Imports Oriental Blog

International apparel manufacturing and sourcing. If we don't make it, we can find it.

Category : Business Ethics

Business Risks in China

Tanya Crossman

Tanya Crossman

I recently stumbled onto Thunder Post - there are some good posts on international business and I’ll take some more time to have a look around later. Right now I want to bring to your attention a post from November – an interview with Neal Beatty,  Regional Director (Global Client Services) with the company Control Risks.

Overall some good and solid advice; worth reading through the whole piece if you want a more detailed advice on business risks in China (read it here).

I enjoyed the way Neal pointed to a common sense, middle-road philosophy to risk in China. To treat China as the same as everywhere else is no worse than to think China is totally different to everywhere else. Some things hold true in every market; some differences have a huge effect on business.

Everyone’s read the books on “doing business in China” and that’s a great start for people new to the country. But that’s just scratching the surface, and often seems to lead managers to over-emphasize or over-simplify a few features of operating environment… There’s also a tendency even these days to get carried away with the “China is different” concept, and lose sight of commercial and risk-management principles and processes the company applies elsewhere. China is different in many ways and understanding the differences is vital, but that doesn’t mean there’s some mysterious formula here that only a few people understand – like everywhere else, you need a well-informed, comprehensive and rigorously planned out approach to managing risk, not silver bullets.
Neal was asked about risks common to business in China. Lots has been said about the risks associated with corruption and IP, but I was pleased to see Neal highlight risks in the supply chain and HR. Knowing where all the pieces are coming from is important – it can be difficult to control the supply chain in a place where subcontracting is extremely common. As for HR, it is important to be very clear on what labor laws require – there can be local requirements separate to national regulations. Hiring foreign staff also requires a lot of precision, including which companies can legally hire a resident alien and sponsor their work permit and visa.
One of the most serious potential risks to any business in China is the tacit acceptance of the “This is China” approach to business ethics and compliance issues… By condoning “low level” corruption within the organization, there is a serious risk of it getting out of control and in the worst case putting the entire operation in jeopardy. A zero tolerance approach is certainly not easy, and requires time, effort and budget, but I would say it is the best way to operate in China, just as in other parts of the world. And it is essential that senior management lay down the law and set out the company culture towards such issues from the very start.
Neal has touched on something very important here – the importance of senior management in making this part of company culture. The topic of corruption is raised in most Imports Oriental job interviews. We talk to shortlisted candidates about the value we place on honesty and integrity, including when it comes to bribes and other ways to curry favor. Employees sent to visit suppliers on site or at a trade show are given a clear policy on what they can/cannot accept from the supplier, services they are not permitted to provide, etc. These conversations can be uncomfortable, but are part of clarifying where the line in the sand is. For example, is it okay for the supplier to buy lunch for our staff in a nice restaurant? What should our staff not do with a potential supplier, even when done in order to build up a relationship? Laying down the answers to these questions, and the reason behind the choices, BEFORE someone is in the situation makes it clear what our company’s policies and expectations are.
I don’t believe Chinese people are any different in terms of morals or bad behavior than someone from Northern Ireland. But in China, there are cultural norms that sometimes conflict with the corporate expectations. For example, the concept of a conflict of interest is not understood in the same way as in the EU /US. To many Chinese people it seems perfectly reasonable to consider engaging a supplier owned by a family member or old school classmate. After all, I trust these people far more than some random supplier that approaches me at a trade fair.
A good example of the difference between a moral issue and a cultural issue. What may seem a clear-cut case of business ethics in the US or Europe may not be seen the same way in China.
Where these three areas (political v cultural v commercial) often overlap is when doing business away from the big Tier One cities. Generally speaking, the influence of local politics on local business is more unrestrained away from the biggest cities. This can pose its own set of unique risks that can only be mitigated by a very thorough due diligence process prior to forming a business relationship in that location.
Another reason to do your research ahead of time – even if you’ve been in China for a while, a new location may have different hoops to jump through.
I don’t think any company can run “risk free”, no matter what sector or what size of operation. From the largest MNC with multiple manufacturing and distribution facilities around China, to the “one-man-band” sourcing operation, everyone will face risks. Moreover, you can never reduce risk to zero. No matter how good your risk management program, there will always be someone who does something without considering the possible outcomes and impacts thoroughly, or simply faces a problem that couldn’t be anticipated or couldn’t be prevented. And thus you need to be able to react appropriately and have contingencies in place.  But a good awareness of the risks from the very beginning, along with regular (twice a year) reviews of your level of risk exposure, will go a long way to mitigating many of your operational risks.

