This is China! blog

A friend of mine that runs a local office recently lost some of his hair. Actually, he pulled much of it out. Just last week. The IT company that used to service his company took a day to install Windows 7on his new computer; three days to install a new email server; and a half-a-day not to configure his Outlook software application.

Outlook was always my IT outsourcing group’s weak spot, as well. After several hours of screwing around with it, they would merely re-install all the Windows products on my laptop – only to charge over-time because the poor, incompetent technician had to work a couple hours after 5:30 in the evening. I refused to pay it. Of course, I’d then spend a man-day spread over a week re-configuring features the way I’d had them before my “little” problem – some productivity booster; their revenge, I suppose.

A British engineering manager friend that works at a local Fortune 500 manufacturing plant harumphed a couple days ago as he took a sip of beer and told us he had to arrange further training for his engineers in testing methodologies. The approach requires the diagnostician to collect data on systems problems, formulate hypotheses for errors, isolate and test and deduce the causes for error. One of his engineers, instead, was simply sticking his gauge inside a component, willy-nilly, based on not much more than his interpretation of randomness, no data at hand.

I asked the engineering manager what he thought China’s prospects were for becoming an innovation nation, like a South Korea or Japan. He merely shook his, looked pained at the memory of his engineer poking around componentry, baffled, and took another sip of beer. End of discussion.

A point came up recently during a conversation with a journalist friend in Shanghai: Chinese State Owned Enterprises (SOEs) can only be just so efficient. What with tens of thousands of employees at the state-run oil companies, railway companies and banks, and the State’s explicit pact to maintain employment levels, investing in labor-saving technologies is not the highest priority on company lists. In particular, we were talking about the wind industry, in which within the last five years the proportion of foreign investment fell from 70% of the market to 30%. Western arguments of superior technologies fall on deaf ears when the Chinese government is interested in market dominance, not labor productivity. Good enough will do just fine when it comes to pushing out the competition.

While visiting my friends at the EastWind Precision Engineering booth at the Pharmaceuticals and Medical Equipment Show at the New Shanghai Intenational Exhibition Hall (27 October – 29 October 2009) I made a couple observations: the overwhelming majority of buyers were Chinese; the Chinese buyers spent most of the time in the Western pavilion stroking the latest CNC equipment, mostly German and Swiss, all shiny stainless steel with seamless computer displays. The Chinese-makers’ side of the show saw mostly equipment out of the Charlie Chaplin movie Modern Times, great hulking beasts bristling with dials and gauges. Westerners were not swarming all over Chinese vendors to create joint ventures, and Chinese buyers weren’t so interested in the Chinese stuff. Instead, the smart money is on the future. A sure bet.

A GM told me in Shanghai recently that one of his local Chinese suppliers cancelled production of an order my friend had queued weeks before. The supplier explained the factory had chosen instead to fulfill and order from an American company that had ordered the maker’s full kit, not just some components. The Americans were going to pay a lot more, too, and the order was going to put pressure on the the factory’s capacity. Of course, my friend was not pleased by the change, especially as his order was to begin production at the beginning of November.

Chinese vendors are notorious for dropping customer obligations when another, apparently more generous customer appears at their doorsteps with purse open. One American GM told me how a hotel in Kunshan had cancelled his banquet to take on a larger project, but did not tell the GM until he and his cortage showed up at the restaurant to eat. And then there was a young Chinese woman’s wedding banquet that got bumped here in Suzhou when a much larger party paying much more per head pushed her off the social calendar. If Chinese brides aren’t even safe, what can Western GMs expect?

Friends and I are have been having a tough time this summer reconciling the increasing sophistication of our home and office appliances with the level of service that comes with the machines we depend on so heavily. There seems to be an inverse relationship between the two: the more sophisticated the equipment, the more inept the service representative. Another mathematically valid observation we agree on is: the more dependent we are on the appliance, the more moronic the service representative. And then there is the corollary that dictates the more moronic the repairman, the more arrogant and even patronizing he is.

