Contributed Story: Inside Look at Business in China

Posted on 18. Dec, 2012 by Colin in contributed stories, other countries

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This is the second in Chuck’s series on China.

Chuck and I began to focus on international business and economics while studying at UMSL. I was leaning toward Latin America because I could already rap away in Spanish, I loved the culture and rumba on a visit to Brazil, and I felt Latin America was just as much an emerging market as Asia or Eastern Europe (but with a more manageable culture and language). Chuck, on the other hand, looked at the best growth prospects and nothing else. He chose China.

Here’s an email he sent during his last year there:

Moving to China is the second biggest mistake I’ve ever made in my life – behind joining the army. For the longest, my impression was that they were shy, innocent, hardworking people who were opening up their economy and would rightly rule the world in some sort of “the meek shall inherit the earth”-type scenario. WRONG! Oh god was I ever wrong. It is all just a carefully crafted “face” upon a rotten interior.

This is a summary of what he learned working in Chinese industry for three years.

Watching the sausage get made: an inside look at business in China

After living in China for three years, most of it working for a foreign consulting firm in Beijing, I took a marketing spot with a Chinese manufacturer and trading company in a “tier three” city. I had ideas of grandeur going in. I was going to break into new markets, bridge cultures, and make a name for the company internationally. With this rare opportunity I’d become the poster child of international business and give speeches at MIT.

That didn’t happen.

But I learned a lot. For example, China’s business world is a circus unlike anything I could have possibly imagined. Here are some takeaways.

Few people at a Chinese company actually know anything.

Textbooks on Chinese culture contrast the Chinese “holistic” way of thinking versus the Western “analytic” style. I haven’t figured out what “holistic” thinking means, but I know I have zero respect for it.

My employer was absolutely clueless as to the top market for its flagship product, a heavy agricultural machine that sells for several thousand dollars. Of course they told me the top market was the United States, because “it’s big.” In less than a day’s research I learned the top market was the European Union, and that the largest individual importers were Russia and Brazil.

On this point I actually effected change in the company. Six months later a representative office was opened in Russia, and a few Russian speakers were hired as well as a Chilean (the closest thing to a Brazilian that could be found).

I was less successful on other things, like Google ads. One of the company’s products was mosquito nets. The sales peon focused most of his online efforts on Uganda. I asked why he chose this particular country. “Uganda is in Africa, and Africa has a lot of mosquitoes.” He could have made a worse choice I guess, but did he consider internet connectivity? Or that the average web surfer is looking to buy one mosquito net, not 10,000 per our minimum order quantity? No.

The company didn’t subscribe to a single trade magazine and, so far as I could tell, nobody read industry news. At trade shows most Chinese companies send junior employees and just to give “face” to their local or provincial governments in exchange for favorable treatment. Blatant ignorance at Chinese companies, however, may be ideal considering my second point.

Copying is ABSOLUTELY RAMPANT.

Nobody is trusted. Little information is shared, either vertically or laterally. The media hype about problems with intellectual property rights in China doesn’t even scratch the surface. The copying is absolutely shameless.

Where I worked, salesmen didn’t share information with other salesmen because they feared their lead would be taken. Lower level employees weren’t even allowed to have cell phone numbers on their business cards. This was to prevent them from usurping management and working out special deals with the factory and customers.

The most closely guarded secrets of any Chinese manufacturer are its product specs. My informational sessions about the company’s flagship agricultural machinery seemed like they were taken from Wikipedia. My inquiries, as part of a first step to try and differentiate the product from others in the market, went nowhere. Questions about the composition of the steel and gearing ratios were deflected at first, but when I persisted were ultimately answered with, “It’s a secret.”

At the Chinese company where I worked, engineers were not hired based on competence, but whether they could be trusted. Factory hands were overstaffed and given narrow roles to keep them from knowing too much. And salesmen were told as little as possible about the machines. The less employees know at a Chinese company, the less capable they are of defecting and setting up shop themselves.

Because this is exactly what can be seen all over China, in every industry, particularly those with less state involvement and fewer barriers to entry. At least a dozen factories were selling the exact same agricultural machinery as ours - down to the color – in a town just outside of Shanghai. The “outbreak monkey” of the technology probably copied an outdated model of one of the European majors in the area. From there the shameless copying spread north to Zhejiang, with fewer, more recently established companies. Our factory manufactured a third-generation copy. When there were shortfalls in production, the difference was made up by ordering machines from another Zhejiang company. Why not? It’s the same thing anyway.

