Classic Communication Gap: China vs. the West

I cannot tell you how many times I have observed the following conversation between Chinese-speaking and English-speaking businesspeople:

English Speaker: “I need you to lower your price/produce a machine I need/accept a higher price/grant a concession.”

Chinese Speaker: “Hmmm. That will be difficult.”

English Speaker: “Difficult? Well, good then. That means you can do it. If business was easy, everyone would be doing it!”

Chinese Speaker: Baffled silence.

What has just occurred is a complete misunderstanding based both sides’ lack of understanding of context and meaning in communication patterns commonly used in greater China vs. the West.

Here is what each side really means:

English Speaker: “I’m not making enough money and I need your help by reducing the price to $X/buying at a higher price ($X).”

Chinese Speaker: “I’m sorry, that’s impossible. I just can’t do that.”

At this point, the English speaker should say something like: “I understand. So, how much can you do, because I can’t do business at this price?“

The Chinese speaker will likely come back and say: “I can give you 5% less/more, but not the 10% you asked for.”

Classic. Happens all of the time. If you can learn what Chinese-speaking people really mean when they say things like “That is very difficult,” you’ll be much better equipped to negotiate in greater China.

Doing Business in Greater China: What do Foreign Businesspeople Expect?

Earlier this year I taught a seminar at a business training camp for Taiwanese executives in the food commodities business. The trainees were an excellent group, full of energy and ideas. During the Q & A session, one of the attendees asked “What do foreign businesspeople expect from their local suppliers and customers?”

Wow, what an excellent question.

My answer? “If they are sourcing, they expect to find what they need at a price lower than they would have to pay at home and at the same or better quality. If they are on a sales trip, they hope to figure out the local distribution system and see if they can make a profit selling locally.“

But that wasn’t the most important thing the audience needed to know. I added something.

I told them that they need to educate their clients and customers, to help them understand how business is done locally, because there are such vast differences between West and East. I told them they should do this honestly, without selfish concern for their own position, but with the aim of creating a relationship that is beneficial to both sides (and no, nobody smirked–this was a great group of people who understand long-term partnerships). One example I gave was the current trend in the Taiwan consumer market toward unique and elegant packaging for products priced in the NT$100-200 range (about US$3-6). Many foreign businesspeople cannot understand how a finely packaged product could sell for US$10 in their home market, but must be priced at half of that in Taiwan, Hong Kong or China. They don’t understand that many white collar workers in these countries have only US$100-300 a month in disposable income (after housing, utilities, car, medical, and educational expenses) and so will travel an extra four bus stops to find something priced only US$0.50 cheaper at another store.

As far as sourcing goes, there are some honest suppliers out there who have chosen a long-term, relationship-building strategy over a short-term, screw the customer strategy, but they are still in the minority in China, less so in Hong Kong and Taiwan. That is why a company doing business in Greater China needs to do its research and have a number of checks and balances in place. Sourcing in Greater China can be a huge boon to a business, and can also be a minefield that results in lost limbs and profit. Plan on spending weeks overseas just to get all of the details worked out. Multiple trips, help from consultants, constant quality checks are a necessity for a prudent businessperson, but if you can get a steady supply of finished goods at half the price you’re paying now, it is well worth the effort.

One Night in Taipei: Business Entertainment, Chinese Style

For those unsuspecting businesspersons heading to Taiwan or China from the West, you need to know what you’re in for once the day’s work is done and your hosts take you out for a night of fun.

First of all, some of your suppliers will understand that for most Westerners, business entertainment centers around providing your guests with a fine meal at a nice restaurant. One or two glasses of wine or a beer or two may be consumed. Conversation will be largely centered on matters not related to business. If your hosts understand this, then you can expect to go to a nice Western or Chinese style restaurant and enjoy a few quiet drinks. You’ll discuss a bit more business than you would back home–the Chinese can’t escape their own culture, which teaches them that a business deal is not finalized until you’ve socialized and patted each other on the back a few times. However, you’ll be safely back in your hotel at 10pm, in time to call your spouse and kids back home if they are haven’t already left for school or work.

If your hosts don’t understand that most Westerners prefer this sort of evening–I do have clients who will get back to the hotel, change into party attire, and head out to drink and have fun until the wee hours, but most are content to eat and get back to the hotel–well, then you’re very likely in for a wild evening. You can of course request an evening of entertainment, local style, if you prefer this. Just say “I’m here to do business, and to have fun. Let’s do what you normally do for fun on a night out on the town.”

