Fake it until you make it has a different tenor in China

Ruihai’s disaster in Tianjin another example of ‘entrepreneurial spirit’ gone awry

Those who have been in China for a while know meiwenti, 没问题 translates as ‘no problem’ and can mean everything from that to the exact opposite. The Chinese predilection for saving face and grabbing as much business as possible can have them take on risk and tasks that they have to just have faith they can later execute.

This is fine and great for inventing a new 3D printer or selling Hello Kitty iphone cases. But in China this extends to some fairly critical industries, such as food supply, mining, and waste disposal.

I didn’t want to mention corruption in this post, but it’s disturbing that this wasn’t some private contract out in the sticks. Tianjin is the 4th largest city in China. A ‘serious breach of discipline’ at the Administration of Work Safety–does that mean they looked the other way now and again, or there were relationships that allowed the company to be commercially viable in the first place?

Either way, I hope this reminds us all that some due diligence is required when contracting out our own critical services. Even though 30 years experience can mean a lot of different things, it still means more than 4 years and just got their license.

Banker’s Acceptances — Set some rules on what you take

Many banker’s acceptances, or 承兑汇票, aren’t worth the paper they’re printed on

I mentioned in a previous post that I would describe this payment tool in a little more depth. With some rising uncertainty about currency and the economy, now’s as good a time as any:

A banker’s note, on the right with stamps transferring ownership

An acceptance note, or 承兑汇票, is a form of IOU, similar to some banker’s and promissory notes. The best kind are issued directly from one of the big four banks guaranteed with secured funds. Typically they do not grant interest, and have terms from 30-120 days.

With deposit rates being what they are, it’s not entirely clear what the advantage of using them is other than to bridge some short-term cash flow fluctuations. (I’m always open to hearing from someone better versed in finance). However as brand owners pass these down the supply chain, they have become quite common currency, and it can further devolve into who will be left holding the bag.

The first thing to note is that there are versions that are issued solely by the company, similar to a classical promissory note. What with China’s state of financial governance, these are of course not covered by any assets. You’ll tend not to see official bank information on these notes, even if there are some misleading signs. Your accountant or AR can give some training on the differences. Stay away from these, even from major corporations unless you have a deep strategic relationship.

Secondly, it has become a common practice to sign over a received note as payment to another vendor. There will be an additional page with company stamps on them as in the photo above. This process can be repeated many times. The most I’ve personally seen is 11 times. These are typically passed off to vendors who either have no leverage or a weak collector. Everyone knows that it’s worthless, and so is tantamount to not paying.

Even when issued by a real bank, Chinese bureaucratic tendencies can really work against you. Here are some examples of what can go wrong:

• One of the stamps is unclear or crosses a boundary line. The bank can be under no obligation to honour it, and will ask you to take it back to get ‘fixed’
• One of the pages is slightly torn or wet
• One of the companies in the chain is no longer in business
• The funds are no longer there

Whoever is charged with collecting has to have clear guidance on policy, especially if they are the sales staff, who have a host of other considerations. In descending order of preference, here what I would try for:

• Don’t accept them at all
• Only one directly issued from a bank
• One signed over once from a major customer you also sell to/know. To use an automotive example, if Yanfeng signed one over from GM.

A practical note here: it’s very hard to take the note and give it back if it turns out to be useless. If they’re planning on signing one over, I’ve had people text a photo of the existing note to the accountant to estimate validity first. You’re almost better off negotiating different terms than taking a useless note.

Also, there’s nothing wrong with holding goods or reputation hostage. If it’s done calmly, as much within the bounds of saving face as possible, and if either your GM, or better still, foreign office policy can be the heavy, escalate as much as you have to to get paid safely. Despite protestations of not being ‘friendly’, they’ll respect you and the relationship will go much smoother once they know they can’t walk all over you.

Just because China doesn’t know what it’s doing doesn’t make it worse than us

Waffling policy & fast execution brings uncertainty, not necessarily worse results

China’s leadership has started to show some cracks, grasping at solutions to their stock market, exports, currency, and even adjusting course on the S. China Sea.

A certain lack of experience, combined with the speed that comes from bypassing legislation, makes it seem like China’s leaders are grasping at straws, struggling to balance the economic growth presumed necessary for stability, reform, and taking its place as a new world power.

However much this worries global capital as against their desired norms, seen from the other side it may still be better than anything we’ve accomplished. So it took months or years and billions of lobbyist dollars to pass our key pieces of legislation, financial and otherwise. Where are we and the EU compared to China from a developmental standpoint?

China’s hypersensitive reactions has perturbed a delicate but decaying system to the point where the oscillations may be disconcerting, but as long as it swings to a better equilibrium for the people, isn’t that what matters at the core?

Regardless of results, I think here China has a moral edge on us: they’re genuinely trying to improve the real economy for its citizens, applying modern finance in an attempt to temper unintended consequences, not guarantee returns on speculation.

Want fries with that?

Even with high growth, resist the urge to skimp on sales training

Anyone who has been to a fake market has seen what aggressive sales can look like in China, and in fact it is a great manifestation of what makes the difference between a crowded stall and an empty one 3 meters away selling the exact same stuff. The likely reality is however, that you can neither get nor want a team comprised exclusively of top sales talent in the traditional sense. They become unmanageable and leave once they see your numbers trend downward.

So you need to invest in working with that you have. Further, building in training early not only shores up for the future, it more critically builds a culture accepting of pivots in strategy and tactics.

You see how inactive some can be when it’s their own money on the line, what do think they would do peddling your services?

There is definitely a hesitation among many sales people that I would say is derived from a national character of deference, especially when they are technical at their core. Perhaps you recognize this in your domestic team also. However in China I find it easier to help people stretch out of their comfort zone because quite frankly, they tend to have more on the line and more to gain.