I like that – it’s about mitigating operational risk through knowledge. Know the potential for problems, and know your current risk exposure.

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Posted in : Business Ethics, Business in China, International Business

Intuition and the “gut feeling” that gets you out of trouble

Tanya Crossman

Tanya Crossman

Fashion Incubator is a great blog focussed on pattern making. We don’t often link to it as while it is fascinating to me it doesn’t generally overlap the topics we cover on Imports Oriental. Kathleen posted a really interested article the other week, however, which I wanted to bring to your attention.

She talks about intuition, and the importance of paying attention to it, especially in business. She tells a story about a time where investigating a gut feeling regarding a certain project enabled her to escape the worst of what could have been a very big mess.

In terms we typically define it, intuition is a gut level impression we get about a person or situation and for which we are at a loss to understand why… understanding the mechanisms of intuition allows me to move from indecision to informed understanding.

Kathleen talks about intuition as the “back brain” – the forebrain thinks logically, according to information obviously available, while the back brain deals with more subtle “cues”. Those cues may not be articulated as evidence of a problem, but are more like red flags – markers that “this” often means “that” is happening underneath. So the gut feeling isn’t saying “here is what’s wrong”; rather, it is part of you noticing a pattern that in other situations has been connected to a problem under the surface.

You go out to dinner with somebody you’re thinking of doing business with. They are pleasant enough, the details seem equitable but your intuition tells you something is amiss. Problem is, there’s nothing your fore brain can interpret as being a rational cause of discomfort but still, your dis-ease persists. I know what many people (most of them women) do, because you can’t articulate exactly what’s bugging you, you elect to give them the benefit of the doubt because that’s the only fair thing to do. Right? Well, maybe you shouldn’t. First you should try to pull cues from the situation which can help the back brain to communicate.

The next time you have a bad feeling, you need to map it. Clear your mind and write down any and every single misgiving you have no matter how stupid, trivial, childish or germane to the situation. Things like, do they salt their food before they even taste it? You don’t want to be involved in manufacturing or engineering with someone who does that, no way no how (long story). Many things may seem like emotional reactions that have nothing to do with business or being fair or open minded -you know, giving the benefit of the doubt in the absence of proofs. These are cues your inarticulate deep brain has put together in a pattern but does not have the means to tell your front brain. As you do this, more things will occur to you that you hadn’t recognized before. You won’t get too far into it before you realize that a pattern has emerged and your course of action is clearer.

I was particularly struck by the comment about people who salt their food before eating. I often do that myself. Once I stopped to think what that might say about a person, I was stunned. Salting food before eating it means I’ve made an assumption that the food before me will not be to my liking before I’ve even tasted it! I also have a tendency to make assumptions about people and situations before investigating them properly. It’s clearly a flaw, and while I am capable of changing my quickly-made-up mind, I waste time and offend people in the process.

Back to the topic, though; I think this is great advice. Investigating a “bad feeling” may seem like  a bad idea. You’re under a deadline, and you have no logical reason to delay. However, if that investigation leads you to an early warning, it may save you big time in the future. Think of such thinking time as an investment in the future of the deal you’re working on.

The point is, if you have a gut reaction without rational reasons, your deep brain is trying to tell you it has put the cues together. Give it a chance to speak so you can move forward decisively without feeling guilty that you haven’t given someone the benefit of the doubt.

Read the full article on Fashion Incubator here.

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Posted in : Business Ethics, Entrepreneurs, Leadership

Cultural sensitivity for international business

Tanya Crossman

Tanya Crossman

There was a fantastic 3-part post on the China Law blog the other week. A new contributor, Jason Patent, gave advice based on the idea that knowing the Chinese culture is a huge help to anyone doing business here. All three posts were very well written and worthy of a careful read.

I’m going to go through the general idea of each post, with some of my own thoughts and a few quotes. If you find it interesting, do go and read Jason’s original posts.

In Part I, Jason shared a story in which an experienced businessman who had done his research blew a great opportunity in China through a lack of cultural preparation.

