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.

Do the Chinese Lie? That Depends…

Out in my neck of the woods, it is not uncommon to hear a businessperson from a Western country, following a disappointing episode with a Chinese supplier, say something like: “They’re all a bunch of liars!” Some of my own clients talk about Chinese suppliers they’ve chosen to partner with using language I can’t repeat on a family site. Of course, they’re not all bad. Part of the problem is very different definitions of what constitutes ethical and honest behavior between the Chinese and the Western world (Note: I’d include the Japanese in the group of people who don’t understand Chinese “lying”).

In short, for most Chinese people, lying is not really lying. What we in the West would consider to be a bald-faced lie, a person in greater China might think of as a courtesy, a convenience, or a smart tactic, none of which are immoral. In fact, lying to achieve some business or social aim, and getting away with it, is considered to be a sign of intelligence and social skill among many Chinese.

Chinese values are rooted in concepts of duty to oneself, one’s family, one’s company, one’s friends and associates, but not to anyone else. There is no “Good Samaritan” ethic going on; kids are not really taught from a young age that they have a duty to help strangers. The teaching is more along the lines of “don’t make trouble,” “don’t do anything shameful,” or “be a good student.”

Also worth noting is the fact that many more things are covered up by the Chinese than they would be in the West. People don’t tell each other about things that would make someone lose face or cause social embarrassment, and once the “deception” is discovered, all is generally forgiven after a brief explanation along the lines of “it wasn’t convenient for me to tell you the truth.” Things like job loss, serious illness, legal trouble, or problems with children are seldom talked about, and often kept hidden, even among close friends and relatives.

In a business context, you might not hear about a shipment that was supposed to go out last week but will now likely never go out until it is too late. This occurs with great frequency in greater China, and there is very little concern or shame on the Chinese end, because it simply isn’t viewed as being wrong.

For the unprepared Western businessperson, these ethics can be quite unnerving. I’ve personally seen many a business deal, and many a friendship, fall apart because of these radically different values.

The Bottom Line: Don’t expect your Chinese suppliers to have the same set of ethics that you have. There are differences across the board in what constitutes ethical behavior when you’re talking about East and West. Tread carefully, and set up plenty of checks and balances.

Tip: If you can source in Taiwan, do it there. If you source in China, consider dealing with a Taiwanese-owned factory. The Taiwanese have been doing business with the modern West far longer than the Chinese have. They “get it” much better than China does.

Hakka Dreams

Some years ago at a popular restaurant in Xinzhu in the north of Taiwan, I joined a gathering of twelve business owners, all local Rotarians, for a feast featuring the local Hakka fare. Shortly after the first bottle of whiskey was opened, the backslapping and the joshing began. “True, this is Mr. Gao. We call him “Hotel”. He’s the richest man in our Rotary Club.”Mr. Gao replied: “Nonsense! Chemical, you are the richest man in Rotary, and you know it!”

Over the course of the meal, the sequence repeated itself several times. By the end of the evening, it became clear that Car, Bank, Manpower, DM, Medicine, and Well—each man nicknamed according to his industry or, in the case of Well, legendary drinking ability—were all wealthy yet unwilling to admit it too openly.

What I also remember about that evening, and dozens of similar evenings over the years, are the frequent observations made by these Hakka businessmen about their cultural identity. Things like: “We all came from farms up in the mountains. Our parents had to go to the river and catch a fish if we wanted to eat meat” or “Hakka people are careful with their money,” or “We Hakkas tend to be more conservative than your average Taiwanese.” One the most memorable of these remarks came from a Hakka businessman who often trades with the Japanese. He told me: “A Taiwanese Hakka businessman can best three typical Taiwanese businessmen, and a typical Taiwanese businessman can best three Japanese businessmen. These poor Japanese don’t stand a chance!”

Ask a non-Hakka Taiwanese to describe Hakkas, and he’ll often cluck his tongue and say something like “Hakkas can be really generous, but only when they need something from you,” or “Hakka people tend to be very clannish,” or “Hakkas are really tight with a dollar.”

