This is China! BLOG

The Replacement Expats

I recently asked an Austrian acquaintance his impressions of trends in the wide world of human resource management in China. Josef (not his real name) works in the industry in a multinational MNC with offices throughout China and Asia. We met for coffee in a Starbucks in one of the many innocuous luxury-brand malls that honeycomb Shanghai. Josef is a tall, soft-spoken fellow with cool Euro-style eye glasses and a self-deprecating humor. Of course, as every good Austrian likely is, he was most distressed by his national team’s showing in the Euro 2008 football competition, especially as a host country, he told me.

Josef noted a persistent trend in the interest Western companies have in hiring returning overseas Chinese. “Western executives seem to think that because these guys have a Chinese face they understand how to do business in China.”

I likened that misconception to believing placing an Italian in a North German factory would be right-minded because they’re all European, after all. Josef agreed. “I have my reservations about that thinking,” he acceded. “But there seems to be little to dissuade them [Western companies] otherwise.”

I asked Josef about the Western expats whose contracts have come to an end in China and who want to stay in the country longer to work. There must be quite a lot of them, and they must be a lot cheaper than hiring a Westerner from the home country on a full expat package. Josef shook his head, “Many of the companies that are new to China still want Chinese in place in management. Western expats can still be more expensive than the company is willing to pay for – especially after a few years of operation. “But I understand the local Chinese just don’t respect the returnees. And the returnees can be quite arrogant, too.”

I told Josef about a story I heard about the Hong Kong General Manager of French hotel in Shanghai. The Hong Kongese replaced an American General Manager that had led the expansion of the hotel spaces and increased sales. At the first meeting with staff the Hong Kong manager whipped his passport from his pocket and waved it in the air. “I am not Chinese!” he said loudly to the shocked staff, “I am British! This is a British passport!” Weeks on, after bullying staff and pinching pennies on things like flower arrangements in the lobby, employees began resigning, including a friend of mine who was a manager at the hotel. I recently learned that after less than a year in the position the Hong Kongese is resigning his post.

I asked Josef what the difference in remuneration was between a Western expat that wanted to stay on in China and one who was traveling from his home country with a wife and no children. Josef looked up at the ceiling of the Starbucks in which we were having coffee and performed some mental calculations. “Well, some expats that come over have all kinds of allowances, including a wife allowance.” I asked him what a wife allowance was. “The wife can receive an allotment from the company for classes or for travel.”

“Oh,” I answered mischievously, “whatever it takes to keep her out of her husband’s business while he works.”

Josef laughed, “Exactly,” he said. He continued, “If you don’t include children in the package, the new expat’s package can be as much as twice the local expat’s.” To my mind that figure seemed to me to be in the USD$200,000 range. I whistled at the prospect. No wonder Western companies were racing to replace their Western expats with less expensive substitutes. However rough or flawed the new setting.

Posted in China Labor Issues | 4 Comments »

Dogs and Lawyers Not Allowed

I recently had a conversation with a Chinese friend about why Chinese don’t use consultants and lawyers, especially in areas such as market research or company set-up. Her thought was that the average Chinese business person didn’t know how to use consultants and lawyers. My point was that the average Chinese business person didn’t think he needed consultants and lawyers, a perception compounded by the fact that consultants and lawyers tend to cost more than Chinese companies are willing to pay (that is, they’re willing to pay ZERO).

I insisted that Chinese drive their business plans through geography and guanxi – special relationships of mutual obligation; especially those just starting out – and most especially those in smaller cities and/or who are in the interior of China. Geographically, Chinese are still limited to the economies of scale their local town has carved for itself. Hence, you have in China the Plastics Capital Cixi (Zhejiang Province), the Furniture Capital Dongguan (Guangdong Province), and the toilet bowl capital Xiamen (Fujian Province). Historically, a lack of infrastructure that eases commerce between cities and that strengthens supply chains forced Chinese cities to become centers of specialty manufactures, much like Detroit and the automobile industry.

Further, a lack of capital and a plethora of relationships – friends and family – makes developing a cottage business easier: why go out and hire someone to tell you what in China to manufacture and where to manufacture it when your hometown is already making a name for itself in an industry flooded with capital and your Uncle Zhang is already in the business. Add to this the Chinese propensity for families to combine individual contributions into sizable investment bases and one effectively eliminates the need at the start-up level for a multitude of Western-style institutions: consultants, lawyers and banks. Besides which, institutions in China have never historically done much to help out the little guy in China.