If you are entertained local-style, here’s what will probably happen:

7 to 10pm-The Dinner

Still dressed in business attire, the factory boss will drive you in his BMW or Benz to his favorite eatery. Key managers will be invited, some of whom will likely be female. Friends who owners of other factories will be called out to put on a good show and to keep things lively. The dinner will start quietly, but soon the beer and whiskey will start to flow and predictably, the conversation will become more free-ranging as inhibitions drop. The noise volume will rise steadily until it’s at a low roar.

You will often find that as people are eating their fill and knocking back drinks, the boss will open up of his own accord. If he puts his arm around your shoulder and starts talking, listen carefully. He’s about to tell you what he really thinks about the business you are discussing, something he won’t do during the daytime when you’re at the office.

You are in danger of becoming very drunk at this point because (a) you probably don’t normally drink more than one or two servings of alcohol at a dinner (b) you’re likely to be jet-lagged and (c) everyone at the table will want to drink with you. In Taiwan and China, you don’t nurse a drink. You drain your glass as soon as it is filled and another person’s glass is raised to indicate that he wants to drink with you. Thank heavens beer and whiskey glasses in Taiwan and China are designed to accommodate local drinking culture: they are small enough that you can do a shot without feeling sick.

One way to preserve your liver and at least a semblance of sobriety is to insist that where you come from, whiskey is always taken with Coca-Cola, and order a couple of cans right away. That way, if ten or twelve people each want to drink two or three glasses with you (the women most likely will not drink), you’ll survive the evening by diluting the whiskey with Coke.

If you don’t drink, just explain politely and firmly that you don’t drink, but that they are welcome to proceed as they normally would. You’ll be happy with a Coke or some tea. The boss will likely not drink, though he will be in a good mood, and that will help you when it comes time to talk business.

As people get happier and happier, they will become touchy. Not sensitive, but tactile. They’ll put their arms around you, hold your hands, rub your leg, all sorts of things. Men in Taiwan and China are extremely repressed and only let loose when they are drinking in the company of friends.

Another important point: In Taiwan and China, deals are not really finalized–indeed, the real issues are often not even discussed–until you’ve been out to dinner and had some drinks. The best thing you can do is to relax, get into the spirit of things, tell some jokes, drink with your group, but hold on to your faculties as best you can so that when either your or the boss brings up the real issues, you are able to function.

Negotiation Tip: If you’re trying to get the boss to agree to a lower cost or make some other concession, hit him up between drink #4 and drink #6. If you try him before then, he won’t yet be in the “Mr. Generous” personae that Chinese businessmen love to adopt. If you try him after he’s had six drinks, he’ll be too drunk to remember what he promised.

Once everyone is stuffed, and most of the party is completed soused, the female managers will be dismissed. If you are willing to continue with the evening at this point, you are now in for one of the wildest evenings of your life.

10:30pm to After Midnight: The Entertainment

Now, dear reader, I must confess to a bit of hesitation on my part. I’ve got the next part written, but I am not sure if I’ll post it in its current form, which pulls no punches.

It is not that I’m ashamed of anything I’ve done, but I’m not sure if it is a good idea to publish the next part without a bit of whitewash. Give me a few days to think about it, and I’ll post Part Deux either unvarnished, or a bit more sanitized.

What do you think? Comments welcome.

US Consumer Concerns About Chinese Food Safety

This is too juicy to pass up writing about. Trader Joe’s, a very successful retail food chain based in California, has pulled all Chinese-made food products from its shelves.

Click here for a brief news item from AFP: US store chain cuts sales of food from China

From the article:

US grocery chain Trader Joe’s said Monday it would stop selling food imported from China due to customers’ concerns about the products’ safety.

“Our customers have voiced concerns about products from this region and we have listened,” Trader Joe’s spokeswoman Alison Mochizuki said in a statement.

“All single ingredient food items sourced from mainland China sre scheduled to be out of our stores by April 1,” she said.

What this means is that (1) if an ingredient for a food product is sourced from China, that food product may still be sold in Trader Joe’s and (2) Trader Joe’s may eventually sell foods that are made entirely in China sometime in the future.

This is the very definition of “growing pains,” folks. The same sort of process occurred in Taiwan, thirty or forty years ago. Here’s how it works:

Stage One: A developing country offers competitive advantages in labor costs and manufacturing speed. Many first world countries switch their manufacturing to this country.

Stage Two: The developing country’s factory owners achieve some success, and then through a combination of penny-pinching greed, lack of foresight and vision, and general lack of understanding of what the foreign market demands, start sending product with quality problems. In the case of products like foods, toys, and tires, this is downright dangerous. Consumers in the first world country react, the media plays up the problems, and the flow of orders starts to dry up as buyers look elsewhere, maybe paying a bit more.

