When Even the Chinese Don’t Want “Made in China”

April 26th, 2012

A British friend who works at a European lifestyle luxury brand maker in China told me how sales for their top of the line wares are not taking off the way they are in other countries in the Asia-Pacific region. Sales have been through the roof in South Korea, Japan and Thailand. China, though, is so-so.

“The problem,” my friend told me, “is the Chinese with money read the label and see ‘Made in China’. If they’ve already bought one of our products, they return it; if they haven’t bought it yet, they return it to the shelf.

“They simply don’t trust the quality of products made in China, and don’t understand how something made in China could be so expensive.” My friend went on to tell me that despite the designs being cutting edge and the highest quality fabrics used in clothing lines and the best materials in their appliances, the company is struggling to reach the sort of tipping point in purchases amongst China’s nouveau riche as they have in other Asian countries.

As I write in my upcoming book (Wiley & Sons, due out early summer 2012), “China Fast Forward: A Blueprint of the Technologies, Green Industries and Innovations Driving China’s Future”, Brand China has come to be associated in international markets with cheap, chintzy and unaccountable. Apparently, the Chinese think so, too.

I write in “China Fast Forward” how the most successful Chinese companies seeking their fortune in overseas markets actually remake their Made In China image into something Western, international-sounding, and bland; that is, innocuous. Others want to associate themselves with a strong Western national-brand image.

The Financial Times recently published an article about the growing haute couture business in China. Now, some high end domestic products aspiring brand-hood are designing clothes in Shanghai and having them manufactured in Italy. Just so they can have attached to them the Made in Italy label, with all the sense of style and attention to detail the image entails.

Of course, we don’t know where in Italy these wares are manufactured. An Italian neighbor of mine in China told me there are villages in Italy whose economies have been based for centuries in textile manufacture. “Now,” she told me, “there are more Chinese than locals in many of these villages.”

National brands in these days of global supply chains just aren’t what they used to be.

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The Luxury of Civility

April 6th, 2012
I recently had a chat with an expat who works for Luis Vuitton, the luxury brand. She is based in Shanghai. We talked about the diffculty of finding skilled front-line staff to deal with customers. “It’s just not in the culture,” she said, referring to an innate lack of consideration of workers.
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She told me how LV shop attendants in China have to go to a 3-week long boot camp to learn everyhting from putting on make-up through how to serve a cup of water on a tray. She gave me the example of a worker at one of the stores who spilled the water she was meant to serve to a customer at one of the shops.
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The staff member put the tray on the ground before sopping the water from the floor. LV has 40 stores around China, and is planning at least another ten by year’s end.
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We talked about why China’s sense of civility towards customers wa different from that of say, South Korea or Japan or Thailand or Vietnam. I attributed Vietnamese service levels in restaurants to the French influence during the country’s colonial period.
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Thailand, she said, has a higher level of service than China because of royalty, in which people from a young age are inculcated to be super-courteous to those of higher stations in the country. She believed China would have once been that way, and thought the Cultureal Revoultion had been the main culprit in breaking down a social sense of consideration towards others.
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My readings of Chinese history indicate things are the same as they ever were.
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After our musings I asked her about the worker who had spilled the water. “How did the customer respond when the worker put the tray on the floor?” I asked.
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“It was ok,” she said, “because the customers themselves don’t know what is proper or not.”

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High Tea in China’s Second Tier Cities

March 2nd, 2012

A Chinese associate recently invited me to high tea … in Suzhou, a lovely second-tier city near Shanghai. We drove to Jingji Lake, near the Suzhou Performing Arts Center, and parked by one of the many construction sites demarcating the city. The area is called Moon Bay, and is supposed to approximate a small European village – or what Chinese property developers believe will pass as a small European village to Chinese consumers: all low rises with peaked roofs and earthen exteriors loosely assembled around a vacant “town” square.

I have actually walked through the Potemkin village many times. It is usually empty, except for the photographers clicking portraits of young women in frou-frou dresses accompanied by their bored fiancées (who don’t understand they are actually in training on how to behave for the rest of the domesticated lives). The only viable businesses I’d ever seen operating in the square was an Indian restaurant – hugely successful with expats – and a resort-sized Chinese restaurant famous for its Suzhou cuisine, always packed with locals.