China manufacturers with any unique technology absolutely will not ship within the country. At one point my boss spotted a factory using German technology in Guangdong. His plan of action: COPY. An American colleague and I were to pose as a U.S. tool company looking to diversify. We were sent to the factory with fake business cards to initiate a transaction for the machines, which would then be redirected to our factory for reverse engineering.

Our boss was right; it was German technology. Our contact at the factory, Martin Zhang, was actually Martin [German surname] – a bona fide German engineer – using his wife’s surname. He had a couple dozen workers cranking out first-rate machines for export. His pregnant Chinese wife helped with management and administrative duties.

After the factory tour, the guilt set in. My American colleague summarized it best: “You can’t send Americans to do the work of Chinese assholes.” We came clean to the German and didn’t get a deal.

Some Chinese companies won’t allow prospective customers inside the factory. An American colleague visited a manufacturer of motion-sensor operated levers in Tianjin, the only known Chinese company with the technology. Its factory was locked down like Fort Knox. He got no further than the security gate. Instead he was whisked away on a city tour and treated to an extravagant lunch. “Trust us,” he was assured. Then they had the audacity to propose a huge upfront premium for the sample shipment.

Sometimes the extent of the copying caught me by surprise. Once a Chinese manager dropped a 50-page document on my desk and asked, “What is this?” It had the bauhinia flower symbol of Hong Kong in its letterhead, thus was in English. Beneath that: ‘COURT SUMMONS‘. Our company’s Hong Kong entity was being sued by a Japanese novelty watchmaker for copying its designs. “Do they have a case?” the manager asked.

“Well, considering our website says ‘We sell the same watches as [Japanese company X] but at half the price’, yeah I’d say they have a smoking gun.”

A lawyer was called in. His suggestion: do nothing. He explained that copying was so pervasive we were probably one of many Chinese companies being sued simultaneously by the Japanese watchmaker. They were just hoping one or two would come through with a payout. Our entity in Hong Kong was just a shell company, a registered address with a bank account. In the end, the money in the account was transferred back to the mainland and the court summons was ignored.

Another surprise occurred after the ex-factory head was moved to the desk behind mine. The guy was a dunce but he had connections with the right people, getting a $300,000 government grant for a new factory. After an order scheduled for delivery in one month to the United States took over eight months under his management, he was “promoted” to an office job and given a fancy title (i.e. they got him as far away from the factory as possible). One day he called me to his desk, absolutely jubilant. “Look at this,” he said pointing to a machine on a European company’s website. “We can copy this!” But to his disappointment, two other Chinese companies had already copied it and put photos on their websites. His new job was to spend all day looking for new things to copy.

Once he called me over to look at the oil press of a Dutch company. Through my personal email I informed the Dutch company of what was going on and that they should patent their design in China before being copied, but I never got a response. Our company had an imitation on the market within a month.

Even logos are copied. How hard is it to come up with a logo? At the Canton Fair, I noticed our logo was ripped off from a state-owned company. Even more embarrassing was that their booth was only three spots down from ours – shameless.

The cornerstone of Chinese business strategy: spite.

In a typical meeting at a Western company, the boss might talk about the status of current projects, recent developments in the market or key future events. In meetings with my Chinese employer, the boss would carry on endlessly about competitors and how he wanted to see them destroyed. On an overhead projector, he’d search Google for product-related keywords. Then, the spite: “This is our competitor, and this is our competitor…” (‘competitor’ always mispronounced “com-pet-it-tate-or”) whenever spotting the website of another in our industry. This would carry on until he had sufficiently vented.

At one point there was a company in the U.K. that put an article on its website that said disparaging things about the quality of machines made in China: that the designs are outdated, that certain adjustments can’t be made, that the gears are intended for use in automobiles and tend to break, etc. All of which were true. No specific companies were mentioned.

My boss wanted revenge. He registered a company in London. A fictitious brand was launched, based in London, complete with several websites and a biweekly newsletter written by “Alistair Dalrymple” (me). The U.K. competitor’s signature e-book was copied and sold at an undercut price.