This is an important topic for anyone planning to do business in China, whether directly or through an intermediary. Things are DIFFERENT. Whoever is on the ground needs to be culturally aware, and whoever is managing them needs to leave space for the differences culture brings.

If you are using an intermediary for your China dealings, try to listen to their explanations of situations that come up – don’t expect it to fit in the box of business in your own culture. If you can accept that the Chinese way is not “wrong,” but simply different, it will help you be more relaxed and, in the long run, effective.

I particularly enjoyed this quote from the summing up at the end of the post:

Business is not just business, despite our American insistence to the contrary. The only way to succeed in China is with the curiosity to examine our own beliefs and practices, and the humility to see other ways of doing things as equally valid. And the good sense to spend a bit of time and money now to save, and make, much more down the line.

Part II focused on ethics, and in particular, the perception that Chinese are less ethical in business than westerners.

A favorite critique by Westerners of China is that “the Chinese are unethical.” It is claimed that Chinese deceive, don’t stick to contracts, deliberately cheat. While few would deny that China can be a frustrating place for Westerners to do business, and while unethical behavior certainly occurs in China, claims of unethical behavior are often exaggerated, and result from Westerners’ own failure to understand the different background assumptions held by the Chinese.

Jason includes a chart which compares some of the values emphasized in China/the West, and the implications of these mismatches to business. For example, we may see a person’s behavior and, misunderstanding the intention of this behavior, assume they are trying to cheat us in some way.

The rub is that we have no access to anyone else’s intentions. All we have to go on is behavior. We observe a behavior, and attribute an intention, whether it’s accurate or not. The result: we make a lot of mistakes, often assuming evil intent where intent was either good or, at worst, indifferent. Whether we like it or not, we are wired to judge those around us based only on their behaviors, while at the same time judging ourselves based mostly on our intentions. That’s a cold, hard reality — but a good one to know about.

I really enjoyed reading this discussion. As Jason himself says, it’s not new information, but it is very important to business (and life) in a cross-cultural environment. I know that, personally speaking, understanding that behavior which frustrates me may have a different intention than I would naturally ascribe to it helps me be more at peace.

Giving others the benefit of the doubt (assuming their intentions are good) and then trying to clarify the situation with careful, calm questions helps greatly. This is not just in dealing with suppliers or customers (external parties) but even within your own company. There have been several occasions in Imports Oriental where misunderstood intentions have created unnecessary tension – tension which dissolved almost immediately once there was clarification.

Part III focused on stereotypes that we carry, and how they affect our perspective. Jason lists 9 stereotypes many Westerners carry into business dealings in China.

1. The Chinese are out to cheat me.
2. The Chinese think they’re superior.
3. The Chinese lie.
4. The Chinese go back on their word.
5. The Chinese are always stalling for time.
6. The Chinese are stingy.
7. The Chinese don’t care about quality.
8. The Chinese don’t care about their environment.
9. The Chinese hate Westerners.

Jason goes through each of the 9 and gives perspective on each – how these stereotypes can come about and explaining a bit of what can be behind them. There are unethical people in every culture, but labeling all Chinese as dishonest or liars is not the solution. I’ll end with a quote from Jason’s summary:

Categories can be useful. Reasoned, informed judgment can be useful. Stereotypes have zero business value. Get savvy about your own stereotypes and re-frame them. Not only will you feel better and get along better, but your business will do better.

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Posted in : Business Ethics, Business in China, Entrepreneurs, International Business, Leadership

When is a problem not really a problem?

Danny Coyle

Danny Coyle

I’ve been travelling lately, and I haven’t been writing so much on the blog.  Sorry about that.

During my travels, I’ve been thinking a lot about culture.  I was in Tuscany for 6 days, and had an amazing experience.  I watched an interesting conversation unfold that I thought had some serious business implications.

A friend of mine had just finished eating his steak, and ordered a cafe latte (coffee with milk).  The proprieter of the restaurant personally came to scold him for ordering milk after eating a steak.  He politely changed his mind and ordered a regular coffee, much to the approval of the owner of the restaurant.  The owner explained that if you have milk after eating steak, the milk will curdle in your stomach and make you very sick.

I looked at my wife and commented how in China, if our kids don’t keep their stomachs covered at night, we are told they will have diarrhea.  In America, if you go out in the rain without an umbrella, you are sure to catch a cold.