Stage Three: The government of the developing country realizes that if something isn’t done to reign in these factory bosses, the country’s export manufacturing business is going to go to hell in a handbasket. They clamp down on dangerous practices, enforcing compliance with safety regulations.

Stage Four: The developing country recovers its export market, and continues to develop its technology and safety measures.

The interesting question here is, with enforcement in China so haphazard and hit-and-miss, will China successfully get through Stage Three to Stage Four? Several efforts have already been made to crack down on abusers, but in China, where the emperor is far away, the subjects basically do what they want.

Bottom Line: If you are sourcing your products from China, you’d damned well better be on the ground, or hire someone trustworthy to be on the ground, watching your suppliers like a hawk.

China’s Modern History, Summarized

I’m so busy I can’t see straight, but I had to get this link up to Newsweek Beijing Bureau Chief Melinda Liu’s outstanding piece on China’s enormous political, economic, and cultural changes over the past 30 years.  One of the best summaries of China’s modern history I’ve ever seen, and a fascinating read to boot.

“Mao to Now“, by Melinda Liu, Newsweek.

The Future of Taiwan-Owned Factories in China

As a follow up to my last post, this article in the Taiwan Journal predicts a possible drop off in Taiwanese investment in China as a result of changes in labor laws that came into effect today. From the article:

Many Taiwanese businesses in the Pearl River Delta area of China may soon shut up shop, in order to dodge surging labor costs brought on by China’s new Employment Contract Law. The new law is widely believed to contain the world’s most complete regulations governing labor-related issues, and is scheduled to take effect on Jan. 1, 2008.

The situation will be miserable,” predicted a Taiwanese businessman on condition of anonymity. “Big firms will take the lead in calling it quits, followed by their suppliers of raw materials and other supporting factories,” he added Dec. 20.

An unofficial survey shows that one third of the Taiwanese firms in the area either have halted their operations or plan to do so in the near future. The area of the Pearl River Delta includes such regions as Dongguan, Shenzhen, Guangzhou and Zhuhai.

With the implementation of the new law on the horizon, businesses in the area are worried about the impact on their bottom lines. Taiwanese firms already have to bear various welfare costs, including pension allocation and medical insurance.

Industry insiders estimate the new law will boost manufacturers’ labor costs by an extra 20 percent. In addition, the new law stipulates that employers must offer open-ended labor contracts to employees with over 10 years of service. Employers must also provide severance pay in case of mass layoffs.

Others are not as concerned:

Wang Jeng-tang, president of the Taipei Computer Association, stated Dec. 19 that the notebook manufacturing industry is likely to be affected by the new law. “Maybe in the future notebook manufacturers will raise their prices a little,” he said, describing the impact of the Chinese action as “limited” and “not necessarily negative.”

As a Taiwan-based consultant, I was particularly interested in this little nugget:

The uncertain situation appears to have triggered a wave of Taiwanese businesses moving back to Taiwan, as reflected in the recent increase in demand for land in Taiwan’s industrial zones.

Taiwan’s Ministry of Economic Affairs reported that the US$1.54 billion subsidy for a preferential rental program for industrial-zone land is already close to depletion. Economic Minister Chen Ruey-long has instructed the Industrial Development Bureau, which oversees the program, to expand the scale of the program to accommodate the flood of applicants for industrial land in Taiwan.

I’d like some confirmation of the statements made in this piece. There are a few too many “unofficial surveys,” “estimates,” and “situations that appear to trigger (certain events)” for my comfort level. I’m not going to comment on whether this is good or bad news. My role has always been to advise individual companies about their businesses. I’ve tried to remain out of political issues, which suits both my role and my natural bent towards pragmatism.

Factories in Taiwan (and China)

I saw this news item about factory closings in Taiwan a few days ago. From the article:

Statistics compiled by the Ministry of Economics Ministry show that in the first 10 months of this year, 2,419 factories closed down — a 60 percent increase over the same period of 2006.

These factories are closing because (1) the businesses they are in are unable to compete with factories in China, Vietnam, Thailand and (2) some of the bosses are closing up shop to move their operations to China.

I don’t know how many of these factories fall into the second category, but I do know that Taiwan’s economy, like the economies of several other developed nations, continues to transform itself from a manufacturing-oriented economy to a high-tech and services oriented economy.

If you’re thinking of sourcing in greater China, my advice is this: Some items are better sourced in Taiwan; some are better sourced in China. You’d do well to check with a consultant before you embark on a sourcing mission to either place. There are several factors to consider, and potential advantages and disadvantages to both places.