Certainly I’ve experienced this in the office environment, where IT swaggers to the desk to fix the signature-option in Microsoft Outlook, and then, two hours later, has reinstalled the operating system and all the applications in Microsoft Office. Meanwhile, while you are quizzing the techie as to what justified the re-install he launches into a techno-jargon made worse by the Chinese language filter through which the professor is lecturing you on the finer points of your hard disk’s refresh rate. A good friend of mine recently had the misfortune of asking an IT service provider for anti-virus software to be put on his computer, only to be backing up all his data four hours later while the computer was temporarily stable: the repairman had inadvertantly fried the system and didn’t know how long my friend would be able to successfully boot up. My friend is still unsure whether a complete reformatting of his hard disk and reinstallation of the operating system and applications will indeed protect his computer from viruses; after all, the repairman succeeded where the trojans and worms had failed. Perhaps my friend should invest in anti-repairman spyware.

Meanwhile, on the home front, a couple goofs from Panasonic – one very tall and muscular, untalkative; and the other small and squirrelly with a penchant for saying “yingaide!” (“of course!) and “mei wenti!” (“no problem!”) – wasted an hour of my time as the small one held the rope that supported the big one as the big one scrambled over the wall of the balcony to poke at the air conditioner unit. When I’d gone to the fridge (which was still working) to fetch a beer for myself the two quickly packed up and were out the front door, the little guy calling back to me “mei wenti!”. I went to the elevator before the doors sealed their escape and told them both to come back to the apartment to prove to me the central unit worked. I turned on the home office air conditioner to 16 degrees Celcius; turned on the central air con in the living room to the same temperature. After all, they had at least proven they could defy gravity (or that the little guy was indeed pretty strong, though that had yet to be truly put to the test with the big guy’s actually plummeting to the ground twelve floors below). I told them the home office temperature was the baseline, and, as such, what was blowing out of the livingroom unit was at best room temperature. “Mei wenti!” shorty piped up, “It’s a new unit; it just needs a little time to come up to temperature.” “How long?” I queried. A shrug, a blank look. I told them to get out.

Two days later an HVAC technician with very stinky feet managed to gouge the stained and polished planks of the flooring with the panel that slipped out of his hands as he was removing it from the ceiling. That was just after he nearly put his oily, blackened hands all over the cream upholstery of a dining room chair (the yelp was enough to startle him into realizing we may not be agreeable with his cavalier approach to clean furniture), and he left footprints from the patio back to the livingroom and back again several times. In the end, he said sagely, “They gave you a bum unit, and the decorators did the wiring all wrong.” Of course, as a central unit, that means in China tearing out the ceiling and replacing everything. I wasn’t impressed. And he still had stinky feet.

As China works to establish a service industry and eventually a services outsourcing sector that is supposed to cater to the world, the companies that place their products in our homes and offices have an uphill battle in turning round centuries of “I don’t cared-ness” and “It’s not my problem (even though I’m still supposed to be paid for my trouble)”. Eventually, manufacturers here will have to learn it’s much easier to make a chair than to stand behind it with pride if they want to become outstanding companies in China – and in the world.

BusinessForum China Magazine mid-summer published my article on the Services Outsourcing Industry in China. Entitled, “Out of Bangalore and into China,” I discuss the social and economic drivers, and government subsidies and policies promoting what Central government has deemed a pillar sector. One of the best things about the article is its placement in a particularly outstanding issue of the magazine, published by the German Chamber Network in China. Articles I found must-reads included:

• A Tectonic Shift: What Will China’s Role be in the World’s Future Financial Set-up?
• The China Price is Unsustainable, an interview with the author of the book, “The China Price”
• Monetary Flows:  Chinese Foreign Investment – How Much and Where (Part 2 of 3)
• Place Your Bets, about China’s real estate bubble

It’s a timely and relevant issue well worth checking out.

The Financial Times recently reported a tremendous sea-change in the investment policy as well as the popular sentiment of Guangdong province:

“China has taken the unusual step of moving a $5bn refinery and petrochemical plant, one of the country’s biggest foreign investment projects, after a public outcry, a senior Communist party official said on Thursday.”

This reflects how Guangdong values environmental protection, the ecology and the opinions of our citizens,” said Mr Wang, who sits on the party’s 25-member Politburo, in a rare interview with foreign reporters.”"

