Chinese Drywall and Working with Chinese Suppliers

Stories like this one are popping up all over the media. People move into a lovely new tract home, bought at a good price, and a year or two later…toxic drywall starts poisoning the occupants and affecting the structure of the building.

I’m not a legal expert, so I’m not going to offer a legal opinion. What I will say is this: Somewhere along the supply chain, someone bought drywall that wasn’t made according to code. Whether the manufacture of toxic drywall on the Chinese side was a purposeful violation of standards for building materials, an unfortunate oversight, or just plain incompetence, somebody in the US, probably several people, sourced and approved the purchase of that drywall.

My guess is that these people had absolutely no idea what they were getting into. They may have hesitated at first and then caved to the pressure to provide materials at lower costs. They may have seen $$ signs in their eyes and gone for it with glee. Who knows what the motivation was? What they probably didn’t realize is that when you source overseas, you have got to be very, very careful about your QC process. You might order one shipment that looks perfect but, six months later, turns out to be defective. You might order a shipment that arrives in perfect order, but the next shipment might be bad. You may think you have the leverage you need to prevent you from getting cheated, only to find out that your definition of leverage is very different from your Chinese partner’s definition.

There are tremendous cost advantages to sourcing overseas, and there are many fine, ethical Chinese suppliers. But in the end, you’re buying something from a country that you probably don’t understand, and from people that you don’t understand. You CANNOT take it for granted that everything will be in order. You have got to put airtight QC/QA procedures in place for every shipment. If that means you have to send a consultant, or hire one in China, to inspect the factory, the materials used, and the finished product for every single shipment, then that’s what you do.

If you don’t do that, then you get to face a bunch of angry homeowners whose lives your poor purchasing practices have destroyed.

Cultural Awareness and Doing Business in China

An excellent article on cultural awareness and doing business in China recently appeared in the Miami Herald.

A very insightful read for those who are doing business with or planning to do business with Chinese people.

A some point I’ll open a Chinese language and culture acclimation boot camp for American and Canadian businesspeople who are heading to China for an assignment. Do you think it would be better to hold it in greater China, or in North America? There are advantages and downsides to both.

More on Chinese Food Safety

I’ve already written about Chinese food safety, explaining that Chinese manufacturing as a whole is going through growing pains that have a devastating effect on its victims.

Corporate China will eventually come around and do things right, but not before killing more people and losing much of its market for food products around the world.

This article gets it right. China’s business ethics environment needs to grow up, and fast. What many of those who are so keen to do business in China don’t realize is that, in many ways and in many parts of its vast territory, China is still the wild West.

There are many, many advantages to doing business with the Chinese, but if you don’t know what you’re doing, please get competent advice from someone you trust who does know what he/she is doing in greater China.

Doing Business with the Chinese: Communication Breakdown

Many people ask me what it’s like to do business in greater China. One of my favorite songs from the classic rock era, “Communication Breakdown” by Led Zeppelin, comes immediately to mind.

I speak, read, and write fluent Mandarin Chinese. I conduct the daily business of life, as I have done for the past twenty years, largely surrounded by Chinese people.

And still, I often have to probe, prod, and read between thousands of lines in order to figure out what the hell is going on. You see, in greater China, speaking directly is NOT a virtue as it is back home.

Consider a recent discussion I had with a contract manufacturer (OEM factory) in Taiwan. I was there on behalf of a client, a food manufacturer. When I called the factory, on the recommendation of a distributor, they assured me up and down that they take all sorts of OEM work from companies both domestic and overseas.

Here’s a condensed version of the conversation I had with the boss (he had an assistant at his side the whole time), translated from Mandarin into English:

Boss: (Examining my client’s product). “We can make this.”

Me: “Good. So you already have the necessary equipment in your factory?”

Boss: “We’ll need to study this a while before we can start producing it.”

Me: “Of course. So, you have the equipment and can do it then?”

Boss: (Munching on one of the samples I brought) “This doesn’t taste very good. Too hard. Try one of ours.” (Hands me a few samples of his product.)

