The style of Chinese dominance

Quietly taking permanent positions has always been the core strategy

Yanfeng-minThe recent news of Yanfeng opening up a $55 M factory to supply VW in Tennessee made me think about this. You can excuse the author’s confusion about Yanfeng group, as like many companies with state connections, it has an unnecessarily complex structure, obfuscated further for foreigners (although simple language barriers can be a less paranoid interpretation). There’s a better article here.

I once went to the SAIC offices in Birmingham, MI shortly after it opened just to get to know them. They were very friendly and took a meeting they had absolutely no need to. However, I will remark  concern over how I heard about them to the point where I would visit.

So as you can see, the entry of Chinese players into US/EU automotive has been very quiet, and they would like to keep it that way. They are quite aware of anti-Chinese sentiment, and even though some amount of engagement is necessary, shy away from their biggest enemy: hype. Fortunately their US/EU partners are well aware of this, and are happy to play along, as it’s potentially more damaging to their domestic sales than anything else.

On the surface their entry is quite natural: Johnson Controls wanted to divest interiors, and Yanfeng who absorbed them, would of course get more business. But let’s take a step back and look at how we got here. To enter China, everyone had some sort of Joint Venture, a massive market distortion that built much deeper capability and relationships beyond sales channel. Now they are a legitimate vendor/partner that like everyone else, follows their customer, which includes Missouri and Tennessee.

I don’t want to sound negative on this, but rather comment that the strategy is working. They got here decades ahead of where they might otherwise be. And they are bringing not the brand or flash, but the guts, the important stuff, the business that grows under the radar and becomes indispensable.

That’s the goal. Despite talk of wishing Chinese brands were more successful, they’ll happily take the core infrastructure instead. Marquees can be grown slowly or purchased, perhaps as customers falter.

An aspect of Chinese business culture happens to assist this strategy. They have a hard time concisely defining their business model and brand. This is partially due to a tendency to grab at whatever is opportune, in the Japanese style, but also a lack of modern marketing sensibilities. They seem impenetrable, monolithic, and their strength becomes apparent through a transactional history rather than messaging delivered on.

This suits industrial and B2B to a tee. Many Western megaliths quite frankly have the same characteristics, intentional or not. Halliburton, Thyssenkrupp, etc…

When they start facing consumers as themselves it’s interesting to see what happens. (There’s a well established practice of using a more Western name, either purchased or made up) Alibaba’s Jack Ma is the prime example of a Chinese CEO in the spotlight. Some of his US gambles haven’t been paying off, but part of his strategy has still been to buy into localized partners and stay more in the background than a Google or eBay going into China would do. Note who is going to be more successful though.

huawei-min  honor phone-min

Huawei has invested more in branding. They would have preferred to keep stay out of the limelight, but as it pushes consumer devices, it’s been forced to engage, even while keeping their logo off some of their devices, such as the Honor smartphone. In many ways they will be the most interesting to watch: as they wage a PR campaign to allay fears of Central Government control and push their personal and professional solutions, they may be the first brand that has to truly come out in order to keep growing. And that will be an example and harbinger for the brands to come.

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.

New leadership

Cultural change will never be more possible than just after firing your GM

The most common problems that need addressing under poor leadership are typically:
establishing a collaborative performance culture
encouraging initiative and eliminating fear
professional development
addressing other needs of employees

This is quite similar to issues in the West, but interestingly enough, you can manifest change far quicker in China if you have the right program and rapport established. I would say this is due to a pragmatic, younger workforce serving their self interest with less baggage and more optimism on tap. It’s not Confucianism.

Much will ultimately be accomplished via your new GM, but I encourage you to prioritize the EQ and human element ahead of functional expertise, which can ultimately be bought.

Establishing a collaborative performance culture

For all the rhetoric and stereotype of Chinese working well together, you may find after a little digging that this is far from true. In my experience the most common reason is the same as anywhere else: they’re too busy rushing through their own job to appreciate anyone else’s point of view. What’s frustrating is that even at the manager level, there can be little capacity for the big picture, and so it becomes the function of a few senior managers or your foreign team.