Some 15% of Taiwan’s population is Hakka. The Mandarin word for Hakka is 客家人 (kèjiārén), or “guest person”, though this appellation is fairly recent. It describes the traditionally migratory nature of the Hakka people, who originated in northern China around 2,700 years ago. After a series of resettlements aimed at escaping war and social unrest, most Hakkas settled in southern China, with large concentrations in Guangdong and southwestern Fujian Province. It was from these southern outposts that Taiwanese Hakkas departed in their last migration southward, across the Taiwan Strait.

Today, there are four major concentrations of Hakka people in Taiwan. Most people in Taiwan recognize the corridor stretching from Taoyuan to Miaoli County as the location of most of the Hakka population in Taiwan. About 50% of Zhongli City, and 80% of the residents of Taoyuan, Xinzhu, and Miaoli Counties are ethnically Hakka.

The settlement pattern of these areas has much to do with the earlier arrival in Taiwan of Hoklo immigrants from Fujian Province, starting from the period of Dutch occupation in the mid-17th century. By the time most Hakkas arrived in Taiwan, the most fertile of Taiwan’s farmland, particularly in the south, was already occupied by larger populations of well-established Hoklo people. The only option left for most Hakkas was the hills and mountains of northern and central Taiwan.

A number of my Hakka friends have narrated oral histories of long-ago battles between Hoklo and Hakka peoples, explaining that the Hakka preference for mountain and hill living was really the result of having been pushed, by force, out of the lowlands. Ironically, as the Hakkas moved further inland, they in turn displaced, and sometimes assimilated, the aboriginal peoples living the mountain areas they settled in.

There are also significant populations of Hakka peoples in Taidong and Hualian Counties. Most of the Hakka immigrants who settled there arrived too late to settle in the hills of north-central Taiwan, traveling to the East coast looking for other lands to settle.

In Pingdong County’s Liugui and Meinong, there are also high concentrations of Hakka people. These were among the first Hakkas in Taiwan, having arrived as soldiers with Koxinga in 1661.

Finally, there are large groups of ethnically Hakka Taiwanese in the Dongshi area in Taichung County, as well as in surrounding towns and villages.

Politically, Hakkas are known for their support of the nationalist (KMT) party in Taiwan. Most Hakkas will proudly tell you that Sun Yat Sen and Lee Teng-hui are part of a long list of prominent Hakka politicians, and many of today’s politicians, from both sides of the political fence, claim Hakka ethnicity.

In researching this article, I kept coming back to a fundamental question about Hakkas. That is, do they define themselves as Taiwanese or as Hakka? Certainly, there are distinctive cultural characteristics—preferred foods, religious practices, architectural styles, language dialects, social customs, etc.—that are identified with Hakka peoples. When I asked my Hakka friends this question, they invariably told me that they considered themselves both Taiwanese and Hakka. Perhaps one of them explained it best when he said: “I think of myself as Taiwanese, but I’m Hakka first. I grew up speaking Hakka, follow Hakka customs, and tend to think more like a Hakka than a typical Hoklo Taiwanese.”

One Night in Taipei: Business Entertainment, Chinese Style, Part Deux

I’ve decided to post the rest of my narrative of a typical evening of business entertainment in Greater China.

Mom, if you’re reading this, know that your boy has seen a bit of the world but has not done anything to disgrace the family name :).

Note: If you are a female executive doing business overseas, you will most likely be politely dropped off at your hotel after dinner. If you want to continue to have fun, there aren’t many options at this point. The local boys aren’t going to take you to a men’s club, but they might offer to take you to a disco pub somewhere to bring in midnight. It is a fact of modern society in Taiwan, China, and Hong Kong that women are still expected to behave according to society’s expectations of women. To wit, good girls go home to bed after dinner, rather than go out to party. The irony of the situation (i.e. that men in these societies seek out the company of women for their personal entertainment, but don’t want their own women anywhere near one of those places) is not lost on me.  You don’t have to like it, but it is a fact.