So imagine my surprise when my companion, an amiable Chinese sales director for a European logistics firm, opened the door to a Whittards of Chelsea tea shop and insisted I follow her down the brightly lit corridor. I had peered into the shop before, as an avid fan of tea in all its splendor, but had never seen anyone buying teas from the gaily lit shelves in the foyer.

The decor was straight out of an edition of House and Garden, with an emphasis on Garden. The drapes and upholstery were the sort of floral designs associated with the affluent in Anglophile countries, all framed with dark-stained wood. The place was packed with animated customers.

Tea has been a part of Chinese culture as long as there have been Chinese. Last year, according to the China Tea Marketing Association, China produced over 400 million tons of tea. Two-thirds of the production of the tiny leaf went on to become black tea. Most of the production of black tea, though, goes to the domestic market. Only about five-percent went on for export. “Stiff competition from other tea growing nations in terms of pricing and stringent quality controls imposed by importing nations have made life difficult for many Chinese tea growers,” according to the China Daily.

With the popular concern domestic consumers have about the integrity of foodstuffs grown and sold in China – including tea – international sellers have a window of opportunity to make inroads into the country with quality tea products. Once local vendors clean up their act, though, they’ll be doing their best to replicate the English tea experience.

Whittards of Chelsea is a famous English tea house and shop that for 125 years has been selling select teas, coffees and porcelain (china) to discriminating customers. According to the website of its Shanghai shop, “It offers more than 30 kinds of house teas, over 80 types of specialty teas, and around 40 varieties of fruit and herbal caffeine-free blends.” Increasingly affluent Chinese love that sort of product.

The greatest growth in individual income has spread beyond first-tier mega-cities like Beijing and Shanghai. Cities like Suzhou and Hangzhou are still seeing growth in income levels; however, not as much in third- through fifth-tier cities, like Chengdu, Yantai and Fuzhou.

The main tea area at Whittards-Suzhou had about ten tables, each of which could seat three to four individuals. Toward the back was a larger table that could seat upwards of ten customers in a semi-private area. “They have a club you can join,” my associate explained to me as we settled at our table. “It’s further back.” I asked her if she was a member. She said she was not.

The waitress passed us heavy menus. The young woman was dressed in a simple frock of floral design and wore a small cap that reminded of engravings of the bar maids of yore. I perused the generously illustrated menu. It was stocked full of teas from around the world. There were even some Chinese teas.

My companion asked me to order; she was already keenly aware of my enthusiasm for infusions. I ordered a pot of Earl Gray with oil extracted from the rind of the bergamot oranges grown in India. I looked around at the customers buzzing with light caffeine highs.

Every table was full in the place. 95-percent of the customers were women in their 30s. They dressed well, though not splendidly; at least, they were not the Gucci crowd. They clearly had disposable incomes and time to spare – likely husbands who worked at good jobs, not necessarily executive level.

My associate told me the place was popular with young people who were open to new experiences. And the price was right: for just over 100 rmb the polite and attentive waitress delivered us a strong pot of Earl Gray (no re-fills) and a three-tiered platter of finger sandwiches, tarts and biscuits, all freshly made.

After nearly two hours of conversation, nibbles and imbibing a fine brew, we still had left-overs of tart and cookies – an excellent value. Clearly, importing interpretations of tea into China at a price-point that made it accessible to the new middle class was a winning formula.

As we walked down the long corridor of the establishment to the exit a group of six university students piled into a dining room just off the hallway. They were dressed in jeans and inexpensive down coats and chattered excitedly with one another. Truly, this was a world their parents could never have known of at that young age.

An ancient brew continued to be the ambassador to the world for an entirely new generation of tea drinkers.