Rather than sit everyone down in a meeting, it’s more efficient to have your foreign/senior team map your processes, analyze what’s best, then walk the managers through your findings and thought process. Even if it’s glaringly obvious all the problems are in a few holes, unless you plan on firing those department heads, you can’t communicate it as such. Further, the departments will also not appreciate being made out as stupid even if it’s entirely their leader’s fault. Remember to resource the departments correctly as workflow changes.

For staff functions, you can probably call it a day at this point. For line functions, you need to tie their fates together while preserving individual motivation.

A huge issue with sales is a lack of information sharing. This true everywhere in the world, but when commissions affect not how often you go out to eat, but whether you can buy meat this week, it takes on a different character. It’s going to drive finance and those who are used to managing by data crazy, but the easiest solution is to raise commissions when multiple sales staff are involved so no one feels cut into. Though they understand all boats rise through cooperation, nothing will change their behaviour faster than seeing it in their daily transactional life. Only after the culture has really changed and they see the benefits through the year-end bonus should you think of going to a more standard model.

Related to this is making sure your own team is sharing information across the Pacific. China can be an afterthought even if they are half your revenue. Every time you wish your Chinese team were more proactive in communication, think about how much they are kept in the dark in turn.

By the way, don’t forget the sales support staff in incentives. Whether that’s upselling, keeping complaints down, throughput, what have you, nominal bonuses and recognition go a long way in reducing their hatred of what the sales guy is promising. Even better, often their performance is quite measurable.

You may be having problems with CRM use. It’s its own issue issue, but I tend to tie this with expense reports. Trip/visit reports, CRM logs, whatever your sales discipline is, nothing will get these filled out faster than expenses paid pending completion. BTW I’d recommend paying expenses out bi-weekly at the slowest. It’s just a huge cash flow burden that they can’t absorb the way your US employees may be able to.

Encouraging initiative and eliminating fear

By now you think you’re a genius with all the issues you’ve uncovered and resolved. What no one has told you is many of your staff have the same or better recommendations, but are used to keeping their mouth shut out of fear of their supervisor’s wrath. Even when your supervisors are good, there is still a cultural propensity to keep their mouth shut. It has to be actively encouraged. And nothing is more encouraging than a red envelope full of cash. The key here is to make it come from the supervisor. Reward her and the employee. Make her look like the magnanimous visionary. She’ll find she wants to match the reality to the image.

Ever never get to the bottom of exactly who screwed up? That closing of ranks can be managed, but the issue is there’s no path to improvement. You have to absorb a lot of mistakes without consequence before people start taking risks and speaking up. That can be hard to do especially in lock down mode, but look at it this way: it’s been going on the whole time with no benefit. Why not make it work for you in the long run? That means getting closer to the bottom of it with no airing of laundry or chastisement, but a private acknowledgement, advice or plan with encouragement to keep moving forwards. Time, rapport, and an ability to speak Chinese are the only way to get there.

Professional development

If your GM ran things very Chinese, chances are your staff are under trained. Whether that’s technical, English language, sales training, nothing will get more confidence that you’re here to stay and interested in them than providing training. The ones who don’t care? Fire them. By and large, Chinese professionals are thirsty for knowledge of all sorts.

More critically, develop their leadership potential. A recent HBR article points out that leadership gaps and soft skills is one of the biggest problems in the workforce today. I see that all the time in the US, but in China it can be worse. I would rate many senior managers as barely supervisors in their leadership and managerial qualities, especially if you’re trying to run a global operation.

Addressing other needs of employees

Once you open this up, expect a flood of requests, but you should investigate the overall quality of life of your staff to make sure your policies are reasonable. Whether that’s paying expenses on time or adjusting holiday policy, realizing that minor inconveniences can be huge obstacles may help you establish a healthier more focused work force (and make you more leftist?)

Also, making sure they are properly equipped…well-lit work stations, AC, cell phone expenses, vehicle subsidies, etc… Many Chinese-run companies put much on the employee that would not be acceptable in the US. Just because you can doesn’t mean you should.

Take care of them and they will take care of you, by and large. It’s true everywhere, but when operating in a country where you’re so easily taken advantage of, why ask for it?