This is China! blog

My friend Andrew Hupert recently wrote in his monthly online Chinese negotiation column for the China Economic Review lessons foreign businesses can learn from Google’s brush with death dealing with the powers that be. It’s well worth the read:

• You can’t always get what you want
• Sometimes “no” has to mean “no.”
• Don’t sacrifice your own core values for empty promises.
• Walk away slowly and leave the door open to come back later.

Who says companies cannot seek redemption?

One of the few non-infrastructure related industries whose earnings have continued higher without interruption is Pharmaceuticals, despite the global economic downturn last year. By 2011 China will have the third largest pharmaceuticals market in the world, according to the Shanghai Business Review. SBR says a market study by pharma research firm IMS Health cited that China’s market for prescription drugs could double by 2013 to up US$40 billion. China’s health care policy reforms and infrastructure improvements will expand the market markedly.

A British friend who’s been looking for a new job in Suzhou in the manufacturing sector told me how surprised he’s been at the number of companies setting up R&D centers in the area. The Shanghai Business Review recently reported multinationals in China have established more than 1,200 R&D centers. 465 of the centers are independent legal entities, with a total investment of nearly US$13 billion, according to the Ministry of Commerce.International companies that want to sell their products into the China market are quickly understanding the environment has specific requirements that can only be understood by being her on the ground. The next challenge, of course, is protecting the secrets of those innovations from copy cats.

Related posts:

China Manufacturing Facts

Every veteran foreign General Manager knows in China you don’t lose control of your chops – and I don’t mean pork chops. Since business instinct in China is to work around controls, rules and policies, and forgery and copying rife, the Chinese government requires documents be stamped with official company stamps, otherwise called chops in China. All companies require use of the official stamps when conducting business in China; you cannot simply put a signature to a document (the signature is considered too easily forged). He who controls the chops, controls the company. Some of my friends who are GMs keep the stamps with them at all times, in their own safe, and do the chopping themselves. Others will not allow the chops out of their sight, but will allow trusted personnel to use the chops while in the presence of the GM.

China Briefing News recently reported that a district court in Beijing ruled in favor of the HR Manager of a foreign invested advertising company who used the company chops without permission to start a union in the company. The company fired her for fraud. The court found the company in violation of not setting up a trade union. The issue of fraud never entered into the matter. The court fined the company.

Moral of the story? Don’t trust anyone with your company stamps, unless you want your chops busted.

Related posts:

Kicking the Kick-back Habit

I recall when in 2005 a client had poached one of my staff.  I was unimpressed with the lack of imagination back then. Now, poaching is on the rise again.

I wrote in my February 2010 column in Eurobiz Magazine (actually written in November 2009) that once at the intersection between the economic resurgence in China and the end of the Spring Festival that staff turnover would return with a vengeance. The Financial Times reports that staff turnover levels in 2008 were about 17.5% while in 2009 they dropped to 14%; analysts expect the turnover rate to go beyond 15% this year. Of course, having beenstuck in jobs for at least a couple years in which many bosses claimed, “you’re lucky to have a job,” exacerbated by the same bosses likely saying come Spring Festival this year, “no red envelope (bonus) for you, thank you very much” is enough to make any sailor jump ship. TheFT also cites, though, the changing demographics in the interior of the country, in which vital infrastructure is being put in place and funds channeled into regions that make the backwater look increasingly attractive for investment and job opportunities.

Western companies, especially, will feel the pinch – especially with management level staff – as domestic companies that want to become more competitive in the marketplace offer more appealing salaries and benefits to local staff; and other Western companies poach staff from smaller foreign projects to fill their own ambitions. Employees themselves, especially with the cost of real estate property and the overall cost of living having increased, will be looking for raises anyway. “As the war for talent heats up, employers shouldn’t be surprised if the cost for talent increases . . . 50 per cent to 70 per cent at some professional levels,” one HR professional said.

The job market’s going to leaner and meaner until the next economic downturn.

Related posts:

Only So Efficient

Education Smcheducation

Job Search Blues

No Graduate Left Behind

WPA in the PRC

One of the most gorgeous government office buildings I have seen anywhere in China lies in Jiangsu Province, near Shanghai. It’s architecture is an update of Chinese traditional architecture, all clean, straight lines, great panes of glass that frame courtyard gardens and water fountains. The architect, it seems, was American, interestingly. The building as a grand bit of modern art sits back off a busy highway with nothing else around it. Perhaps in a few years that will change as more construction projects grip the district.

One does have to wonder, though, if the budget for the building would pass the requirements just released for government officials’ expenditures. The central government has just released new guidelines on what justifies proper behavior on the part of officials. Party leaders are trying to show the public they are serious about curbing corruption within their ranks. Bans on lavish weddings and funerals may sound strange to us Westerners, but extravagant gatherings is a way in which Chinese show friends, family and neighbors they’ve made the big time. Luxury sedans are out, too; though who will be the poor sod on the local police force to tell a Vice Mayor he shouldn’t be riding around town in a Lexus? Government headquarters as posh as any resort are a no-no, too. Though they sure are nice to look at.

