: the story is there seemed to be a lack of real effort taking into account the nature of China, and that risk wasn’t realistically adjusted for all that can go wrong. We’ll sermonize about more practical communication mores next.

Decisions to make before sourcing your mold to China

Discuss expectations and demand support before trying to go direct yourselves

Let’s start with a note here for buyers that demand a domestic tool shop manage the LCC (low cost country) build in exchange for a slice of the pie. It would be like asking a local farmer to manage your rice futures in Thailand in exchange for buying some of his strawberries. He’d be crazy to accept risk on something he knows little about, and you’d be crazy to let him. Unless they explicitly advertise it as a core competency, it’s a bad deal for everyone. (skip to brokers)

Here are the key points I would discuss with finance and the boss before pulling the trigger on going direct with in-house staff:

  1. Are you prepared to take a loss in exchange for building this capability?
  2. Are you prepared to be late as we learn from our mistakes?
  3. Is there budget to take at least 4 trips to China on the initial tools, and several times subsequently?
  4. Is there budget to hire someone local if needed (FT or PT)?
  5. Can we have some cultural/business training on working with China?
  6. Is there someone on staff that can work well with their culture?

1 & 2. Losing money and being late

This is not a foregone conclusion obviously. But the key point here is you can’t shut off the idea just because you’re burnt the first time. I won’t detail how this happens in this post, but this is the high-level message your executive has to understand.

3. Trips to China (separate post later)

Many Chinese tool shops now have local sales offices and there are now many standard practices to Skype or film tryouts and so on. However nothing beats showing up in person, not only for information gathering and exchange, but from a more practical stand point, it makes it clear you’re not easily bamboozled or brushed off. This is particularly true if you work for anyone smaller than a Tier 1. It’s great when your negotiator and technical person are the same, but if not, you may need to send more than one person at a time.

Summary of suggested trips: due diligence, design freeze, mid-manufacturing, try-out(s)
China tryout shop-min Tryout shop in China

4. Local staff

There are people in China you can find to help you with some of your day-to-day management, as well as applying some pressure for compliance. It depends on the size of your program whether or not they are worth it, but it wouldn’t hurt to do some interviewing and/or training on one of your trips. You could probably negotiate a free tag-along so they get an idea of your needs and you get a sense of what value they could add.

5 & 6. Training & staff

I post often on this, but you need to get beyond a customer-is-always-right expectation and on board with the realities of getting things done efficiently in a different culture. Not surprisingly, those who can’t agree with my point above don’t believe they need any training. If that is the case, unless you have sufficient business savvy to compensate for this massive handicap, I would suggest steering away from China.

Your quieter, less aggressive staff may be a better interface with your future Chinese partner, even if you need to retain final say with a more aggressive personality.

If you can’t align on the above, you may need a broker/turn key supplier

I used to be somewhat anti-broker, but as I saw the constraints put upon program managers, I realized that even if they had the wherewithal to do it right, many didn’t have budget or support from their leadership to do so.

Brokers range from full-service with local machines to a guy who knows a guy. Stay away from the latter. The higher cost of the former is well worth it. You need someone who sources a pretty decent volume to China, has full-time employees on the ground, and have Western staff who have personally spent considerable time in country.

There are many I could recommend and warn on, but I’ll give a short plug here. I’ve worked with all of them, and they generally have produced good results for their clients:

In Germany, Siebenwurst. Love those guys.
Also, Georges Pernoud in France.
In the US, Global Source Manufacturing. James has personally taught me quite a few things and has some interesting China stories himself, and has lived for a time in Shenzhen.