This is China! blog

A friend’s main Chinese supplier keeps dissing him. My friend, though, is not located thousands of miles away in America or Europe. His office is right here in Suzhou. The supplier, for its part, is not some outfit in a garage run my mom-and-pop-Zhou and manned by their cousins’ kids. The supplier has about a thousand employees in Jiangsu Province, a growing roster of international customers, and a major Chinese investor. For all its pretentions of becoming a large international player on the order of a Solectron or a Foxconn, it keeps cutting corners on costs and invoicing my friend for nickels and dimes that should never be billed. Overcharges are rife and miscommunication common. My friend knows his company’s probably become too small to remain on the growing supplier’s radar, but it is still bothersome, given my friend’s company was one of the supplier’s first customers. My friend will start looking soon for a back-up contract manufacturer. Until he finds, orients, and proofs the next supplier, though, his blood pressure will certainly rise a couple more notches.

A couple of General Manager friends on separate occasions have told me one of the greatest human resource concerns they have is what to do with bored Chinese staff. In both instances, the staff they hired came from much larger organizations, spoke English, and had varying degrees of management experience. Both staff are particularly bright, inquisitive. In one instance, one of the GMs was able to engage the Chinese employee by sending him on an MBA program. Now that the program is finished, the GM is casting about for the next challenge to pass the employee. Problem is, in both cases, the companies are stable, though revenues for each in China are steadily growing. Of course, staff boredom will become a growing problem for Western companies as the heady days of business start-up wind down.

I’ve learned that as my waistline grows I trade up to new trousers, something a bit more comfortable. Of course, exercise works, but entropy seems to trump all slimming efforts. Perhaps it’s time for the staff to either slim their expectations, or try out a new outfit.

In China, the court of first hearing is the local TV news. Watch any local news program around dinner time (though be forewarned you may suffer stomach upset from some of the images) and then again around 10pm. Most of the time the reports are of complaints being aired;: car accidents – automobile drivers and cyclists alike – corrupt or bullying police, vapor-bargains that disappear when unwary customers present fake coupons to store clerks, husbands who find themselves victims of bigamy, wives who find themselves scorned. Many times the camera crew is at the scene even before the police arrive, a reporter interviewing the aggrieved before the police have made their official report. In most instances the local TV reporter becomes an on-the-spot investigator and the broadcast becomes the court and jury, meting out judgements that are more a salve to the aggrieved than a genuine and objective inquiry into the root of the situation. Much of the theatrics involved in such “journalism” haves a great deal to do with a deeply ingrained distrust the public has of local judiciaries, which they believe to be capricious and collusive in their decisions . The aggrieved believe the court of public opinion is the fastest, most effective way to get have their hearing and receive their restitution. They hold out little hope thate they’ll get a fair hearing or any enforcement of compensation payment should they go through government channels. And yet most Chinese audiences will fall on the side of their government when grievances involve Western parties.

Read more about the business side of “Managing the Message”, to be published in my column “Challenging China,” appearing in the November 2009 issue of Eurobiz Magazine.

This past weekend local Suzhou news had an “expose” about the Chonqing Mafia gangs. The Economist magazine also covered the dragnet, which netted more than a hundred big fish and little minnows. A couple things that interested me from the TV report was that very high level police were involved in protecting the gangs. Another was that some of the people – including a middle aged woman – were well-paid company executives, as well. And then there is at issue that none of the bosses, nor any of the minions the police lined up in front of judges, were good looking. Now, having been reared on a steady diet of Hong Kong Black Society movies, from Chow Yun Fat through my man Ekin Cheng (pictured above), handsome and stylish boss in the Young and Dangerous movie series, I am sorely disappointed that none of these anti-heroes are, well, suave.

That said, I do recall one nightclub several years ago in Jiangsu Province in which most of the Black Hands were handsomely dressed in tight black T-shirts and black jeans, at least half of them bald (what could be cooler than that?). A couple bleach-blonde Russian women in revealing skirts draped themselves across the more robust of the crew. One fellow I took as their boss was dressed in a black double-breasted suit. Anyway, I do have to admit they all looked quite dapper as the police led half a dozen of them plus the double-breasted boss across the dance floor in single-file and out for what I can only gather would be further “discussions.” I was sure, though, they’d be returning later for their drinks and molls: none had been handcuffed as they made their exit.

Over a couple beers with an American and British friend we began discussing the “Not my job!” mentality with Chinese characteristics. In this instance, the cultural tweak involves a hidden hierarchy that would be difficult to replicate in the West. It seems the managers of both companies are having a difficult time getting their machine operators to understand that while the machines on the shop floor are cycling through production, during which the staff has down-time, there are machine maintanance activities they should be performing. “We’ve got a CNC machine that that relies on precise calibrations that dust and waste-product can interfere with. So while parts of the machine are not active, these guys should be making sure the machine is clean and the calibrations still accurate. Instead, when I’ve asked them why they haven’t been keeping the machine clean, they’ll say, ‘That’s the aiyi’s job!’” Typically, aiyi’s are middle aged, under-educated women who keep the corridors and toilets clean. “So how are they expected to know how to clean a sophisticated piece of equipment?” the American asked.