 

 

 

 

 

A Chinese associate recently invited me to high tea … in Suzhou, a lovely second-tier city near Shanghai. We drove to Jingji Lake, near the Suzhou Performing Arts Center, and parked by one of the many construction sites demarcating the city. The area is called Moon Bay, and is supposed to approximate a small European village – or what Chinese property developers will pass as a small European village: all low rises with peaked roofs and earthen exteriors loosely assembled around a vacant “town” square. I have actually walked through the Potemkin village many times. It is usually empty, except for the photographers clicking portraits of young women in frou-frou dresses accompanied by their bored fiancées (who don’t understand they are actually in training on how to behave for the rest of the domesticated lives). The only viable businesses I’d ever seen operating in the square was an Indian restaurant – hugely successful with expats – and a resort-sized Chinese restaurant famous for its Suzhou cuisine, always packed with locals.

So imagine my surprise when my companion, an amiable Chinese sales director for a European logistics firm, opened the door to a Whittards of Chelsea tea shop and insisted I follow her down the brightly lit corridor. I had peered into the shop before, as an avid fan of tea in all its splendor, but had never seen anyone buying teas from the gaily lit shelves in the entryway. The decor was straight out of an edition of House and Garden, with an emphasis on Garden. The drapes and upholstery were the sort of floral designs associated with the affluent in Anglophile countries, all framed with heavy oak. The place was packed with animated customers.

Tea has been a part of Chinese culture as long as there have been Chinese. Last year, according to the China Tea Marketing Association, China produced over 400 million tons of tea. Two-thirds of the production of the tiny leaf went on to become black tea. Most of the production of black tea, though, goes to the domestic market. Only about five-percent went on for export. “Stiff competition from other tea growing nations in terms of pricing and stringent quality controls imposed by importing nations have made life difficult for many Chinese tea growers,” according to the China Daily. With the popular concern domestic consumers have about any foodstuffs grown and sold in China – including tea – international sellers have a great opportunity to make inroads into the country with quality tea products before local vendors clean up their act.

Whittards of Chelsea is a famous English tea house and shop that for 125 years has been selling select teas, coffees and porcelain (china) to discriminating customers. According to the website of its Shanghai shop, “It offers more than 30 kinds of house teas, over 80 types of specialty teas, and around 40 varieties of fruit and herbal caffeine-free blends.” Increasingly affluent Chinese love that sort of product. The greatest growth in individual income has spread beyond first-tier mega-cities like Beijing and Shanghai. Cities like Suzhou and Hangzhou are still seeing growth in income levels; however, not as much in third- through fifth-tier cities, like Yantai, Taiyuan and Chengdu.

The main tea area had about ten tables, each of which could seat three to four individuals. Toward the back was a larger table that could seat upwards of ten customers in a semi-private area. “They have a club you can join,” my associate explained to me as we settled at our table. “It’s further back.” I asked her if she was a member. She said she was not. The waitress passed us heavy menus. The young woman was dressed in a simple frock of floral design and wore a small cap that reminded of engravings of the bar maids of yore. I perused the generously illustrated menu. It was stocked full of teas from around the world. There were even some Chinese teas. My companion asked me to order; she was already keenly aware of my enthusiasm for infusions. I ordered a pot of Earl Gray with oil extracted from the rind of the bergamot oranges grown in India. I looked around at the customers buzzing with light caffeine highs.

Every table was full in the place. 95-percent of the customers were women in their 30s. They dressed well, though not splendidly; at least, they were not the Gucci crowd. They clearly had disposable incomes and time to spare – likely husbands who worked at good jobs, not necessarily executive level. My associate told me the place was popular with young people who were open to new experiences. And the price was right: for just over 100 rmb the polite and attentive waitress delivered us a strong pot of Earl Gray (no re-fills) and a three-tiered platter of finger sandwiches, tarts and biscuits, all freshly made. After nearly two hours of conversation, nibbles and imbibing a fine brew, we still had left-overs of tart and cookies – an excellent value. Clearly, importing interpretations of tea into China at a price-point that made it accessible to the new middle class was a winning formula.

As we walked down the long corridor of the establishment to the exit a group of six university-aged kids piled into a dining room just off the hallway. They were dressed in jeans and inexpensive down coats and chattered excitedly with one another. Truly, this was a world their parents could never have known of at that young age. An ancient brew continued to be the ambassador to the world for an entirely new generation.