As always, the core reasoning has to be expounded. The perception of an oily charmer out for personal advantage has to be replaced with one of an useful partner who can anticipate his client’s needs. Then they have to see it work, often led by example.

Then they need to be incentivized. As anyone who manages a commodity catalogue knows, as soon as the promotion of a product line stops, sales tend to taper off. The key here is to use incentives to train behaviour with the understanding that either a. there will be a permanent commission structure in place to reinforce the sale or, b. there will be a bump in base pay that recognizes the superior overall performance. I’m generally in favour of b. if you can pull it off. Not only does it give you simplicity, the employee will appreciate it more.

Here are a few general ideas that I’ve found useful that don’t require an outside trainer:

Explain the effect of price on your bottom line. You don’t have to use your real numbers (although I recommend it), but until they understand that a 1% drop in price can be a 15+% hit to earnings, it’s just too easy to drop the price as the go-to move, especially if their commissions are only minimally affected. If you can tie their earnings more closely to the company’s, even better.

Explain the effect of giveaways on your bottom line. Service is probably number one here. There can be an expectation of a lot of free service in China, and like in the US, it has to factor into defining who is a good customer. Again, the sales guy gives away something that doesn’t hurt him, but causes havoc to another department–it has to be tied together somehow, at least by a meeting of the minds internally.

Explain statistical results. Suggestions of change raise a very common knee-jerk objection: it will alienate the existing customers. After dealing with whether or not this is true, you then have to explain if how your tactics change the big picture, and more importantly, how it improves their pay-to-effort ratio. Formulate some case studies to illustrate.

Let them watch you walk away from a deal. They won’t believe anything you say if you can’t show them. A graceful, respectful exit can do wonders in improving your mix. Watching how you explained the move to your boss, perhaps even more so. Bonus if your boss supports the move and can demonstrate it semi-publicly.

Fire a disruptive top-performer. In a similar vein to the above. If the message is numbers buy immunity from policy, discipline, etc.. you rarely see the rest of the team reach for the stars. They in fact just sink to doing the minimum and you end up with a fairly toxic environment. It’s just not worth it. Now, I’d generally try to turn it around by appealing to their desire to exhibit leadership to the others, but in the end, if your value to customers rest solely on one woman’s smile, you have bigger problems.

Incentivize the up-sell. As I mentioned before, it should be a training tool to drive home maximizing margins or reducing losses. Charging for parts & service when the expectation was free can be a big one (lots of training involved there, and I’d suggest taking a few meetings yourself to show how it’s done, and perhaps learn their pain firsthand).

Recognizing the difference between an unwelcome automatic up-sell and one that seems informed can be demanding. Given how non-linear the extra effort is here, the incentive also has to be non-linear. This perhaps will improve your own focus: you can’t afford to offer bells & whistles that don’t have higher margin unless it’s part of your brand.

Thanks for coming out, Jon

With the mirror to our inner despair gone, perhaps we should now do something

In his penultimate episode of The Daily Show, Jon Stewart recapped all the change his vociferous and hilarious commentary failed to bring about. He of course keeps good company: Chaucer to Orwell have scarce done more to the real world. Outside of personal enrichment and entertainment, the highest aspirations of a satirist is to gild our tongues and sharpen our wit when we take the fight that matters to the legislature. And that’s where he may feel some sadness: courage failed to utter his words on the floor.

What does this have to do with China? Well, for all its shortcomings and human rights abuses, China is one of the more visible examples of what can be accomplished when the government is more concerned with doing what’s best over getting re-elected. Of course they do some pretty crazy things to consolidate party power, such as ever expanding censorship. However, I think the general sentiment is that despite some distortions and breathtaking corruption, the government by and large is laying out what they genuinely think is best for the country. Daily Show, by the way, is not banned in China, because while the pieces on China were ridiculous, it’s always been more inward looking.

As a less extreme example, most other Western nations tend to have governments that are more trusted by the people because they just do what’s best, partially by having larger bureaucracies that are apolitical. They also have fewer checks and balances and a slower revolving door on the lower house. In other words, you actually have a few years to work before your next election, you don’t own the process, and your lobby money is limited and declared.

Unfortunately, they are also slowly following America’s lead at becoming a plutocracy, albeit with more liberal outcomes. The European bank of Germany still has to cater to German and European core values, and Canada, with a traditionally strong prime minister, can roll back and right the ship as needed more effectively than here is the US, even if there are incremental structural changes for blind capital.

Since we’re on culture Friday, I’ll cite a quote from a new show on USA Network, Mr. Robot, which succinctly illustrates what is wrong with America, how bleeding-heart liberals perceive it, and why it can’t be stopped. Answering questions about a toxic spill cover up, an exec demands, “What, do you think we were all sitting there with cigars and rubbing our hands together? (yes it gave us pause), but then you go home…have dinner.”

The ahem, wonderful thing about China? They put those people to death or give them life. Remember the tainted milk scandal? The negligence and disregard for life was breathtaking, but at least some of the perpetrators were paid in kind. I’m no death penalty supporter, but destroying lives on an industrial scale, be it mortgages, food, or pensions? I’ll point the gun at those guys over my local neighbourhood murderer any day of the week and twice on Sunday.

So back to Jon Stewart. The glow that comforts us as we fall asleep is gone, the last illusion that there’s something going right in the world. What should we then, do?

Let’s start small: there are a few fights out there to stop gerrymandering and give congressional districting to a bureaucracy. You know, the way they do it in all the democracies that have no trouble running elections. There’s no rational argument against it apart from an admission of partisanship or incompetence so great they should be recalled on that alone.