My British friend offered, “I shouted at a bunch of my guys one day when I caught them playing cards during production. The machine has very long cycle times, and they could have been cleaning up the area and the machine. If the insides of our machines get dirty, we can get set back six months in production because of contamination. But they don’t seem to connect daily maintenance with the consequences of long-term neglect.”

Maybe an agency should open up that hires out aiyis who nag machine operators to maintain their equipment.

In the last month the Dragonbeat blog (affiliated with the Financial Times) and the Economist Magazine (both publications owned by Pearson) have featured articles that have argued China is not suffering a property asset bubble. The Dragonbeat article offers the sobering calculation:

China’s cities can probably sustain very vibrant housing markets based on a relatively small and affluent segment of its total urban population, even if the majority of urban residents find it hard to afford new housing.

Dragonbeat calculates about 50 million affluent families in China suspending the bubble. That correlates well with their being about 74 million Communist Party members. Of course, not all Party members are home owners; and  not all homeowners are Party members. I submit there is a strong correlation between the entitlements of Party members and the gravity-defying feats of the real estate market here. After all, on the ground, with residential and commercial vacancy rates plainly as high as eighty- and even ninety-percent in vast swathes of many cities, and housing costing as much as eight to fourteen times annual salary, the “fundamentals” of a healthy marketplace in which capital is efficiently allocated are missing.

The Economist article figures the warped real estate market is not yet a bubble, but will become one if the central government does not quickly act to normalize the price of the yuan. Neither article mentions the point that real estate is the only alternative to the stock market the newly monied have to park their gains. Once FOREX restrictions on Chinese citizens are lifted, allowing the nouveau riche to send their money overseas, we’ll hear just how loudly a bubble with Chinese characteristics pops.

A British friend and I talked recently about how difficult it is for Chinese companies to internationalize their operations. “The owners don’t know how to step back from the businesses they built. They believe that what they had done to make the business successful in their back yard will work in international markets, too.” I commented that they figure they’re pretty smart about everything. “No,” my friend said, “it’s that they’re scared: they’re afraid of losing control of the business. They don’t know how to let the business work without them. They don’t know how to simply advise the managers they hired to do the job: they always step in. But they don’t know anything about accounting standards, international quality standards, customer service.”

In other words, know-it-alls don’t know what they don’t know. Not just a Chinese thang [sic]!

During lunch recently a former GM of a Fortune 500 company, a good friend, told me the Chinese suppliers he’s been working with have been too busy to call him in for more productivity-boosting tips. Since retiring from the GM position after 10 years in a leadership role in Suzhou, he’s been helping the company’s local suppliers increase production quality. I asked him what had changed. He said dryly, “They’ve gotten busy again.” But not with the Fortune 500 company that had been their primary customer for so many years. Indeed, the American consumer market into which the foreign invested company sells is still too soft for their products to do as well as they had been. “The suppliers have finally learned they need to diversify their customer base beyond the one customer.”

“I’m sure they’ve forgotten what I helped them with,” he said, resigned. “So I’ll just have to start over whenever things slow down for them again.”

Suzhou has not seen the correction in real estate prices locals had expected in the Spring this year. Certainly, the bank lending frenzy that poured billions of RMB into the economy through loans to real estate developers and State Owned Enterprises helped the market defy gravity. A Western friend also indicated another factor: the high speed rail that is supposed to tie Suzhou and Shanghai together in a twenty-minute levitated ride has Shanghai people looking at Suzhou as a bedroom community – like Westchester county to New York City.

A local Suzhou TV report placed Suzhou 15th in the country for real estate pricing; Shanghai Number 1. That said, all those Shanghai residents that want to escape the Shanghai real estate bubble have already begun their migration – to Suzhou.

At least Suzhou makes for a nice bedroom, as communities in China go.

The highly entertaining ChinaSMACK collated Chinese responses to the question, “What if District 9 happened in China?” The answers cracked me up. District 9 is a smashing science fiction thriller that mostly takes place in a Soweto-like shanty town outside Johannesburg. Aliens that look a lot like giant shrimp have come in a city-sized spacecraft as refugees, essentially “infesting” the ghetto. The humans call the aliens “prawns”. Many of the answers to the question were along the lines (translated into English):

Aliens land in Beijing, Beijing people would ask the aliens if they believe in capitalism or socialism.

Aliens land in Shanghai, Shanghai people would drag the aliens to the zoo to put on display.

Aliens land in Guangdong, they would be eaten…

Aliens land in Wenzhou, Wenzhou people will ask the aliens: is business easy to do on your planet?

The Guangdong statement appeared in not too few responses, which reminded me of the SARS outbreak in 2003. Scientists had just narrowed the origin of the deadly virus to Guangdong Province, where residents were in the habit of eating the undomesticated sivet cat. The virus that crossed over from “ferret” to human became SARS. A Beijinger dryly commented to me upon hearing the news, “Guangdong will be the end of Chinese civilization.”

Who knows, if Guangdong people were to eat the “prawns” from District 9, maybe the sequel would have the aliens coming back to destroy earth!

Shrimp cocktail, anyone?