Negotiating with the Chinese: Lesson One

You’re sitting across the negotiating table with your Chinese supplier. Your agenda? (1) Lower your cost per unit by 8%, (2) Speed up production time per 40′ container by one week and (3) Get them to accept more favorable payment terms (e.g. 30% down, Net 90 on the balance).

His agenda? To make as much money as possible and (this is very important), to gain as much face as possible. Hence, your request for lower cost per unit, despite quantity increases, isn’t going to go over very well if you ask for it directly. Secondly, your request for increased production speed will reduce his flexibility in scheduling his jobs. Finally, your request for better payment terms means he’s got to pay more in interest on his operating capital.

Note: If you’re Nike, GM, or Wal-mart, none of this applies. If you’re a medium or small enterprise, read on.

If you say something like “We’ve increased our quantity to nearly three times what it was last year, so we’ll need you to cut your costs by 8% per unit,” you’re going to get this response: The boss will furrow his brow, scratch his chin, and say “That will be very difficult” or alternatively, “That is very inconvenient for us.” What that means, in plain English, is…..NO!

The boss will then explain the fact that his own costs have increased over time. Labor, materials, equipment, rent. Everything has gone up. He was thinking about asking you for a price increase! Also, you don’t do things very efficiently. You send POs, then make changes to them. Some of your preferred suppliers are difficult to work with. Etcetera.

Why did you get this response? Perhaps the more cogent question is, how do you get the response you want?

If you’re a typical American, you won’t really like the answer.

You’re going to have to throw yourself at his mercy, and in doing so, appeal to his social obligation to save your face and to his desire to increase his face.

This is why saying to a Chinese supplier “You know, there are several other factories we could work with here?” will only stall and complicate negotiations. You’ll just irritate them by saying this.

So what do you say? You give him the opportunity to help your business as a bona fide partner by saying something like this: “I’m facing serious competitive pressure in my market. You are my partner–without you, I couldn’t get anything done. If I don’t find a way to decrease my costs by 8%, I don’t see how I can stay in business long-term. Please, Mr. Wang, can you take a closer look at your production costs and find a way to lower my cost per unit?” If you can manage to tear up and let your voice shake a bit, even better.

I know it seems counterintuitive for a Westerner to talk like this (it seems like butt-kissing to most of us), but this is what works in China. You aren’t butt-kissing. You are appealing to a very powerful sociological force: The obligation to give face to a customer who has humbled himself before you, and the desire to increase one’s own face by playing the traditional role of the hero. In this case, the damsel in distress is your company.

One of my consulting clients was a company whose boss refused to adapt to local communication styles. He comes from an aristocratic family, and could never understand or countenance the need to humble oneself and ask for help. He treated his Asian suppliers the way he treated his American suppliers: You work for me, so get in line, or else. His Chinese suppliers felt insulted and unappreciated, and after a time, did everything they could to rip him off. I had all ten fingers and all ten toes in the dam, trying to keep the relationship from breaking, but after a few years, it did indeed break. The relationship ended messily, with threats of lawsuits back and forth.

Do you want to do your manufacturing work in China? Then you’d better learn to communicate with the Chinese. You’ll be leaps and bounds ahead of your competition, who are thinking “Culture? Schmulture! A supplier who won’t do what I ask can kiss my red, white, and blue butt!” Meanwhile, you’re getting the unit pricing, delivery schedule, and payment terms you want.

Now, do you want to sell your products in China? I’ll write about that in Lesson Two.

Building Taiwanese Brands and Offshoring to Asia

I’ve got little time to comment on it, but there was in interesting article in Business Week a few weeks ago about Taiwanese firms who are building their brand names.

Yes, guys, that’s exactly what you ought to be doing, since manufacturing has been moving to China for the past ten years. Sure, a large percentage of the really profitable factories in China are owned by Taiwanese companies, but you’re going to have to emulate South Korea, Japan, and Hong Kong in building global brands if you hope to grow the economy in the future. Right now we’ve got what, Acer, BenQ, Giant bicycle, and a few specialty market brands going? As they say in China and Taiwan, Jia You (General cheer, go for it, etc.).

The magazine issue had a little side bar about how US manufacturers aren’t really profitable anymore. I’d hate to be one of those guys, hate to see what’s happened to them, even though I understand the inevitability of it all.