For some reason it didn’t occur to my boss that machines can’t be purchased from fictional people at nonexistent companies. People would call the office, Chinese phone number and all, wanting to talk with Alistair Dalrymple. Our secretaries didn’t know about my fictional pen name, so they told callers there was Alistair Dalrymple at the company. I finally took the liberty of killing off Alistair after the London riots, when someone in Slovakia sent an email hoping Mr. Dalrymple was safe.

Fraud and spamming

This was one of several fictitious brands managed by the company. For its flagship product there were four. Selling under multiple fake brands served two purposes:

1. It crowds out competitors, as a foreign buyer looking to get a handful of quotes from Chinese companies might unknowingly contact the same company multiple times.
2. When one “brand” receives a reputation for poor quality, not honoring contracts, etc., others remain unharmed – a diversification strategy of sorts. It all comes from the same factory. I once saw an LED light manufacturer that operated under 20 brand names.

Making things worse for the prospective foreign buyer is that each brand might operate through multiple websites. Competitors could be displaced as much as possible from the first pages of Google’s search results.

Our company had as many factory workers as people building websites and working on search engine optimization. These English majors started at RMB 900 ($150) per month. For the highest rankings in Google, competitors’ top keywords were poached using a special software. It didn’t matter that these keywords, taken from Chinese competitors, were often in Chinglish (‘equipments’). I could not edit these because, in keeping with the spite theme, appealing to customers is secondary to attacking competitors. The keywords were then incorporated into headings and website text. Another software was used to alter text just enough to bait the Google system into thinking it was unique enough to be used on multiple websites.

Then there was link building, for which our company employed ten people. Our best link builder could create over 1,000 per day. If you maintain a blog, chances are your comments section has been hit by one of our spammers.

At one point I approached the boss about my own conception of branding: that we sell our agricultural machinery under one brand, through one website, and do our best to keep quality in check so as to keep a good reputation. A couple weeks later at a meeting, after railing competitors for a good thirty minutes, the boss announced a new marketing strategy. Each brand would be reduced to three websites: one for “advertising,” one for “promotions of our products,” and one for “branding.”

It is not a language barrier; it is an everything barrier.

Once a salesman asked me to edit an email. She had received a product inquiry that asked for specifics about price, output, and lead time. There wasn’t a single number in her response. I took it back to her. “I couldn’t help but notice that you didn’t answer any of the questions.”

Her reply: “Yes, it is good to be diplomatic.”

Me: “Uh, okay. But you realize that he is just going to send another email asking the exact same thing. You are just wasting time.”

She looked at me as if I was stupid. “This is the Chinese way,” she told me.

I didn’t edit it. Instead, I put it in perfect English so the guy would know he’s being jerked around. With Chinglish he might assume it’s just a misunderstanding. Chinese nonsense does not work in native English.

Sometimes I’d see prospective customers, obviously frustrated, who would send a series of questions in “Please check ‘yes’ or ‘no’” format, or even create fill-in-the-blank forms in an attempt to make direct answers painfully simple. They’d still get the runaround.

It’s not that my Chinese colleagues didn’t understand. They studied English and had access to Google Translate (Baidu Translate actually). They were well aware that ‘kg’ and ‘kilograms’ mean the same thing. I couldn’t change their minds. And the company’s sale per inquiry – HOT LEADS – never got above a dismal 0.7 percent.

Toward the end of my stint I could almost understand why. Swindling is so prevalent in China that everyone is on the defensive. Every inquiry was assumed to be a competitor attempting to get price information or product specifications for undercutting or copying, respectively. Every prospective African and Indian client who wanted to see the factory was assumed to be using the opportunity for an invitation letter to get a visa, and were endlessly scrutinized.

I never could understand, the blatant dishonesty. Once an inquiry came in from the U.S. for an engineering project related to our agricultural machinery. One of the questions asked was if we had previously completed any U.S. projects. A mid-level manager came in and asked how he should respond. “Well, how many projects have we completed in the U.S.?” I asked.

Him: “None.”

Me: “That. That’s what you tell him.” For extra points you can say that you have recently hired Americans to help enter the U.S. market. How hard is that?