One more note. If you really aren’t interested in adult entertainment that falls somewhere between watching a rated R movie and visiting a house of prostitution, you’d better excuse yourself right away. Claim illness, fatigue, a bad case of heartburn, whatever.

If you are curious enough to proceed and not too burdened with inhibitions, keep your wedding ring on and your trousers tightly belted. Or don’t, as the case may be.

Back home, if you were having a boys’ (or girls’) night out, right about this time you’d repair to a comfortable bar, pub, or dance club, where you’d drink and dance the night away. In Greater China, this sort of activity is for college students, not for real businessmen. Real businessmen repair to a club where they will be pampered and cared for by young, attractive women. These ladies are often scantily glad. The first such club I ever visited was staffed by women in see-through lingerie and I was shocked, to say the least.

There are several types of club that you may be taken to, but they will all share one common feature: karaoke. There will be a big screen television, a remote control, and a songbook. You will spend the next few hours taking turns belting out popular songs in Mandarin, English, Japanese, Cantonese, and whatever other dialect the people in your party like to sing in. Yes, you will have to sing, or be looked upon as a malcontent. My signature English song is “Hotel California” by the Eagles, as it is available on nearly every karaoke machine I’ve seen here, and it can be sung in a key I can manage without murdering the ears of my friends. I am also able to sing a number of Mandopop favorites, which won me a great deal of prestige in years past.

Once the drinks are ordered and the karaoke machine has been fired up, it is highly likely that an array of young women will be presented before you and your party. You will be asked to choose a girl from among this group, and as the guest of honor, you’ll have first choice. This can be awkward if you’re the shy type. If you really don’t want to choose a girl, then ask the boss to choose for you.

Each member of your party will be attended to by one young lady. She will pour your drinks, feed you, light your cigar and, in many places, give you lap dances at certain intervals. She will sing with you, converse with you, try to cater to your every need.

The other members of your party will possibly engage in behavior that you are not accustomed to seeing, even at a strip club back home. Fondling, kissing, etc. You may be encouraged to place your hands on the body of your female companion, which is allowed in Taiwan and China. At this point, we’re on the brink of all sorts of issues, exploitation not the least among them. If you’re a happily married man along for the ride, then just be polite but somewhat reserved. You can keep your hands busy eating fruit and snacks and sipping your drink, and you’ll survive the evening with your marital integrity fully intact.

After a few hours of this sort of entertainment (the clubs sell their services in hour long increments, with two hours being the standard), it will be time to leave. The other men in your group will most likely not take one of the girls home, since you are present and because of the cost involved in buying a girl from one of these clubs for the evening. If the men in your group decide they need companionship of an even more intimate type, they’ll probably call a pimp and set things up or they’ll go to a sauna somewhere. You may receive an offer to arrange such services for you. If you are like most people and that isn’t something you’re interested in, you can very convincingly explain that you are exhausted and need to go back for a night’s sleep, alone.  Local men will feel pressure to participate in this sort of activity, even when they don’t want to, but you’ll always be eligible for the foreigner exemption. 

You will most likely be in a private room for Phase Two of the evening, though at some clubs (called “piano bars”), you will be in a booth that is attached to a larger room, full of other such groups.

There are several variants on this sort of entertainment, but what I’ve described is usually what happens. As I wrote earlier, if you’re not up for this sort of an evening, you’d better bow out early. If you are curious and want to have the full local experience, now you know what you’re in for.

Culture Shock: “Look at the foreigner!”