In my experience, the big manufacturers have already relocated to Asia or sold out to Asian companies. The medium-sized companies have either already moved, are investigating a move, or will soon start investigating a move. It is the little manufacturers in the US, with a few hundred employees, who worry me. Here’s what I think:

Let’s say you’re a US manufacturer with 300 employees. You’re getting killed on price due to imports from overseas. Your business is shrinking. You don’t have the money to a build or strengthen your brand or develop a new product line.

You’ve got two choices.

Choice A: Continue to fight it out in the USA and risk the loss of 300 jobs.

Choice B: Move your factory to China, India, Vietnam, or a SE Asian country and keep 120 jobs (i.e. the engineers, accountants, sales and marketing people, management staff).

Don’t get me wrong. I fully support the growth and development of American businesses. I’m also a pragmatist. If your company is dying, you have to find a way to keep it alive, even if it means losing some people you care about. Hell, I cut myself out of a plum job some years back because the company had a financial crisis and I was the highest paid guy there, after the boss. I landed on my feet, and others will too, especially if they get a little help. If you’ve got the resources, you can help those people get some training or into jobs that have some kind of future. I’d do that if I were the boss, even at the expense of my BMW and eight bedroom home.

If you’re thinking about moving some of your manufacturing work to Asia, drop me a note. I’ll give you some guidance that may just save you a lot of headaches (and money).

The Chinese Family

Traditional Chinese family values have been largely centered around the Confucian values of filial piety, ancestor worship, and doing one’s duty within the family. Fifty years ago in China and Taiwan, families were focused primarily on survival. The thought of riches never really entered into most people’s consciousnesses.

Obviously, things have changed. Money, loads of it, can be had by more Chinese people than ever before, and it’s changing (some people would use the word “warping” or “tainting”) traditional Chinese family values.

There has always been a money component to these relationships. Namely, parents are financially responsible for their children until their children earn enough money to take care of both themselves and their parents. Sometimes that doesn’t happen until the children are in their 30s or 40s; sometimes it never happens. Just today, my 26 year old nephew told me that, before he gets married, he’ll make sure he’s got enough income to support both his parents and his own family.

He was born in 1981. Traditional family values are alive and well.

Still, it seems that nowadays money plays an ever more prominent role in Chinese familial relationships. I’ve observed this myself several times, in various forms. For example, in the West, there are plenty of women (and men) who marry for money, or for whom money is a major consideration in deciding who to date and marry, but most people don’t speak openly about wanting to date or marry someone rich. In Taiwan and China, mothers advising their daughters to marry rich men is par for the course. The rich old toad-young hot babe relationships we laugh at in the United States are considered absolutely normal here. Groups of women (often with their boyfriends and husbands present) talk seriously about how important it is to find a man with plenty of money.

The Chinese are nothing if not extremely pragmatic, and what could be more pragmatic than having lots of money, especially now that it is so much more available?

From a 2004 Christian Science Monitor article:

At one level, the fight is between traditionalists and progressives. Many of the former feel that an avaricious new money culture will corrupt China and send it into uncharted waters. They see women becoming sex objects and couples devaluing each other. They see the years from 1950 to 1980 as a stable period of happiness, when moral values were predominant and families found meaning in serving the state.

“The opening up of the 1980s is only now showing itself in the way wives and husbands are chosen,” says Xia Xueluan, a professor at Beijing University. “Now, when a girl meets a boy the first question is, ‘Do you have a house? Do you have a car?’ This causes great strains in marriages, and on husbands, to produce income. I’m worried.”

The money culture and its impact on the family has become even more pervasive since then. In China, where most families have only one child, the pressure on that kid to succeed, to bring honor and riches to his family, is tremendous. Yahoo News reported today on the phenomenon of “extreme Chinese kids,” tykes who are pushed by their families into showing signs of greatness at as early an age as possible. From the report:

“There’s tremendous competition, a lot of pressure for kids to do well at something in China today. It’s something that parents can get pride out of and perhaps make money at,” said Grant Evans, a professor of anthropology at the University of Hong Kong.

Chinese media reports about the feats invariably quote bystanders who wonder whether such activities are dangerous or unhealthy.

But the criticism ends there; children’s rights are only just now starting to creep into the Chinese public consciousness.

The Chinese family is changing, there’s no doubt about that. Whether it is changing in positive directions or not is up to the individual to decide.

Business Application: If you’re doing business in greater China, bear in mind that the Judeo-Christian tradition of getting rich AND getting into Heaven that you probably grew up with doesn’t exist here. You’ll find plenty of ethical business people in greater China, but you may be surprised at how many people in business have no moral misgivings about making lots of money at your expense. Get references; oversee the work you farm out to overseas factories; take nothing for granted.