Really, this is revolutionary. Consider it was Guangdong province that first (re-)opened up to foreign direct investment in the early Eighties with Guangzhou and then Shenzhen leading the way to China’s future as an export-driven country. The “Hong Kong model” became the dominant model of foreign direct investment (FDI) in the region as Hong Kong companies just over the border moved their noxious toy and appliances factories off their territory and onto the Mainland. The Hong Kong Model became synonymous with terrible working conditions for staff in factories that paid extraordinarily low wages (“oh, but their pay is higher than what the Mainlanders would get back on the farms,” big bosses would croak); low or non-existent profit margins because the big bosses would skim surpluses off the top of the companies to spend on KTV parlors and second families; and a complete disregard for the environment. The ever-innovative Taiwanese took the Hong Kong model further by scaling it up to companies the size of Foxconn with its tens of thousands of drones, while maintaining the same skin-flint, anti-environment approach to doing business. The Hong Kongese with Taiwanese and wanna-be tycoons from the Mainland also helped create Guangdong’s vibrant KTV and spa industries.

With the mass closure the past eighteen months of thousands of these low-margin, labor-intensive factories in the region, hostesses throughout Guangdong must be agonizing the loss of their sugar daddies. Add to that the Guangdong provincial government’s efforts the last couple years to actually slow industrial investment in the region because of an over-stretched infrastructure and choking pollution. The government has been actively working to attract high-value, service- and IT- industries to its cities to literally clean up its act and lift its GDP growth rates to the next level.  So, Guangdong entertainment venues as well will find themselves re-tooling for a nerd-future.

But get this. A provincial level official actually says:

“We only have one planet to live on and whatever we do at this end affects people at the other end,” he said.

The plant was to be built in southern Guangzhou, the provincial capital, 60km upwind of Hong Kong, where the project has also come under criticism.

I didn’t think anyone in China was aware of “people at the other end” when it came claiming economic preeminence, leave alone cared about what happened to “them foreigners” [sic] in their mad scramble for world acclamation. Unless what they mean by “the other end” is Hong Kong itself – which, I suppose, can be considered widening their perspective. What’s also impressive to me is there is a quasi-democratic process at work here that may one day become a model in itself and spread to other provincial-level governments:

“Last year, 14 delegates to the provincial people’s congress filed a motion opposing the refinery on the grounds that it could worsen regional air pollution. That opposition emboldened environmental officials, who also began to question the project’s suitability pending the completion of an environmental impact report.”

Still, eminent domain reigned, and the locals had gotten the short end of the stick long before:

“The project was to have been sited in a new heavy industrial zone in the geographical centre of the Pearl river estuary, not far from a bird and wetland sanctuary. The site was marked out last year and villagers were relocated to new housing closer to the centre of Guangzhou.”

Residents may have lost their homes, but may have helped save their land.

Several Westerners I’ve talked with here in China seem to be sketching a trend in the way people perceive and act on work. Instead of just working at a “job” or taking another “job” or looking to get promoted in their “job” they are either moving from a part-time “job” or no “job” at all to a Portfolio of Work. The portfolio contains several activities that are projects and/or actual businesses. For instance, one American I know is leading the start-up of a new factory that will produce goods for the American market. He has American partners – and Chinese money. But he has still formed another contract manufacturing business here in China with other Western friends.

One of those Western friends has gone from being GM of a factory in Suzhou to becoming an on-call advisor to HQ, a consultant to the staff at the factory, and a troublshooter for the supply chain. In addition, he hopes to go on to do something a bit more creative with his life.

Meanwhile, a Danish friend who ran a sales and service operation in China until last week is now a “global troubleshooter” for other operations in the world. He is also in talks to set up an Extreme Tours business with a friend in Shanghai that takes people to exotic lands and gives them exotic adventures, while at the same time planning a sports equipment import company that supplies the Danish market.

The motivation for all these guys and others with whom I’ve chatted seems to be a profound dissatisfaction with the corporate world. They see the bosses of their and other companies as having lost a great deal of credibility of late: greed, arbitrary decision-making, cronyism and a lack of appreciation for what these guys have contributed to the company as managers that have built company operations in China overshadow any heart-felt feelings they once may have had for their former employers. The newly independent have chosen to diversify their personal economic models and move toward work they personally find more satisfying. It could all be summed up with a general disgust for the present-day institution of “the job”. Certainly, the global economic downturn has magnified the causes of these fellows’ discontent, exacerbating the impact of lousy and sometimes self-interested decisions their bosses have made. Another impact of the Downturn is to make these pretty bright go-getters feel less secure about the traditional role of “the job” in their lives. Though corporations demand one’s living-breathing existence in exchange for a stable income, these young men – mostly in their early thirties – seem to feel that there is no covent between the organization and the individual beyond what the individuals at the top decide. Of course, the latest information and communications technologies facilitated their new approach to work, making it easier to stay linked with coworkers no matter where in the world they are working.

