This is China! BLOG

Beer is Thicker than Water

Knackered from a day of meetings in Shanghai I was blissfully slouched on the couch watching the DVD version of an American television series when my mobile phone rang. It was Roger, a British friend who’s been in China for a couple years now. Roger (not his real name) is GM of a small contract manufacturing operation in Suzhou, and an avid student of Chinese language. He is always exercising his newest vocabulary and straightening out his grammar with pretty much any Chinese that will listen.

Roger told me he had returned home from a very odd dinner with a Chinese driver his company uses on occasion. The driver had been impressed with Roger’s attempt at speaking Chinese at every turn, and with Roger’s open, self-effacing sense of humor. The driver had insisted for some weeks that Roger come out to dinner with him. Finally, Roger relented. The driver insisted Roger bring along Roger’s fiancée to the dinner. Roger agreed.

Roger explained to me, “The driver brought along a mate of his, and they both brought along their girlfriends. I thought, hang on a minute, that’s not his wife. I’ve met his wife. He had introduced his wife to me before. And why did he want me to bring my fiancée?”

The evening was all good fun, lots of toasts – gan bei and the rest – and much food was eaten. The driver footed the bill, as host. At the end of the meal the driver offered they should do that again sometime. Roger, being a nice guy and all, said sure. On the way home Roger’s fiancée offered that the driver’s wife was quite nice. Roger, also being an honest guy, said that wasn’t the driver’s wife, it was his girlfriend; he guessed that the driver’s friend – also with a doll-faced moll in tow – was not married to the woman that accompanied him. Roger’s fiancée threatened to cut off Roger’s gonads if he ever did anything like that to her.

“What was up with this guy making sure I invited my fiancee along?” Roger asked me on the phone.

“Best I can figure is that you’re one of the lads, now,” I offered. “You know part of his secret life. I’d expect he’ll invite you out again, probably for KTV (karaoke) or to a bathhouse. Lots of pretty girls, beer and wine guzzled, the whole lot.

“I know you didn’t call me for any advice,” I said, “but try to avoid getting together again with this guy for fun; he’s ok with the mixed up values, but I don’t think you want to drag your relationship with your fiancée into that kind of situation. You’ll be forced to lie to her – even white lies – and that shouldn’t be necessary.”

Roger giggled. “She already knows I’m a terrible liar. In fact, I’d probably just tell her the truth, anyway.”

I laughed, “That would be even worse!” I continued, “Anyway, modern China right now is going through huge changes; value systems are confused. And a lot of Chinese are more comfortable in the gray areas than we Westerners. It’s easy to get lost.”

I finished our conversation with a story one young Chinese lady had told me on a flight from Shanghai to the States. Her recent visit had been her first back to China in a couple years. She told me that when she visited her hometown of Chengdu she had gone out to dinner with three women classmates, all of whom were married. The three couples and the young lady all went to dinner together. She knew the three classmates all had boyfriends on the side, and the women all knew their husbands had girls on the side. The young lady had lived in the States long enough and had been married (unhappily, incidentally) to an American in Nebraska just long enough that she felt wholly uncomfortable the entire evening with the group and with the consensual dissemblance.

Anyway, I concluded, “If you go out several more times with the driver, don’t be surprised one day when he asks you for a favor, probably something compromising. And then you’ll be put in the awkward position of refusing him.”

“Sounds like you been there done that,” Roger said.

“Yeah, well…” I said, and left it at that. Roger wished me well and we rang off. I returned to watching my American TV series, in which there were black hats and white hats and each knew who the other was and there were no KTV parlors with pretty girlfriends to confuse the storyline.

Posted in China Society | 4 Comments »

China R&D and the Fusion of Cultures

Over a bottle of red burgundy wine from the Languedoc region of France the Vice President for Asian Operations of a European company told me how happy he was with the R&D staff in their Shanghai facility. We were eating on the fourth floor of the Sovereign building in the Suzhou Industrial Park at the suggestion of the Chinese General Manager that arranged the meeting. He knew his boss’s tastes and knew the Operations Executive liked the restaurant. After all, the executive had come in from Shanghai for a visit to Suzhou, and was entitled to a bit of respite and red wine. The tall, attractive, well-adorned and attentive staff that attended to our needs didn’t hurt either. I’d never been in the luxury restaurant before, and I was glad for the invitation.

