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?

Registering Trade Marks–think of the translation early

Goldman Sachs doesn’t seem concerned, and why be? They can’t possibly win any lawsuit.

There been a recent story about ‘fake’ Goldman Sachs (Shenzhen). For those who travel in South China a lot, you may have seen a blue highway sign with it. I saw it years ago and wished I snapped a photo–I was surprised they would be operating as such AND have a sign on the highway.

I must refer here to a post in the China Law Blog. The lesson: register early and in Chinese. Matthew’s post recommends registering the Chinese transliteration the Chinese media will assign it. I’d like to go a step farther and suggest you control your own destiny: consult a Chinese speaker who can suggest some names and actively press release with your own Chinese name of choice. Otherwise you may be stuck with unhappy puns, or at best, a name that doesn’t have the brand power it could.

Don’t underestimate the language barrier. I’ve said, “Apple” and been met with blank stares until I took a shot in the dark and said, “苹果” pingguo, Chinese for “apple”. If the strongest brand on Earth doesn’t have English name recognition, don’t think yours will. Control it!

Oh, and as an reminder, ripping off names doesn’t stay confined to the same industry. Just ask Shenzhen Goldman sachs electronic technology.

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.

Compliance

Post transition get ready for inspections

As a parting gift, your GM or one his cronies may play informer for non-compliance. Worse, he may inform his pay-off buddy the well is drying up. Here are the big ones:

Labour contracts: If your contracts are not up to date, you can be subject to many penalties. Sometimes after 3 successive contracts, they enter an ‘open’ state, which makes termination and negotiation difficult. Check with your local labour lawyers. Great chinalawblog post here.

Get a handle on everyone on probation immediately and do a proper review before their contracts pass to permanent status. If you let these pass, you’ve just added considerable headache later.

Chinese work contract
Chinese work contract
HR Manual
HR Manual. Know it for options on firing and compliance on your own rules.

There can be all kinds of hoops to jump through with finding alternate positions and GROSS violations before terminating someone. Incompetence is not necessarily strictly valid, especially if they’re off contract. You can assign a manager to janitor, so getting rid of her can be more annoying than long-term (it still can seem interminable to you). But what about the janitor?

On a practical level, many employees are ignorant or misinformed about their rights. They also are practical themselves unless you’ve turned it into a personal fight. It’s about the payout. But compliance is still necessary.

Overtime and pay: Hopefully you have an OT policy and actually pay it. There are however, strict OT caps at 36 hours/month. You may end up paying a penalty, and there’s no good way to avoid it. It’s really about planning to get into compliance in the future.

There’s also other issues such as the hot temperature subsidies that you must comply with. One note, don’t get suckered into paying it if you provide comfortable office conditions–it’s then about making employees happy, and convincing the local authorities of your exemption. (Good post on that here)

Software: Only a sucker or large corporation pays for software in China right? That’s certainly still the prevailing attitude. IT’s function is often not compliance but advanced piracy. Prepare for them to come calling. (article on Microsoft plans here) You probably have a relationship in the US or EU with these vendors. They can be a resource to help clear things up, but they’re also an avenue to come collect.

I advocate for compliance, but some advice for those who insist on doing it the China way: set aside funds and tally a ground-zero license requirement. Factor in a certain degree of back payments/penalties. They may go for as much as 22%/year/license plus penalties. You can usually negotiate, but if they decide to play hardball you can be in a tight spot if their relationships with the local business bureaus happen to be sufficient to lower the boom. Further, you need to demonstrate credible action: if you leave any hint in public that you’re knowingly trying to duck the fees, they can sniff it out and it can turn antagonistic fast.

Environmental & Regulatory compliance: If you emit or dispose of any hazardous waste or are subject to any specific regulations, get a jump on it. Make sure you follow rules stated in your internal manuals, particularly regarding safety. ISO can not be worth the paper it’s printed on, but if it’s valuable to your business, you should do a review. Product quality programs are probably most valuable to your operation and reputation.

Taxes: China can seem fanatical about collecting taxes with as much control and little efficiency as possible. (Article here on 发票 fapiao, or tax receipts.) However, if any money was being hidden, it may come out now, either from ‘anonymous sources’ or your own forensics. Just going to have to pay and fix it. This applies to import/export too.

VAT fapiao
VAT fapiao

These are some of the things that you may have to do by law. Next week I’d like to address what you may want to do because it’s just good leadership and how you right the ship.