Further reading: BBC, Chinese anti-corruption website

Previous posts:

Kicking the Kick-back Habit

China’s Fantasy Football

The Human Flesh Search

I have this dark vision that one day in China I will attempt to log onto the web in China and it simply won’t be there. Only the People’s Daily appears, and perhaps handful of official mouthpieces as well. Every other website is down – foreign and domestic – and email no longer sends or receives messages.

I have an uncomfortable feeling that someone somewhere in Beijing has his finger on an “internet button” that will simply shut the entire super-network down here in China, just as they were able to in Xinjiang. Of course, you may be thinking, that would be madness. And it would be. But seldom have I ever seen or experienced a situation in which common sense trumped control – it’s usually the other way around, with Power self-destructing in a final, incindiary show of narcissim.

Xinjiang’s economy grew nearly a percentage point less than the country’s as whole, while its total trade volume was nearly twenty percent less than its provincial cousins. Still, central government keeps the electronic screws on the region, perhaps irreperably hurting the economy. It’s certainly affected Chinese investment in the region, as entrepreneurs throughout Xinjiang have been crippled as much as indigenous businesses.

Power disrupts; absolute power disrupts even itself.

Further reading: NYT

Previous posts:

Broken Web

Keeping Tabs on Netizens

When Big Brother Might Be Your Own Brother

How to be picked up by a Techno-chik in China

Inside China foreign businessmen have certainly noticed local government in China taking a harder edge to dealing with foreigners with visas and business approvals. The Rio Tinto case is an extreme point to consider, especially in light of the sensitivity of negotiations on a benchmark price for iron ore.

Reuters recently identified 5 political risks to watch out for in the China adventure 2010. Trade and currency disputes, especially between China and the United States. The article councils looking out for signs that positions are hardening between the two sides as an important determinant in whether relations will become incindiery.

The article also considers the possibility of fallout from the dispute with Google. If reports begin streaming from Beijing of foreign deals scuppered or delayed – especially in the media sector – be sure the Google effect is at play.

Of course, the old bogie man of social stability is a conventional sanity check on whether Chinese leadership will make a dramatic decision. Watch out for signs that inflation or housing costs may be getting out of hand.

Health problems caused by excessive pollution has always been a flash point at local levels. Some foreign companies may find themselves suddenly caught up in a spontaneous government dragnet to close down or spoil the usual suspects.

Meanwhile, issues like Google and Rio Tinto forewarn that the leadership has not yet learned how to sap the political charge from business dealings.

So, though the promise of China’s vast marketplace is still worth the risk, foreign companies need to make sure they have their exit strategies updated if their investments in any way lay near the third-rail of national prerogative in China.

Further reading: Reuters, FT

See also:

In the Eye of the Hurricane

A lot of experienced expat managers of late have been telling me kick-back stories. I don’t know if the incidence of corruption in China operations is on the increase, or if the stories just make for good entertainment. Chinese managers – usually in purchasing and HR – are usually the culprits. One Chinese purchasing manager at an American company had asked a local European company for a commission to get a project. The European GM called the American GM and told him of the incident. The American enterprise promptly fired the purchasing manager. An internal auditor from the home office told me he had come to China for a month to see how systemic the corruption was in the American company. Another company saw the purchasing manager rake in such a mother-lode of kick-backs that he owned two houses in Greater Shanghai, and two in Beijing. Even if the company catches him with his hand in the till and fires him, he still gets to keep the houses.

In another instance, a Western team of experienced expats was sent into a Western company to investigate corruption. Team members began receiving death threats about their intrusion into the inner workings of the company. One of the group simply quit: someone cheating the system simply was not worth his life.

The possibility that Google employees were involved in facilitating the cyber-attack on their own company brings up serious questions about the security of companies overall that operate in China. Is your company safe from your own employees?

With the dissolution of Communist ideology in a profane society, most Chinese have taken on the mantle of nationalism to fill a collective existential void. The basis of this form of nationalism is the wrong that other countries have done China in the past. That includes the Opium Wars;the 21 powers that entered Beijing’s gates after the Boxer Rebellion in 1900;  plus Japan, with the  the atrocities its soldiers committed during its War of Aggression. Daily and nightly television programming and state-run papers in China rabbit on about the incursions as though they had happened just yesterday; meanwhile, most of the rest of the world has moved on to other challenges and to creating new chapters of history. Still, the leadership drones on in Cultural-Revolution fashion about building a strong, self-sufficient nation – even if it is at the expense of the trust other countries place in the Chinese experiment.

Companies in highly sensitive industries – especially those in which technology development has an abiding relationship with their home-country’s national interests – perhaps should be concerned with vetting employees a little more closely than in the past, and with creating monitoring systems and internal controls that act as firewalls against complete enterprise compromise.

It seems Western brands of open-ness and sense of “fair play” may not fit snugly in China’s chip on its shoulder.

Further reading: Reuters, CNET