His R&D people are sharp, hard-working and want to always find the least expensive solution, the executive enthused. We had already supped on a well-pureed pumpkin soup followed by mushroom wrapped in bacon. Finishing off my jumbo shrimp seared to Teppanyaki tenderness I asked how large the Electronics R&D center was. I smiled at the petite, professionally adorned chef behind the large flat grill. She smiled back, shyly. It was a good day.

“We’ve got 500 staff in the facility,” the executive answered. He was a tall, heavy man with a large nose and pouty lips. He was clearly uncomfortable in the stiff, high-backed chairs and too-low Teppanyaki table. The wine, the tasty food and the charming service staff, though, eventually helped dissolve any discontent with the seating.

The Operations executive explained that the R&D staff still designed products for the company’s primary Western markets.

“But when they begin producing for the Chinese market, they will be really excellent,” the executive said, slicing through a medallion of lightly grilled beef tenderloin.

I had to admit I was surprised by the executive’s enthusiasm for R&D in China. I knew a couple hundred R&D centers had already been set up in China; Suzhou itself had about twenty. But I was surprised at the executive’s high level of expectation for results and profits from the center. While scooping some fried rice from a small white porcelain bowl he explained, “They are so naturally cost conscious. So excited about the work. It’s difficult to find the same attitude in the R&D centers in Europe.”

Rounding the meal off with fresh fruit and a crispy salad, I gladly accepted that when Western multinationals re-direct their R&D facilities’ energies from Western customer bases to Chinese domestic markets, the training, methodologies and approaches to innovation that have become part of their kit will pay off in revolutionary ways for the Chinese themselves, much like the fusion of Asian and Western tastes at our lunch.

Now that’s something to toast.

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

Sybaritically Yours

A few days ago the Financial Times had an article with the startling title, “Beijing arrests ‘White House’ party chief.” Well, not having kept up on the news recently as I’d like to (with the exception of the Euro 2008 results), I just had to find out what that was all about.

Seems a Party Chief in Anhui province wanted to emulate the power - not so much the democratic ideal, I expect - that the White House in the United States represents. So he built one, a White House with Chinese characteristics. As this is outside the bounds of the spirit and policies of the Communist Party, he got busted.

“The detention of Zhang Zhi’an, Communist party chief of Yingquan district in Fuyang, Anhui province, came less than two weeks after a report in the Financial Times about his overseeing of the construction of a lavish government office, modelled on the US Capitol building and referred to by locals as the “White House’.”

And check out the lovely use of the word “sybaritic” in the article. A lonely and not oft-used bit of vocabulary that deserves a revival. Hat-tip to whoever translated the government’s policies from Chinese to English.

Enjoy…

Posted in China Society | 2 Comments »

Where the Indus and the Yangtze Rivers Meet

I was recently interviewed by a researcher about the rise of China’s Business Process Outsourcing Industry (BPO). At the end of the interview he asked me, “How are China and India similar, beyond the obvious observation that they both have a lot of people?”

My mind became blank.

I honestly didn’t have an answer. Of course, one could attribute it all to the onset of old age and endemic forgetfulness. But this was something different. I didn’t have an answer. I didn’t know if there was an answer. I didn’t know if he was even asking the right question.

I considered, in terms of cultures, neither is similar at all. Of course, in both societies there is a reverence for family bonds that seems quaint in the West. Both countries had invaders administering their countries for a very long time in their recent histories: India had the British Raj (for about 350 years), and China had the Manchus (for about 250 years). Of course, the differences in the two colonial campaigns outweigh any similarities one can manufacture, as well as the ultimate impact. Of course, both societies were happy to see the backs of their invaders when the time finally came.