Me: (Politely trying a few of his samples). “Yes, it tastes very good. Of course, my client will want you to recreate his product from a formula. He’ll want you to develop a product that is very similar in look, texture, and taste to the product his produces at his home factory.”

Boss: “Your product doesn’t taste very good. Consumers in Taiwan and China won’t like it.”

Me: “Thank you for your kind advice. So, are you interested in producing this product? Will you work up a quotation for me on X kg?”

Boss:“It would take a long time to get this right before we could start producing it.”

Me: “I know. I have experience with making other food products. We’ll go for as close a match as we can get. If it takes a few weeks or even a few months, that’s okay. So, are you interested in producing this product?”

Boss: “Can you just put our products into your packaging? That would be easier.”

Me: “I’m afraid not. The client wants to sell his product, not someone else’s product. Mr. X, forgive me, I’m an American and we tend to speak directly. Will you tell me if you are interested in working with my client?”

Boss: “I don’t know. Making your product wouldn’t be very convenient.”

Me: “Thank you for your time.”

This really happened. It has happened many times in my years in greater China. Do you see the vast differences in the way a Westerner might communicate and the way a Chinese person communicates? In China, a boss won’t say “no,” even if his life depends on it. He trains his people to tell all prospects that his factory can make anything and everything, on the off chance that either he can make it, or his friend/brother/old high school classmate can make it and he gets his cut of the deal. He won’t answer questions directly unless pressed, and even then, he won’t like it. He also very often won’t understand that you want him to do some work for you in the way you want it done, not the way he wants it done. He’ll tell you “yes” at the beginning of the conversation and then, two hours later, you’ll learn that it’s actually a “no.” And here’s the kicker–behaving and communicating this way is not only acceptable, but proper, a virtue even. Chalk it up to cultural differences, my friends.

I’ve gotten pretty good at figuring out the truth in a relatively short period of time, but I haven’t ever figured out a way to get a factory owner to speak plainly and directly. It just isn’t done here. So I continue to probe and read between the lines, and accept that this is the way it is done with 98% of the people I do business with in greater China.

Now, can you imagine dealing with a situation like this without knowing anything about Chinese culture?

The Bottom Line: You won’t get very far, operating in greater China, unless you are personally prepared to deal with communication challenges like these, or you are able to hire someone who knows local culture to deal with them for you. China and the West are a universe apart, culturally. That isn’t a gap that is easily bridged. (But it is an endless source of fascination for a few of us nutjobs!)

The Bamboo Plant on My Desk

About two months ago, my wife returned from an afternoon of shopping with a present for me.

It was a small bamboo plant for my office.

She watered it once, then left it to me to water.

I got involved in a busy week and let the plant’s base get a bit dry.

My wife found out and told me, with a great deal of concern in her voice, that Chinese people believe that bamboo plants bring good fortune in business, and that I should never let my bamboo plant get thirsty.

She said, to be exact “Letting a bamboo plant die is a very bad thing to a Chinese person.”

I water that plant with great diligence now and, you know what? Business is good.

Culture Shock: American Managers in China

I found this well-written, concise article in the Salt Lake Tribune that highlights some of the cultural adaptation problems American managers who work in China encounter.

From the article:

The issue…is that the Chinese culture is so different from what Americans have experienced in life and in the workplace.

When people ask me if there are major cultural differences between Greater China and the United States, I usually reply with this: “They are two entirely different worlds. Humans need to eat, sleep, and work, but the similarities end there.” Managers heading for China would do well do keep a very open mind, and to avoid any major policy decisions until they get the lay of the land. They should also consider hiring a cross-cultural communications trainer with experience in Greater China to guide them through the mine fields.

This article is full of other gems that provide a brief overview of some of the major cultural differences between China and the West. I’d love to go through them but, as usual, I’m in the middle of 18 projects.

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 to a group of Taiwanese executives. 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 have had 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 generally quite 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 often 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. There are many fantastic suppliers in China, but many are still learning how to deal with your standards.