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China Encounters a Brave New World

February 3rd, 2012

David Pilling writes in his column in the Financial Times about the confusion China’s policy of “non-interference” in the affairs of nations – including its own – is beginning to create both at home and abroad. It’s workers in other lands are increasingly becoming marks for disgruntled guerrilla fighters, greedy warlords and merciless pirates. Keeping out of the domestic frays that are typically the cause of the seizures is becoming difficult for China’s leadership. One day, the country may just have to send in the marines, as an increasingly vocal citizenry is demanding.

Life outside the Great Firewall is about to become a lot more complicated than two thousand years of collecting tribute from neighbors ever prepared it for.

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Too Much Too Fast: Infrastructure Development in China

July 26th, 2011

 

 

The central government may actually be coming to the realization that infrastructure development efforts of the past couple years at least have simply been unsustainable from a quality and quantity point of view. The bullet train accident on the Hangzhou-Wenzhou line this past weekend  as well as problems on the Beijing-Shanghai line have clearly shown up the faults in such a muscular approach to modernization.

However, the probability of additional incidents occurring has increased as government authorities have sent out a directive to media channels to focus on the rescue efforts; journalists are to avoid reporting on the causes and repercussions of the crash, according to the Wall Street Journal. Of course, all manner of cover-ups will likely ensue, as the problem with the trains is systemic – the train accident was symptomatic of a wider web involving ignorance, arrogance and corruption.

The incident has seen the shares of the listed train companies involved in the accident plummet, and governments once interested in purchasing Chinese “re-innovated” train technology are reconsidering their options. World opinion about Made in China, however, has remained on a par, however.

Little short of a long stretch of miracles as far as the eye can see will convince the world China’s investments overseas are about little more than a resource grab or money-for-crap schemes.

 

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When the Natives Grow Restless

April 13th, 2011

The Wall Street Journal recently ran a piece about Western companies putting together contingency plans in case China falls to pieces or explodes or does both. It’s not a bad bit of advise. Within the eight short years I’ve been based in China I’ve seen multiple instances of the society rejecting foreign-direct investment the same way a kidney-replacement patient’s body rejects a new organ.

Interestingly, most of the rejection has been of Asian companies; expressly, Taiwanese (Foxconn) and Japanese (most recently the car plants in the south whose workers went on strike while Foxconn staff was suicidal; and the rampant protests in Chinese cities against the Japanese in 2005). Mostly, Western companies, which in general tend to pay their workers more than their Asian FDI counterparts and – again, generally – tend to treat their staff with a bit more respect  than Asian investors – have gotten off with little more than job-hopping youngsters who will quit and join another company for a 50 RMB raise in salary.

Still, that’s not to say that Western companies should be complacent about social upheaval in China that could affect their operations. Recall the boycotts of French brands and retailers in 2008, when the French government made gestures that drew the ire of Chinese hardliners: Carrefoure and Auschan had a tough time of it while thousands of Chinese protesters all but ransacked the hypermarkets. American businesses must remember the ritual stoning of the American embassy in 1999 (oops, we bombed which embassy?) and then again in 2001 (spy planes like us).

As I write in my book, I am of the mind that the Chinese leadership has the ways and means to completely shut down the Chinese internet  and blackout all communications for the entire country in the way it had during the Xinjiang protests of 2008. It was months before communications was restored to an entire province.

That was just a warm-up.

Is your company prepared for a real performance?

 

image credits: moebesart.com

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The Thucydides Trap

February 8th, 2011

One of the most interesting classes I took in University was about the Peloponnesian War, during which Athens and Sparta went after one another throats with a vengeance (yes, it was ONE course). Great stuff; really got the imaginative juices roiling.

Well, how about a New York Times article in which one of my favorite wars is actually used as a parallel with China’s rise within the context of a world dominated by a single superpower: the USA. David Sanger makes the point that

“What made war inevitable was the growth of Athenian power and the fear which this caused in Sparta.”

Sanger called the misconceptions both sides nursed The Thucydides Trap, after the author of the history of the Peloponnesian War. The length of the conflict, the casualties on both sides, and the economic toll, it could be argued, made it easier decades later for a true outsider – Philip II of Macedon – to pick up all of Greece.