I did suggest to my friend, though, that in China the larger privately owned companies like a Lenovo and a Haier do use outside professional help in their quest to develop and be accepted as international brands. Even State Owned Enterprises (SOEs) that wanted to professionalize their business practices used outsiders to transform the way they do business.

And now that Chinese businesses are developing products and content of their own, they are much more prone than in the past to sue other Chinese parties. Enter the lawyers.

My friend was not totally convinced by my argument, holding the line that ultimately, Chinese businesses were just cheap and preferred to do things themselves their way. The Chinese Way.

Posted in China Society, China Development Trends | 4 Comments »

China: The Temperamental Services Outsourcer?

“I’m hoping I can talk with someone in customer service.”

“Hello? Hello? Miss Smith? Are you still there?”

Of course, this never happened. But I’ve been wondering with all the talk of China becoming an IT- and Business Process Outsourcing powerhouse if China really has the temperament to service the rest of the world.

True, China suffered great humiliation at the hands of foreign powers for nearly a hundred years before 1949, in no small part due to the decline of the rule of the Manchus, who were invaders themselves. But if there is anything Chinese people have let the world know as the country becomes wealthier is that they have refused to let those historical slights go.

Nightly on Chinese television are run historical soap operas that reinforce in a way I’ve not found in other countries the injustices heaped upon their country by foreign powers (one of my favorite soap operas actually takes place in a scenic Suzhou during the Japanese occupation of the city); while other painful, self-inflicted wounds from its recent history are glossed over with familial melodrama.

Once or twice a year now for the past four years Chinese people – with the full support of the national government – erupt into protests over perceived criticisms and incursions from abroad. The government buses in citizens to foreign embassies and shopping centers to protest their outrage, while Westerners – and sometimes, the occasional Japanese – are warned away from the heaving mosh pits of seething emotion. Establishments – whether French, American, Japanese or the flavor-of-the-day – are boycotted and the occasional window smashed. Meanwhile, some Chinese employee quits his job at a foreign company to make a political statement, either because of personal distaste for his employer or from pressure from peers and family.

All of which leads me to wonder if China will be able to maintain customer support bases for the rest of the world – even after the next generation converses in English with the ease that many in India do today. Within the borders of the Mainland, I have no doubt the Chinese domestic BPO service providers will be able to effectively support companies and consumers that drive its economy.

But it’s China’s reach to provide services – not sneakers - to the broader world I wonder about. In general, countries in the OECD – countries that typically use outsourcing service platforms in other countries – are making concerted efforts at moving past historic traumas. And the OECD’s growing sense of “political correctness” will gauge the extent to which other countries will put up with China’s temper tantrums.

Perhaps, one day, the world just may hang up on a cranky China.

Postscript: to underscore my observation check out a very recent comment from a Chinese reader to a pretty old post I wrote on racism in China.

Posted in China BPO, China IT Outsourcing, Services Outsourcing Trends | 4 Comments »

Solar Dreams

Julian Wong over at the The Green Leap Forward blog recently published an entry on the development of the solar power industry in Chengdu in particular, and in China - from a policies point of view - in general.

I liked the lengthy article because I learned something significant about how a China x-tier city is working to drive national policy, and about the relationship between economics, industry, ecology and national policy in China.

The Green Leap Forward is going onto my blogroll.

Posted in China R&D, Services Outsourcing Trends, Chengdu, China Development Trends | No Comments »

Keeping Up with the Zhangs

Eurobiz Magazine recently published the June 2008 edition of its magazine with my latest column, “Keeping up with the Zhangs.” The article is about the weight of expectations young Chinese professionals in the Mainland have about how their lives should be, how their lives really are, and how the tectonic stresses of modern life with Chinese characteristics are making it tough for Western companies to manage the salary and performance expectations of their local staffs.

This is one of those articles that just wrote itself. I happened to be sitting with a bunch of mates in the local Blue Marlin 3 at the end of the work day when the topic simply came up and the discussion took off. I am privileged by the fact that many of my friends in Suzhou are from different nationalities and their company headquarters’ from different parts of the world. I went home that same evening – lubricated, in the creative sense, of course – and simply wrote down what was said. I don’t think my able editor at Eurobiz even made many changes to the article.

I wish every article could be so easy to write – but then again, if that was the case, then every one would be writing stuff that only I should be writing about. Anyway, enjoy the article.

Posted in China Society, China Development Trends, China Labor Issues | No Comments »

Free Trade Identity Crises

Discussions with local government officials in “Free” Zones that ease customs duties on exporters revealed conflicts of interests and identity crises that, according to local administrators, Central Government is aware of and is currently addressing. Much of the discussion revolves around the usefulness of Free Trade Zones and Export Processing Zones.

