Conversations in China

I got some puzzled looks at the "English Corner" in a city in China: partly due to my use of American idioms and business-ese and partly due to cultural differences as they relate to corporations and countries. It took me a while to explain to one woman about my view of management: serve the employees, i.e. help them or get out of the way. "Get out of the way?" she asked. "Too many times, managers interfere with distractions, conflicting priorities and self-serving seemingly urgent requests," I answered. Five minutes later and a few more attempts, she nodded. Either she understood or she was ready to move onto another topic. In another conversation, I learned that often, but not always, when a Chinese person is given a title, they become a tyrant. This may have been in her thinking. However, when I explained the difference between allowing for consistent results (and creative processes) and determining when the processes had to be the same (e.g. not substituting ketchup for spaghetti sauce in a recipe), she seemed to understand and appreciate the distinction.

A gentleman asked if China was a good place to invest. "It's not a bad place nor a good place," I answered wondering if he had ties to the government, "Neither is America. It all depends on the business plan. Too many people go into business thinking the market is huge when it's quite small and fail to plan for an enormous need for cash--inventory, workforce education, costs of mistakes and learning, and so on." I had already had an extended conversation with a Canadian businessman who ran several successful Chinese businesses earlier in the day.

I learned a lot in conversations with this Canadian, a Malaysian and Hong Kong/Singaporean businessmen. And I might add the Canadian's wife who had some additional and wonderful insights. As much as we complain about taxes in the US, I learned that the tax structure in China can be horrendous, which leads to massive under-reporting of revenue. Perhaps the economy in China is larger than anyone knows. Is it possible that the government's GDP is based on these official but low reports? With taxes at 17% of gross revenue and an additional 25% of net profit, there is great temptation to not report what your business is actually doing. In restaurants, apparently it's common to charge more if you need a receipt. If you pay in cash and don't need a receipt you get a discount, because they will pay less in taxes on your transaction; they'll report that you ordered less.

Business-to-business (B2B) agreements start with a level of distrust and paranoia. Relationships are still important outside the larger business hubs in China. People may refuse to pay after receiving the goods or services. If it gets too bad, your customer may just move and change names, becoming untraceable, and you're out of luck collecting payments. One guy told me he tries to negotiate as large a deposit on the contract as possible. Letters of Credit (LCs) can be faked and therefore are unreliable. Distrust also occurs because often shortcuts are taken on quality and purity.

There are some mixed opinions whether Chinese people and Chinese businesses are beginning to understand buying and selling on value and the total cost of ownership. Price is still the sole and predominant factor to any transaction. Slowly, quality is playing a bigger role. The main business hubs are further along; other areas are ten years behind in one person's opinion.

Workers prefer being employed by foreign firms because the managers and management are more trustworthy. Also, there is some provision of education. These efforts have to overcome the cultural basis in distrust and an apparent lack of ambition. The absence of ambition might be personal or cultural (I don't want to be shamed if I fail or shame others if I succeed) and it might be inherent in a history of being told what to do rather than determining your own direction. In company education efforts, it's most common that information is given unilaterally, and top-down. If you're the boss, you must know what's supposed to happen and we will listen. No discussion, no dialogue, no questions. It's a trick to have brainstorming sessions or institute consensus-style decision-making. Don't expect to teach a workshop and seminar with a discussion format. They're prepared to take notes because you're the expert, and that's it.

These local guys confirmed that the cost of labor is increasing greatly along the coasts and production is moving to other countries (like the US) or moving further inland into untapped, un-industrialized labor markets. Thus, there are some signs that Total Cost is being considered. Maybe not; perhaps the consideration still is just in the absolute dollars, as it was in the move to the Chinese labor market by western manufacturing firms in the past decades. It's hard to believe that companies would lose the Total Productivity (cost and quality) gains after years of hard management work just to save a few bucks/hour. Maybe the coasts and business centers in China aren't that far ahead of the rest of the country after all.

Take all of this information with a grain of salt. Data is life and the plural of anecdote is not data.