For those of you wondering what it might be like for an American to live in Taiwan, here’s a snapshot of a typical day:

After conducting a morning training seminar, I repaired to the wedding reception of a close friend. The reception was attended by nearly 400 people, and I was the only non-Taiwanese person in the banquet room. The groom is a professional educator and a graduate of both the #1 high school and the #1 university in Taiwan. His wife works for Cathay Life Insurance. So the crowd, comprised of educators and business people, was well-heeled and well-educated. I felt completely at home, not at all like a foreigner, because nobody treated me like a foreigner. I love to meet people like that, who view me as a person rather than an exotic breed of non-Taiwanese, and who don’t care enough about my nationality to make it an issue.

After the reception, I went to an afternoon meeting that ran until about 5pm. After 45 minutes on the subway, I got off and started walking toward home. Waiting at a stoplight, I heard a man standing behind me say, in Mandarin “The foreigner is going to cross the road,” followed by a woman’s response that was too soft to make out.

I was indeed planning to cross the road, but that was hardly worth commenting on, except for the fact that I am a tall white person in a land of people who don’t look much like me.

I turned to look at this pair and saw an older man, about 60, with a woman in her 20s. They were about two feet away from me.

The man made another comment: “Now he is looking right at you!”

I nodded my head and said, in Mandarin, “He can understand what you are saying.”

The woman then said. “I told you he could understand Mandarin.” I have no idea how she knew I could understand Mandarin, as I don’t wear a t-shirt proclaiming such, and most people who use the third person to discuss a foreigner standing directly in front of them, as if the foreigner is some kind of zoo animal, typically assume that the vagaries of the Mandarin language are beyond the comprehension of the descendants of hairy barbarians.

At this point, I just shook my head, turned back around, and waited for the light to change. They continued to discuss me in the third person, apparently still unable to grasp the concept that I fully understood what they were saying or, more likely, not caring. As much as I enjoy my relationships with well-educated, open-minded Taiwanese people, these sorts of encounters are discouraging. It is quite strange and discomfiting to be made out to be something not quite human by narrow-minded dolts.

Living in Taiwan, this sort of thing happens to me on a nearly daily basis. There is an incident or two per week on the MRT, where I either have to ask people to stop discussing me while I am standing next to them, or I have to change seats to get away from a group of idiots. When I go to China, it is the same, or worse. It actually happened again at the grocery store later today, when I caught a family by surprise, pushing my cart down the aisle they were parked in the middle of. I guess they haven’t seen too many foreigners, because there was a big, loud discussion about various aspects of my foreignness (including the very astute observation that “foreigners also go shopping at Carrefour!”) , and about foreigners in general, even after I had called across the central aisle to my wife, in Mandarin.

What can one do in such situations? Not much, actually. You aren’t going to be able to educate people like that, who are so lacking in any sort of understanding of the larger world that they simply couldn’t wrap their brains around the idea that I am actually just another human, rather than a bloody foreigner. At times like these, you remind yourself that if you lived in the US somewhere, you’d be just another American, which would be nice, but you wouldn’t get to deal with being an outsider, or a zoo monkey, all of the time. Comforting but boring in the end.

Sometimes living in Taiwan is an exercise in dealing with contrasts that can challenge the sanity of even the most easy-going person, but it is that challenge that makes life interesting.

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.

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).

Taiwanese Investment in Vietnam

This is one of the more interesting phenomenons in East Asian investment. Recently in Taipei, I’ve run into more and more people who have friends or relatives working in Vietnam. A training client’s husband, a friend of my wifes, our interior decorator’s husband…all of them are working in Vietnam.

A quote from a Vietnam business forum:

As of August 22, 2007, Taiwan has invested roughly US$9.175 billion in 1,706 projects in Vietnam, ranking third among 79 countries and territories with investment capital in Vietnam. In the first eight months of 2007 alone, Taiwanese investors were licensed to invest US$600.5 million in 134 projects and allowed to increase US$279 million in 59 projects.

Several business investors I’ve spoken too have said that Vietnam is the next China; labor is cheaper, the workforce is well-educated and hard working, there are fewer government restrictions on investment.

If you’re considering an OEM relationship overseas, it might be worth giving Vietnam a look. Rule of thumb in manufacturing: Go where the Taiwanese go.