Essentially, current government thinking goes, what is the use of a Zone that makes it easier to export when China is moving away from an export-driven economy? A fundamental shift in the balance of export-led business came when China reduced the VAT rebate from 14% to 3%, trimming profit margins off the balance sheets of many low-cost exporters. On the local level, cities for the last year along the east coast have not wanted export companies to come to their areas, since the local governments are responsible for paying the national rebate out of their local pockets.

Compounding the conflicts of interest are the various flavors of export-friendly zones: Free Trade Zones; Export Processing Zones; Bonded Zones; Free Trade Ports, and the like. As one government official put it to me, “There is a great deal of overlap between the zones.” The Government is set to harmonize them all.

In a nutshell, according to past descriptions at www.cadz.org.cn, Free Trade Zones:

1. Are more preferential than those of Export Processing Zone. When foreign investors set up production-oriented enterprises in the Zone, no proportion of domestic sales and export sales will be prescribed to their products. There is no limitation to business scopes of enterprises in the Zone unless prohibited with decree by the State. They can handle import & export trade, entrepot trade, processing trade, bonded storage and related business serving the above functions such as commodity exhibition and sales.

2. There is no restriction on setting up processing projects of imported restricted commodities in the Free Trade Zone.

3. When Goods enter or leave from the Free Trade Zone to foreign countries or from foreign countries to the Zone, there is no declaration at the Customs, only registering in the Customs. No import & export quota and licenses are required except passive export quota is needed.

4. Processing enterprises can develop their bonded processing business by way of entrusting enterprises outside the Zone to process or accept processing deal from enterprises outside the Zone after being approved by the Customs if their main production processes are conducted in the Zone.

5. Being approved by the Customs, enterprises in the Zone can import and export their bonded goods from other ports after going through procedures in the Free Trade Zone Customs.

6. Enterprises in the Zone are allowed to buy out products from non-Free Trade Zone companies with import and export rights to export, and sell imported goods to non-Free Trade Zone companies with import and export rights.

7. There is no limitation on time and kinds to store goods in the Zone unless otherwise stipulated by the State. Enterprises in the Zone are allowed to simply process bonded goods in bonded warehouses or workshops such as repackaging, grading, labeling, dividing and so on.

Meanwhile, according to the same source, EPZs:
1. Companies in EPZs are considered to be” within China’s territory but outside the customs boundary”, so:
(1) No bank deposit system, no customs registration system, no value-added tax or consumption tax on processed products and no I / E quota or export license are to be imposed on those engaged in processing business in the zone.
(2) Duty exemption is applicable to the following items:
a. The machines, equipment and blocks to be used in production; or spare parts and components needed for fixing or repairing of the machines;
b. Machines and equipment to be used in the construction of the infrastructure; or the building materials to be used for the construction of factory buildings and warehouses;
c. Reasonable amount of office ware imported for self-use by the enterprises and administrative institutions;
d. Final products, leftover pieces, defective or wastes which are processed in the zone and are to be sold abroad;
(2). Raw materials, spare parts, components, packaging materials and expendables imported for processing export products are bonded for the total value.
(3). Goods sold to companies within EPZs are considered to be exported and are eligible for tax return. Final or semi-final products turned out by the companies within the zone can be moved freely to companies outside the EPZ for further processing.

Now, compare and contrast.

Posted in China Development Trends | No Comments »

Ningbo Meishan: Not Just Another Free Trade Port

My sexy but dumb LG mobile phone didn’t work well in the mountains of Ningbo District of Zhejiang Province. Actually, it didn’t work at all. That left the driver’s phone. I pulled rank and told the driver to pass over his Nokia, which he dutifully did. His phone worked just fine.

And just as well. I think we had to call my local contact a half dozen times at least within a handful of kilometers of the Ningbo Meishan Free Trade Port Area. An old acquaintance that had worked in the Ningbo Free Trade Zone had recently been transferred out there and, since I was sort of in the neighborhood – if you count and hour-and-a-half drive from Ningbo City as being in the same neighborhood. Meishan is actually a small island just off the east coast of Zhejiang province, south of the larger island of Zhoushan. The point of free trade ports is that ships can dock, off-load their cargo and processing can be done right at the Port, then re-loaded on other ships without customs duties paid and VATs tabulated. Another point is that domestic companies that sell into a Free Trade Port can apply for VAT rebate, while those that sell into Free Trade Zones are not eligible.