But in terms of similarities that might somehow result in similar outcomes vis a vis the BPO industry – or even the IT Outsourcing industry – I could think of none. As I’ve written many times before, India’s IT- and BPO industries benefited hugely from the Year 2000 (Y2K) bug fix, the most expensive extermination of ill-conceived programming code in history. China has had no Y2K boom, and so has to limp along under its own power to build up its services outsourcing industries. China, though, does have the largest rationalized consumer base in the world; most of the base may still be poor, but it is rising fast. The Chinese base for B2B services is growing wildly and will likely provide the chamber in which China’s services outsourcing industry will reach a combustion point and ignite on some meaningful level. India’s domestic consumption base for services is still wildly fragmented, with the majority of its GDP still agricultural.

If you, dear reader, can think of similarities between these two great nations that might lead one to conclude their services outsourcing industries will develop in the same way, then please let me know. I hate being speechless.

Posted in China R&D, China BPO, China IT Outsourcing, Services Outsourcing Trends | 6 Comments »

Telecommunicate This!

Paul, a friend in the telecommunications sector in the China market, was recently telling me about his company’s interest in developing the India market. Seems the mobile phone-station industry in which the company is involved in China is quickly reaching saturation; not only in terms of the sheer number of installations in base stations the company has made, but in the rapid growth of competitors in the field that have knocked off their products. India, he said, has so much untapped potential for mobile phone coverage. I suggested the development curve in India for the industry will also be a lot longer than in China: political, regional and social incongruities in India will make for a more gentle increase in penetration than China’s full-throttle infrastructure investments.

One of the company’s main competitors is Huawei, which recently tried an acquisition of 3Com in the States. The acquisition failed, because Congress blocked the transaction on the grounds that protecting 3Com’s property was in the national interest. 3Com has installed many of the routers and backbones in the world that makes the internet go-round.

“Huawei are bad guys,” Paul said. Paul is European. “They fired so many senior people before the end of last year, to get round the new labor law.” The new labor law has it that employees must be paid one month’s salary for every year they have been with the company. Firing staff before the new year, then having them re-apply for jobs at lower pay grades is a way for a company in China to save loads of cash.

“We hired a lot of those guys,” Paul said proudly.

I’ll bet some of them were already quite intimate with Paul’s product line. Perhaps had even improved on the designs!

Posted in China Development Trends | 2 Comments »

I Dig Suzhou

A couple days ago while walking to work in the Suzhou Industrial Park I counted ten dump trucks clustered round a city corner, waiting to go to work. Beside the groaning behemoths filled with pasty concrete was the high pre-fabricated wall of what will be a combination residential high-rise/office building/Marriot hotel. Within a one kilometer radius of my office building on Su Hua Lu, next door to the humpback International Building – where the SIP government administration resided until about two years ago – I counted five new construction sites that have gone up within the last year.

One of the projects is a great glass-and-steel structure that looks like a pair of cowboy pants, bowed at the knees, presumably with fly open for a piss into Lake Jinji, at which banks it sits. It’s height supposedly will rival that of the twin towers in Kuala Lampur. One of the charms of Suzhou has been its lack of skyscrapers. Hope Big Pants sinks into the marshy shore of Lake JinJi to be discovered centuries later by a disgusted Charlton Heston after the apes have taken over the Earth (for you Planet of the Apes aficionados out there).

And then there is the new subway system going into underground Suzhou. The entire east-west axis from SIP in the east to Suzhou New District to the west – another economic development zone in Suzhou –has been dug up. Traffic in the downtown area along this 1200 year-old route is a mess all hours of the day. The central canal that lends such charm to the downtown area has been excavated, and tall white-and-blue walls separate the construction work from the work of just getting about one’s daily existence. Talk is that phase 1 of the subway project – including the north-south axis – will be complete in 2013. Of course, the road along which I walk on my way to work each morning, and back again in the early evening, is bisected by this open wound.

I often tell clients that are visiting China that China is building entirely new cities from scratch. And it’s all happening simultaneously: residences, businesses, restaurants, KTV establishments, night clubs. All at the same time. Blink: a new block of buildings. Blink again: a new high rise. Blink Blink Blink: a whole new city. Of course, I also tell them that the United States government is still unsure of where to start in the reconstruction of New Orleans. One can be sure that by the time New Orleans has been rebuilt that China will have built at least twenty new cities, each of which can hold several hundred thousand people, AND have reconstructed the earthquake battered regions of Sichuan province.