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China’s Too Busy to Rule the World

January 31st, 2011

Janet Carmosky writes in her most recent Forbes online column:

Here is my best summary of the real attitude of China on the question of wanting to take over the USA: We “Don’t want to, don’t need to, kinda busy, and respect and need the USA way too much.”

The upshot is that China’s leadership has way too much on its hands to rock the boat too much, and understands the relationships within a polarity more clearly than America does (which always seems to need some external bogey man to buck itself up). Good, insightful reading.

And check out her previous article in the same venue on Peak Stuff:

Most everyone who follows energy knows “Peak Oil” as the moment when even the optimists can no longer postpone confronting the limitations of fossil fuel supply. Today I’m writing about “Peak Stuff”, a term I coined about 5 minutes ago to describe the point after which humanity realizes it cannot afford, does not need, and is better off without what can simply be called “Stuff.”

I absolutely love the term and it has stuck in my brain ever since reading it a couple weeks ago. I’m always looking for opportunities to lob the expression at someone in conversation.

Keep up the good work.

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IT Moves

January 18th, 2011

An American friend who works with software development teams around the world gave me a sobering assessment of how talent in the IT sector has moved around the world. She told me over coffee a few days ago, “The Indians have peaked. They’re not as sharp as they used to be. They’re mediocre.” She should know; she’s married to an Indian and ran her own IT outsourcing shop on-the-ground in India. I asked her what she thinks happened to the talent.

She answered, “They sharpest ones took their money and left. And the country hasn’t cultivated the rest.” She was enthusiastic about the Dutch, who are producing some “amazing” technologies, she said. She’s also working with a Finnish team. “The Finns are doing some cutting-edge stuff,” she added. So what else is there to do during those long, cold, dark winter days, I wanted to quip (but didn’t). I asked her about the Chinese software team she had been working with six months ago.

“They were so-so. Nothing really sparkling. And now, because the economy in the States has been so bad, American developers are now costing me about the same price.” She gave me an example. “A Chinese team leader quoted me a price of 300 rmb per hour for a programmer. That’s more than $20 and hour: I can get a really good American programmer for that price – and we’ll have a cultural affinity that I’ll never have with the Chinese, even though they may just be a fifteen minute drive down the road from me (in Suzhou).”

Who knows, perhaps one day American Born Chinese will man call centers from the States to support customers in Mainland China.

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The New Chinese Alchemy: Re-innovation

January 11th, 2011

China’s huge population and vibrant marketplace has been the lure for thousands of foreign companies that wanted a piece of the prosperity that China promised. The attraction is nothing new: British merchants three hundred years ago relished the thought of adding an inch of cloth to the sleeve of every Chinese at the time. Imagine the profits!

Germany’s Siemens AG and Japan’s Kawasaki Heavy Industries Ltd. licensed their high-speed train technology to China to gain their slice of the Chinese pie. Now, China wants to sell on the technology to the state of California, which is planning a high-speed rail network of its own. Though the trains China promises to sell on to California are less expensive than the German and Japanese models, the Germans and Japanese licensed the technology to the Chinese on the condition that the Chinese use only the technology within China, according to the Wall Street Journal.

The car company BYD, in which Warren Buffet had invested US$230 million, is running into the same IPR issue in its efforts to enter the American market through California’s own short-sighted mercantile tender. The electric vehicles BYD is offering the Americans run on lithium-ion technology, which is un-proven and not even theirs. The highly labor-intensive and expensive processes involved in making the lithium powder are not even theirs to give to others. BYD has said it is licensing another lithium powder, to get round the export restrictions. Of course, that calls into question the source and quality of the product they are using in their batteries, then.

The train makers – essentially Chinese State-owned Enterprises – are jumping through hoops of semantics to convince potential buyers that the IPR they licensed for use in China undergoes an alchemical transformation that renders it free of legal obligations. They call the alchemy “re-innovation”.

Expect more IPR shenanigans as Chinese companies use double-standards and outright misdirection to break into international markets.

Further reading: WSJ

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