The drive into Meishan is not easy, because the entire island is under construction. We crossed a one-and-a-half kilometer long construction bridge made of slabs of steel plating laid over girders: the drive was slow and nerve-wracking. Another couple kilometers across unpaved roads, pulling aside for the occasional dump truck, and we arrived at a whitewashed government compound with the national flag flying high above the guard house.

My old acquaintance – whose English name is Casper, the friendly Chinese government official – welcomed us with a presentation about the plans for the Port. I asked if we could look around the area. He apologized, explaining that the entire area is one big construction site. No access to the coast.

Casper invited us to lunch in the only accommodation literally for scores of miles around: a lovely wooden lodge area with a courtyard of well-manicured flowers rounded out our half-day excursion to the area. The lodge had once catered to workers from the nearby salt refineries. As we finished off our meal of octopus the size of our hands (eaten whole, I might add), sea water snails, sizzling beef and a delicious yam congee, Casper and I commiserated that by 2010 – when the first phase of the Port construction is complete – all the natural beauty of the island’s countryside will be gone.

The price of modernizing a society.

Look for an article of mine about development plans for Meishan Free Trade Port in the next copy of Chaina Magazine, a publication of the China Supply Chain Council.

Posted in China Development Trends | 2 Comments »

Cixi: The Pot of Gold at the End of the Hangzhou Bay Bridge

Pan-fried crayfish in spicy soup; baked yams in honey sauce; roasted razor clams with scallion and soy sauce; steamed Hangzhou Bay Fish with peppers, and more. How can an Economic Development Zone with such excellent country cooking go wrong? Answer is: it can’t. And it won’t. Business will literally dump its loads in the Hangzhou Wan Bay New Zone.

I already had business in the Ningbo area and decided to drop in on a long-time acquaintance that had worked for years in the Ningbo Economic and Technological Development Zone. The success of NETDZ had propelled him to the middle of nowhere; nowhere, that is, until the Hangzhou Bay Bridge opened for traffic about two months ago. Now, the bridge, which spans the mouth of the Yangtze River from Jiaxing – an hour’s drive southwest of Shanghai – to Cixi – an hour’s drive east of Hangzhou – is the longest sea span bridge in the world. The drive itself over the bridge presents a calm sea. Quiet shores lull one to sleep almost immediately – which I did; both ways. So, outside of the gray of the Bay meeting the gray of the horizon there’s not much else I recall about the crossing except that I missed it twice. However, the drive did shave an hour to an hour-and-a-half off our journey.

The Hangzhou Wan Bay New Zone at the base of the Cixi-end of the bridge is actually an amalgamation of several zones, including the Zhejiang Cixi Economic Development Zone, the Zhejiang Cixi Export Processing Zone. Established in 2001 the total area of the New Zone is 145 square kilometers. Interestingly, the local government cannot touch the Southeast corner of the Zone for commercial development: the national government four years ago had frozen transfer of farm land to commercial use. The land was going to be left for the village already in the area.

Our host, the generous Mr. Zhang, took us on a tour of the New Zone, which is one of the most virgin I have seen in five years of traveling to Economic Development Zones throughout China. Even the Export Processing Zone, which had been established in 2005, was without companies. One of the most developed blocks of the New Zone was the European Industrial Park, which was populated ostensibly by a dozen companies from Spain.

Cixi itself is about the size of Suzhou City, 1.2 million. However, it has a distinctly underdeveloped feel to it. A morning walk through the downtown district left my throat parched and my eyes irritated from the pollution of cars and trucks and motorcycles all competing to be the most raucous mode of transportation. There were very few of the tell-tale high rises and construction cranes that mark a city looking to reinvent itself as a commercial center. I knew though, that since China’s opening up in the 1980s that Cixi had become The Plastics Capital of China; along with Yuyao and Ningbo creating a Plastics Triangle of production capability. Still, the roughed mountains with curly tree lines that defined the city limits are attractive and relaxing to watch.

Mr Zhang and my long-time acquaintance Mr Zhu rounded out our day in the New Zone by taking us a five-minute drive outside the Zone to a restaurant that was more a low-ceilinged airplane hangar than dining venue. The restaurant – The Cixi Country Family Restaurant – was actually a mock village with small wood-and-bamboo huts and running streams all within the hangar. A great assembly line of culinary delights awaited us: hundred gallon tanks of fish and shellfish; sample plates of appetizers and main courses; great pots of boiling soups.

There was no waste that night after the meal. Great food, good company, excellent prospects for a New Zone.