In the past eight months in particular in SIP, any patch of green that had survived for years as pruned gardening or ‘green space’ has been grabbed up and great digging machines put to use to scrape away at the soft land and ram up another paean to Chinese modernization with Singaporean characteristics. Within five years the area around JinJi Lake will be unrecognizable.

Indeed, SIP itself will be transformed from a premiere manufacturing base to a modern services economy replete with high rises and high costs. Indeed, eventually, the Suzhou subway system will connect with the Shanghai subway system to create a massive public transportation system that crosses provinces. As a friend in Shanghai noted to me just a few days before, “Suzhou will become a suburb of Shanghai.”

Wonder what the weather’s like in Anhui province’s Anqing?

Posted in Suzhou, China Society, China Development Trends | 6 Comments »

Suzhou Industrial Park: Where is the Love?

A group of us managers were sitting in a British manager’s office in the greater Suzhou Industrial Park (SIP) recently when the British manager asked us all, “Where would you suggest to put an investment in China?”

We all looked at each other, all of us knowing we had our own opinions. Mike (not his real name), one of the Danes at the table, suggested, “Not SIP, and not a lot of places in Jiangsu Province any longer. Anhui, Xuzhou – in northern Jiangsu Province.” Henrik (not his real name), another Dane, suggested places like Changzhou, Changshu, smaller places. I suggested what I called “suburban” economic development zones near Suzhou, like Wujiang and Xiangcheng: the expat lives in SIP and then commutes out to their factory in the “suburbs.”

Jim, the British manager, uttered a sigh of relief. “I’m glad you didn’t say SIP. I’m finding them really difficult to deal with.” Jim had been a General Manager of a facility outside Beijing for seven years. “Everyone said when I took the job in Beijing that Beijing is such a political environment, so difficult to do business in. Actually, the administrators there were really easy to deal with compared to these guys in SIP.” Jim had become GM of the SIP facility just two years before. “Even though I had to explain the law to the Beijing guys – after all, they had all been farmers just ten years ago – they bent over backwards to make things work for me. SIP administrators just want to give you a hard time.”

I offered, “They’re not hungry any longer. They’re successful now, so they don’t have to listen to anyone.”

Jim explained how he had offered up for SIP inspection contracts that met Chinese law but that were not based on the standard SIP format. “They said, ‘No.’ That was it, just ‘No.’ No explanation, no alternative. I tried arguing with them, but they just ignored me.”

SIP’s claim to fame is that it put into practice what so many local governments in China find difficult to even pronounce in English – “transparency”. Also, SIP was among one of the first economic development zones in China to take serious account of the livability of the place to attract Westerners. Most economic development zones throughout China still cater to Asian investors with their KTV palaces, bathhouses, and houses of ill repute fronting as brothels. Most Westerners – Europeans and Americans alike – prefer bars, outdoor eating and drinking establishments, and some place in which to get a decent cup of coffee.

The promotion bureau at SIP – and in the Singaporean administered CSSD, in particular – are absolutely brilliant at presenting the Park in all its administrative, infrastructural, and livability splendor. However, as the place has become the most famous in China for foreign direct investment outside Shanghai, it has also become more selective about who it meets and who it administers. It follows the letter of the law to the exclusion of common sense (whereas most local Chinese laws ignore common sense and exclude the letter of the law). It’s become rather like the Singaporean government itself: intrusive while at the same time inaccessible; patronizing without being constructive.

And that’s really the difference out in places like a Xuzhou: they’re still hungry. They will do whatever it takes to attract appropriate investment and then to support it. SIP, on other hand, doesn’t have to work for it any longer. Mike told the story of a large Danish company that came to meet with SIP staff to learn about investment opportunities in SIP. The company had about a US$10 million investment to make. “They were assigned fresh graduate from university who delivered a Powerpoint presentation she read to them, and then was unable to answer their questions to their satisfaction. They did not invest in SIP.”

There are stories aplenty of this type floating around the expat community in Suzhou. But most agree, SIP is still amongst the easiest economic development zone in China in which to get a manufacturing facility started and to maintain an operation while building circles of great, enduring friendships.

Still, I do wonder if anyone in the SIP administration is listening. And if they even care.

Posted in Suzhou, China Development Trends | 2 Comments »

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 »