It’s interesting how everyone seems to have specific things that cause sickness.  Do any of them really make you sick?  I doubt it.

As I was thinking about this, I wondered how many ‘problems’ really aren’t problems.  How many of the ‘problems’ that I face are just cultural misunderstandings that I’ve been tricked into worrying about, when in reality, it’s not a problem at all.

I find myself often worrying about ‘problems’ that really aren’t problems at all.  Sometimes the problem is new, and I haven’t seen the like before.  Sometimes when a problem is explained  to me by someone else it seems huge, but after a bit of research I realize it’s not as big as either of us thought.

As new problems surface these days, I’ve been trying to weigh some of my cultural understandings against the problem to determine whether what I’m facing is really a problem.  Some of the questions I ask myself are:
  • If I was from another country would this still be a problem? (If I was Chinese, European, or Australian)  Different countries have very different value systems, and people of different nationalities will often approach the same situation very differently.  I admire the things that I’ve learned from my friends of different nationalities.
  • Is this problem a moral issue, or a cultural issue? If a moral person from another country would see the situation differently, the issue is probably not a moral one.  It’s probably a situation that has a creative solution, rather than an absolute one.
  • How does this situation make me feel? I often try to ‘think’ about a situation. While there’s nothing wrong with thinking something through, it can lead to ignoring my emotions.  Sometimes, asking myself how I feel can dig down to the root of the issue. That way I avoid just dealing with the symptoms.

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Posted in : Business Ethics, Leadership

Guanxi – is it essential to business dealings in China?

Tanya Crossman

Tanya Crossman

Andrew Hupert posted an interesting look at foreigners and guanxi recently. The concepts of face and guanxi are closely related, and for any foreigner planning to do business in China it is certainly worth taking time to try to understand the two.

Andrew starts his series on guanxi with a definition. It is a wonderfully clear explanation of a very complex concept:

‘Guanxi’ literally translates as ‘connection’ though it is often used to mean ‘relationship’ and ‘network’. When Mainlanders use the phrase among themselves, they are referring to a fluid network of cordial business obligations and debts – sort of an institutionalized version of ‘you scratch my back, I’ll scratch yours’. A person with a wide range of well-placed relationships, all of whom acknowledge their indebtedness and willingness to reciprocate, is clearly in a very advantageous position. Conversely, a person who lacks connections and is not in a position to do favors for new counter-parties is in a relatively weak situation. The worst position of all is one who owes valuable favors to a wide range of highly placed connections.

Guanxi is not just having relationships and connections – it is about those “obligations and debts”. Knowing people is of no value, guanxi wise, unless those people have a reason to (and are likely to) help you out.

When Chinese associates talk to Westerners about guanxi, it takes on a slightly different meaning. Here the emphasis is on the ability to influence members of his network. . .For a long time, guanxi was synonymous with “local knowledge” – but carried a strong implication of corruption and under-the-table inducements.

This calls to mind the image of a shady guy making things happen that shouldn’t, because of his mysterious guanxi power. Guanxi has been built up in the minds of some foreigners to something almost mystic and unattainable to the uninitiated. This isn’t accurate. Guanxi is simply a network of give-and-take – doing something to help another person, without any obvious short term gain for yourself, understanding that they are now in your debt, and will return the favor sometime in the future.

When the China economy was first opening to the world (up until the mid 2000’s), commercial laws were still haphazard, contradictory and opaque. In such a chaotic environment, a local ‘fixer’ was often required to prod bureaucrats and state managers to make a decision. . . China’s central government, however, was busily constructing what it hoped would be a strong legal system and a (relatively) transparent regulatory framework. . .

That is why Westerners in China often find themselves caught between two opposing views on the guanxi issue. On the one hand, locals still maintain it is the only way to get things done in Mainland China – and that without it foreigners will never overcome their status as rich but clueless outsiders. However, a growing community of experienced, knowledgeable international experts maintains that guanxi is an ineffective, expensive and ultimately counter-productive throwback to the ‘bad old days’ of a lawless, chaotic China where personal influence trumped laws and regulations.

I think Andrew has it right here – China has changed. While calling in favors may have been essential for getting through the endless bureaucracy in earlier years, bureaucratic processes are becoming more formalized and it is harder to skip steps with simply the say so of a well-placed friend.