Posted in China Development Trends | 1 Comment »

China’s Infrastructure in 2nd- and 3rd-Tier Markets

Next week Tuesday, 17 June 2008 I’ll be speaking at a Breakfast Forum in Shanghai sponsored by The European Union Chamber of Commerce in China. I’ll be participating along with Mr. Samuel Michael of ProLogis to give presentations on the current macroeconomic drivers that will define China’s 2nd and 3rd tier markets and the process of developing a Chinawide infrastructure network.

Find out more and register here.

Posted in China Development Trends | No Comments »

Isthmus Season

The last time I drove out onto an isthmus of note was back in the mid-90s, from Boston to Provincetown, at the tip of Rhode Island. All during the Labor Day traffic jam into the city I entertained myself with thoughts of outdoor bands playing rock hits from the 70s and 80s, stalls crammed with racks of bland suburban art, and of eating too much fatty fried foods at open-air diners. By the time I actually arrived at the motel at which I would be staying the couple days, I was instead tired, dirty and irritable. It took me a few hours walking around the carnival-like streets and eating an ice cream cone to restore my sensibilities.

The first weekend in June this year found me in very much the same sort of disposition during a long and at times tortuous drive from Suzhou to the Tai Lake (Tai Hu) isthmus of West Mountain (Xi Shan). The evening before a Chinese friend told me she wanted to join her sister, who was traveling to Xi Shan to pick pi pa with her former classmates. Pi pa are a small, yellow fruit with a sweet flesh and sticky juice that is refreshing without being cloying. This was apparently the Pi Pa Picking season in the region. The best I understood (from the locals, of course) was that pi pa are available only in the Tai Hu area.

What sounded like a good idea to the four of us (another sister joined in as well) turned into gridlock that would take us more nearly an hour and a half to break through. Everyone and his mother chose that overcast Sunday to travel to the narrow isthmus of Xi Shan, a lovely cove of hump-backed islands conducted by imperious, low-lying hotels.

Easily the thing that stuck with me most during what eventually turned out to be a delightful afternoon was the traffic. At points along the highway two lanes became five lanes – relatively easy to do because there was little oncoming traffic. We traced license plates from Suzhou, Shanghai, Wuxi and even Nanjing. The traffic congestion was only worsened by the propensity of Chinese drivers to sometimes stop in the middle of the road – or pull off a bit, in some cases – and begin bargaining with the pi pa sellers at the side of the road. The vendors literally littered the roadside with their plastic buckets of the fruit, which they would hoard under umbrellas on rickety wooden tables.

We eventually met the former classmates, a group of excited twenty-somethings that had started their journey at eight o’clock in the morning. We started ours at 10am. Which meant that when we arrived, they were just on their way out. Hungry – and not dismissive of the idea of a bit of fried fatty food (which, of course, was nowhere to be found) – we settled on two restaurants at which to try some locally flavored fried rice, vegetables and fish. Each threw us out in succession after seating us. Business was booming and we clearly were not ordering enough food to keep their attention. Chinese love to travel in big groups; that day many traveled in groups as large as 10. Four was just not large enough. We eventually settle on a bowls of soup noodles for each in a dirty, noisy open-air garage facing a forested hill. We all agreed the soup noodles were actually what the day required to set it back on track.

Sated, we set out to pick pi pa. There were none to be found. The surrounding hills had all been picked out. We were too late. A combination of swarms of city folks and enterprising farmers had already picked the trees clean. “The only places that have pi pa are high in the hills and high in the trees, where you’ll need a ladder to get at the last ones,” one old woman told us. She was squatting on a wooden stool at a great stone gate that framed the gray of the Lake. Two buckets of pi pa rested at her ankles, as inert as our interest to buy them from her.

Eventually, we relented. We accepted that we, too, like so many of the hordes that had driven out for the Pi Pa Picking Season were having to pull off the road and haggle down the outrageous prices the sellers were asking. Nearly out of the Xi Shan reserve, our driver fixed on the idea of ensuring we had the best quality pi pa; we very nearly left the area with no fruit at all. After the driver’s fruitless driving around for the best buys, I finally told him pull off at the next stall and let the others buy as many fruit as their hearts desired.

When we eventually arrived home I reflected on just how much technology – especially the automobile – had amplified cultural habits as much as normalized them. Just years before the countryside had had to come to the city by overburdened truck to offload its produce; now, the city came to the countryside by the carload.

Who needs locusts in China when you have the automobile packed with hungry families?

Posted in China Society, Expat Life | No Comments »