The worst instance was with an Iranian steel contract worth a few million dollars. The year prior it was agreed that if the Iranian company sold a certain amount of steel, they would become our sole distributor in the country. They made their numbers, but our company didn’t want to keep its end of the agreement. I was asked to give advice for an email explaining that we would renege on the contract, but that we still wanted them to sell steel for us.

I was thoroughly pleased when the company’s business-to-customer toy company in Guangzhou was kicked off of Amazon.com in the U.S. We were notified by Amazon via email. The charges:

1. Selling faulty products.
2. Failure to respond to customer inquiries.
3. Late shipments.
4. Providing no recourse for wronged customers.

The branch’s boss came to me to smooth things over with Amazon. “What can we do to get back on?” he asked.

Me: “You should figure out how to engage in honest business.”

Less than a month later an account was registered under a different name and he was back at it.

Conclusion

A Dutch consultant, a veteran in China, who worked with us for a couple of weeks said this company was the best he had ever seen. I can’t imagine the worst. Some people scorn Western companies who outsource their operations to China. I think they deserve a goddamn medal. How they can consistently get anything of value out of this country is beyond me.

Colin’s final thoughts

I got a great laugh out from reading Chuck’s description of how Chinese sales reps answer emails, given my own experience. Years ago I sent this frustrated email to a bunch of gringo buddies:

One part of my job is sourcing raw materials (in China, of course, where it is the cheapest in the world). Whether it be keychains for giveaways or industrial machinery for PET preforms, I am the guy who finds it because I speak the English. Finding Chinese suppliers is my least favorite task because it is such a pain in the ass to deal with these people. After reading emails from hopeful vendors, I often slam my hand on the desk or yell English profanities at the computer. And I think “Aren’t you people supposed to be smart? Aren’t you supposed to be taking over the world? Why are you so fucking stupid?”

I write pointed, concise emails to their “sales staff” and these pathetic excuses for people do their best NOT to make the deal happen. JUST GIVE ME THE FUCKING PRICE! It is like pulling teeth.

See this email exchange:

[We are looking to market a vegetarian soft capsule containing 260g of oil. We have the oil and we can make the capsule. We need the vegetable-based raw materials to produce the capsule. If you can provide this, send pricing and buying requirements.

We will start with 1000 kilos, shipped to Lima, Peru.

Regards,
Colin Post]

The reply:

[OK, Colin. You want to buy vegetable-based raw material to produce soft capsules. Is this correct? If so, please advise the weight of this raw material you want to order. I think you need to buy in kilograms or tons, not 1000 kilos. So what's the unit? Please advise.

Regards,

Eric]

I might cast “Eric” out of the bidding pool just for being a dumb shit. Any company that hired him is not to be trusted to manufacture and ship anything, much less gelatin safe for human consumption without causing a disease outbreak and disgracing their backwards country even more. Chuck, I don’t know how you do it over there. Maybe pounding lots of horizontal pussy while choking them helps, but it surely isn’t a solution in itself.

I got this reply from a buddy who works with many Chinese companies:

I very much feel your pain on a daily basis. Today, the customer is asking for pictures of a product that is not to ship until the end of the month. We build one-of-a-kind systems that are custom-made for each location purchasing them. Do we have the unit finished and ready to photograph now (being the first full week of the month)? No, of course we don’t. This was told to them last week, but it was a week-long Chinese celebration (one of three or four they have annually) so I am sure that email was lost.

In dealing with the Chinese, there are a few things to remember.

• English is not there native tongue so avoid abbreviations (kilos)
• List things out (like how I am doing this list). Putting things in paragraph form makes it hard for them to pull out the important information. I know you put it in bold, that was smart, but listing has helped a lot.
• Write in excessive detail, reiterating things. When I write instructions, I take pictures of everything and describe what is in the picture. I would have written “1000 kg (kilograms ) of …”
• They do not make decisions. If there is any hesitation at all, they will not do it. They do not have the drive to be a leader or even get noticed. The entire goal of the majority of the workers is to have no responsibility. They want you to spell it out. It is almost like a drug set up in the movies. You have to say the right words before they do anything.

Good luck in dealing with the Chinese. It is a painstaking process.

Tags: business, china, chuck, economics