Guanxi is extremely useful and powerful – as an information network. A broad, active web of plugged-in connections can alert you to people who are willing and able to help – but who have no idea how to find you and no other way of being found by you. . .As a skeleton key that will magically unlock doors, it is problematic.

Guanxi is not the solution to business problems. Knowing a person in the visa department doesn’t negate you from the responsibility to submit your visa application correctly in a timely manner. You must follow the law and complete the required steps, no matter who you know. That said, knowing a well-placed person may help you to find information you need, or get helpful advice on a situation.

In the manufacturing industry, doing your supplier a favor now will generally result in them doing you a favor later. It’s not about skipping steps but rather helping each other to better solutions.

Guanxi networks are great as information and networking resources. However, if you plan on using connections to open doors – or knock down walls – then you are going to encounter some major difficulties down the line. When you use guanxi as a shortcut in China commerce, the destination is usually business failure.

All in all, a useful article. Looking forward to the rest of the series…

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Posted in : Business Ethics, Business Relationships, Business in China

Does Negotiating Low Prices lead to Lower Product Quality?

Danny Coyle

Danny Coyle

Renaud at Quality Inspection Blog ran a post last month discussing how price negotiations can sometimes have a negative impact on production quality. The basic idea is this: if you negotiate a very low price, a supplier may get the margin he needs by skimping on the quality of the end product.

“A Chinese factory has intense pressure to grow up fast. Every day they hear stories of other manufacturers that achieved impressive growth with aggressive tactics. The temptation to do the same is very strong…  importers should not count on a supplier’s ethical standards.” (read the article here)

Recently we ran into a similar situation when we negotiated the price for a new product with a supplier we’ve been using for 5 years.  He’s developed a lot of his processes and quality control measures because we have sent our own people to his factory to help him do it.

The new product is expected to sell hundreds of thousands of pieces.  So we asked him to give us his best price and continued to put pressure on him to give us a rock-bottom price.

He began to manufacture the product (after sampling) and gave us the first samples off the line.  We received them and they were sub-standard.  Basically, they were falling apart at the seams (literally).

I called him and asked what was going on.  He complained that we had driven the cost so low that this is what we get for that price.  I told him that after 5 years of training him on our quality standard he decided to abandon it.  He knows we don’t accept product like that.  He gave me the ultimatum (take it or cancel it) and I hung up on him.  A few hours later, our staff found a way to solve the problem, communicated it to him, and he’s back on board.

So it’s not always a price issue, sometimes it’s just a China issue!

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Posted in : Business Ethics, Business Relationships, Business in China, Entrepreneurs, Export, International Business, Manufacturing, Textile Industry

The Compromise Tests: when Gray becomes Black – part 2


Danny Coyle

Danny Coyle

Doing business in China invariably means running into some tough ethical dilemmas. There is often no clear line between black and white, and wading through shades of gray is difficult.

In the first part of this article we looked at two tests I use to help me make these difficult decisions. In this part we consider two more.

Test #3: The Children Test

If your kids were in the exact same situation you are in, what would you counsel them to do?  Since most parents want their kids to grow up as outstanding members of society, we usually teach our kids to do the right thing.

Another side to this test is whether my kids would approve of my decision. If my kids knew everything about the decision I am making, would they be proud to have me as their dad?  My kids are so much more important than making money; I will not compromise my image in their minds.  As in the newspaper test, they may not understand the situation fully – my decisions may appear hurtful to them at times – but this test reminds me to be a person my kids will be proud of in the long run.

Test #4: The Company Name Test

In this test, I picture the name of our company in polished silver, hanging on a wall for the world to see.  I then ask myself: will this decision tarnish or polish our company name?

Ethical and moral decisions have a polarizing effect – they are on the black side or the white; they tarnish or polish. A hundred small smudges will tarnish our company name just as surely as a single large-scale error in judgment will. The situation I find myself in today may be forgotten next year, but every decision has lasting effects. Each decision I make impacts the reputation and standing of our company.

The bottom line of all these tests is to take a long-term view of the situation. There is more at stake than what you see on the table in front of you. Each decision you make has follow on effects. My decisions affect who I am becoming. My decisions affect the direction and the character of our company.

The question is: what do you want to be known for?