Ironically, here in China, international influences have been attempting to focus bright young Chinese to commit their lives to the Organization. Standard Chinese operating procedure is to pick and choose work and jobs as though sitting at a Chinese banquet table with a pair of chopsticks picking and choosing what morsel to pluck from what dish.

Perhaps in time, once more Chinese have upgraded their skills and better defined their abilities and the contributions they can make in a modern marketplace they too will be managing Portfolios of Work – not fully entrepreneur, but not a grunt, either.

The International Monetary Fund’s (IMF) Article IV Consultation with the People’s Republic of China came out a couple days ago. It’s a “30,000-foot” view of the direction of the Chinese economy during 2009. Frankly, there’s not much that’s revelatory in the report. The brief survey rather strikes me as a group of IMF bigwigs sitting at a dinner banquet with a group of Chinese government bigwigs making small talk, hoping the Chinese really will invest big in IMF bonds. The Chinese have been quite vocal this year about the long-term wisdom of the U.S. dollar as the world’s reserve currency, given the huge debts the U.S. government is running up and the difficulty China is having in getting some of their savings back into the country.

As the Financial Times reports on the RMB valuation topic:

IMF directors were divided over that issue, according to the report. Some thought the renminbi remained “substantially undervalued” and should be strengthened as part of a “comprehensive strategy to rebalance the economy”. Others said it was difficult to make exchange rate assessments and the currency would only play a “supplementary role”.

I fall squarely in the “supplementary role” camp as China already has a raft of economic issues it has to deal with. And though the powers that be can be heavy-handed in dealing with dissent, stability of the society as it drives Mach-3 to modernization is not a bad thesis.

So I’m tickled when I read in the IMF report that:

Directors recognized that, over the near term, rebalancing the economy could raise unemployment as jobs are shed in export-oriented sectors…Directors believed that, over a longer horizon, the employment gains from rebalancing towards domestic consumption and an increase in service sector employment should outweigh short-term losses. “

Hmph… easy for an economist to say. Just try running a country.

I write about the Discontent of General Managers in China in my column for the August issue of EuroBiz Magazine. From the beginning of the year through Spring of this year I had talked with a number of high-level managers of foreign-invested companies in China who felt their Headquarters back in the West no longer appreciated the managers’ capabilities, energy and commitment in getting the China operations up and running and smoothly operating. The managers were exploring options beyond the company, having felt they had exhausted avenues for greater opportunity inside their companies. Further, they felt the extraordinary efforts they had put in their companies were not appreciated. Instead, as one senior British manager put it to me, “The guys back in Headquarters believe the effort and the success [in getting China operations up and running] was all theirs.” Not much for expats to dine on after that.

Interestingly, the summer has seen younger people join the trend toward starting their own ventures. Western and Chinese men and women in their mid-twenties through early thirties have been inviting me out for lunch and espresso (mmm…espresso) to ask my thinking about business models they have in mind.

The contexts from which the young entrepreneurs are coming has broadened since the beginning of the year, as well: not just Western guys with knuckle-head HQs, but young Chinese women whose companies are foreign-owned in China have also felt the need to break out. Actually, whether Western or Chinese, male or female, they all seem to me to be realizing something the self-styled Western geniuses in their foreign companies have overlooked: the Chinese domestic market is expanding at the rate of the Big Bang, while international markets are shrinking and will continue to do so for the foreseeable future.

In every instance in which the Bright Young Things – whether Western or Chinese – have asked my thoughts I’ve answered the same: shed any of the boxed-in thinking you absorbed from your Western bosses at your previous job, identify your strengths – hire to fill out your weaknesses – and find the market that could use those unique capabilities that has the least amount of competition in the Yangtze River Delta, with the most amount of potential for eye-popping sales. Use only what’s useful, I tell them, and forget the tiny boxes your bosses had you in during your years of service to shareholders.

China is open for business. And don’t look back!