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Posted in : Business Ethics, Business in China

The Compromise Tests: when Gray becomes Black

Danny Coyle

Danny Coyle

Doing business in China means things are rarely black or white; there is a lot of gray.  There are issues to do with business registrations, taxation (where and how much), customers wanting to rip off other customers, cheating suppliers, kickbacks – and the list goes on. These situations often have many layers to them, further complicating already-difficult decisions.

You can’t do business in China without stumbling across this question: where does gray become black?  When does something that is not technically wrong cross the line into something that is definitely not right?

I have a few tools that I use in these situations, to help me navigate the path of integrity.

There are four tests I apply to difficult ethical dilemmas I face. I have included two below, and in the next part of this article, we’ll look at two more.

Test #1:  The Friend Test

Seek counsel from wise friends who will encourage you to do the right thing.  A friend often sees your situation with much more clarity than you can yourself.  In the thick of a tough decision the reality of the situation can be hard to see.  For me, this often feels like guns lining the ridge of a canyon I can’t find my way out of.  A friend standing outside the canyon observes the whole situation from a different vantage point.  This person will give great advice that you would never have thought of.

Test #2: The Newspaper Test

Imagine that the full story (with all the minor influencing details) were written in the newspaper for the whole world to read.  Everyone who read the newspaper would understand all the gory details.  Would you be embarrassed about the decision that you’re making?  If the answer is yes, don’t do it.

Often we deal with angry responses to the decisions we make. Integrity is not, however, based on the opinions of others. This test helps you distinguish between the right decision and a decision that simply looks right to those on the outside. Make the decision you would not be embarrassed about were all the details to come out.

What do you think? What are some tests you use when facing the gray zone?

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Posted in : Business Ethics, Business in China

Product Testing: Navigating the complicated process to success

Tanya Crossman

Tanya Crossman

Last week David Dayton at Silk Road International wrote a post on testing procedures in China. It’s clear that his experiences have been frustrating, to say the least. Testing our products for lead content was a fairly simple matter (relatively speaking!) but in other industries the quality testing can be very difficult to complete.

He gives some good advice on how to improve your chances of getting testing completed correctly.

First, if at first you don’t succeed, try, try again! David’s experiences indicate that testing varies from factory to factory, so if your product fails the testing, it could be worth re-sending to another certified factory.

Three clients switched testing companies after products failed their first round of tests.  ALL three had the exact same products pass the tests after they switched to a different testing company! We pulled and sent all the SAME samples for ALL three clients and mailed them ourselves to the two different testing companies so I can personally testify that NOTHING changed in the samples between tests.  But the results were different—radically different.

If a mistake was made in the testing procedure, many places will re-test for free – but that would mean knowing that a mistake was made, and then getting the factory to admit it. Not easy!

If there are problems with the testing methodology you can get the tests redone for free (at least that’s the policy of the two companies that we’ve been working with).  The problem is, unless you get them to admit themselves that there is a mistake/problem, you’ll never know that maybe you could have either passed the tests or you could have your stuff retested again for free.  This is significant when testing for a single item can cost thousands of dollars.

Another big issue is that many Chinese suppliers do not understand the importance of product testing. With such a range of short cut options available, why pay so much money to test every product every time?

The fact that we are actually testing our own products when suppliers could either buy fake certificates of completed tests (ANY test you want: LHAMA, RohS, CPSIA, ASTM, etc., 1,500RMB) or just change the dates on older tests (“It’s all the same materials.”) was completely not understood.  In fact, the idea that we would be testing and were tying payments to test results made more than one factory very nervous.  We had one back out completely and two others expressed concerns along the lines of, “But we’re not sure if we can control all the materials.  What do we do if they don’t pass the tests?”  Which is precisely the point—you need to “control all the materials.”

David includes a snapshot of their process for getting testing done for products, and holding suppliers to those standards.

For us the processes usually goes something like this.  Contract out with the supplier for the testing sample process—these means that we pay for what is often free, but we get agreements (in Chinese) that we can enforce later when we have to make sure that production matches 100%.  Pull our own samples, send to independent third party testing company, sign new contracts and initiate PO’s with suppliers and then pull, test and repeat.

Of course, a good process doesn’t ensure a smooth run. While they may not understand the need for testing, suppliers understand the investment of time and money in the testing process. This investment, they realise, ties the buyer to them – to their product specifically.

Where it gets really frustrating for us is [when] suppliers realize…they now have the upper hand.  Since they are now “legit” they figure that can raise the price as much as they want (and request copies of our testing results) to release any goods. . .This type of problem is difficult, but usually resolvable; even though getting past these changes and into actual production can sometimes cost a lot (time, money, face, emotion).

What’s not resolvable is when a factory decides that they need to save money (aka: make more profit of this one order) and change either some of the raw materials or change part of the already approved production processes. If either of these things happens when doing both pre-production and in-line testing the supplier is going to get caught almost every time–but it still happens, often  Of course, now the entire production run will be rejected.  And if you didn’t have a fight on your hands before, you most likely will now.

As you can see, the testing process is long and difficult, on many levels. The bottom line is, though, that for many industries this testing is essential. No matter how difficult it is to monitor the process and ensure that what you receive from the supplier really does match the required quality standards, YOU as the importer, will be the one held accountable should there be a problem down the line.

After having gone through this process over the last 18 months with 4 different clients in completely different industries, I would be completely shocked if all the product in the US that is “CPSIA Certified” really is, in fact, certified.  There are just too many tantalizing options for individuals in the process to cut corners and take a huge one-off profit; there are too many people that just don’t understand how important testing standards are; and there are just too many people involved that will NOT be held accountable if, in 5 years, some component is found to not comply with the standards.

What about you? What are your experiences with product testing in China?

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Posted in : Business Ethics, Business in China, Export, International Business, Manufacturing

1 Country, 2 Systems: Compensation for Errors in the Chinese Manufacturing Industry

Danny Coyle

Danny Coyle

Chinese manufacturers know that foreigners do business differently. Some suppliers will try to use the Chinese method, but switch to the foreign method when that gives them a better deal.  Don’t get suckered into a 1 country, 2 systems business relationship.

The Chinese Way vs. the Western Way

As foreigners, we are so quick to think the western way is better, without really understanding the Chinese way.  Understanding the Chinese way helps you manage expectations and smoothes dealings with suppliers.

Delays are part of the game of manufacturing in whatever industry you are in.  Problems happen.  How we (foreigners) deal with those problems is what makes us different.  Not better, just different.

When a mistake is made, westerners generally expect immediate payback. When a problem happens in a Chinese factory, the payback rarely happens immediately. Compensation is not directly related to the problem itself.  The payback usually happens in the long term. While you may expect a discount on the order your factory made a mistake on, that does not always fit the Chinese model and may not happen.

I learned this more than ever last week.  We’ve had a few minor hiccups with one of our factories.  These problems were more annoying inconveniences than setbacks and deal breakers. If I was dealing with a foreign company, I’d probably ask for a discount on the invoice value.  I understood, however, that asking for monetary discounts or compensation on this order was not going to get the point across.  I realized that my payback was going to come on the next order.

Asking for an immediate response in the form of a discount would probably just insult the factory manager, and do more long term harm than good. So I’ll be content for the time being knowing that my return is coming on future orders.

BUT.

A Chinese factory may want to cheat the savvy foreigner over by combining the western and Chinese methods.   What we are talking about here is relationship (guanxi), so on my next order, I should experience an increase in ‘guanxi’.  That means he pushes my order to the front of the queue, or puts a few more laborers on our products and gives my order a little bit more time and attention.

If you are still getting a lack of attention, a high price, or further delays from the factory on the second order, then something’s wrong with the relationship. He took all the benefits of the Chinese way on the first order, and all the benefits of the western way on the second order.

The Conclusion

When the minor annoyances happened, I explained to my staff that we will pick only one way to deal with this problem. We will either do the Chinese way, or the Western way, but not both.  If he wants to give us a discount, great!  And if he wants to give us better service on the second order, fantastic.  But we must have one of those options (and preferably both) on future orders.

For China-savvy manufacturers: don’t let the “1 country, 2 systems” strategy infect your manufacturing processes!

Have you ever encountered a supplier trying to get the best of both worlds, at your expense?
What strategies do you employ when a mistake is made on your order?

Disclaimer:
I read an article that had a few sentences discussing the Chinese way of ‘payback on later orders’ idea on another blog; I think it was on Chinese Negotiation.  After my experience last week with our factory, I decided to write this article but can’t find the exact post I’d like to refer to.

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Posted in : Business Ethics, Business Relationships, Business in China, Manufacturing, Textile Industry

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