Manufacturing in China: Trends

Must-read link here for those thinking of getting into manufacturing in China. China is losing its low cost labor advantage in the more developed coastal areas. But people, including the powers that be, know this and are not without resources. Look for factories to move inland in search of lower wages, for the government to push for growth in the technology and service sectors, and for the development of the domestic market.

If you’re thinking of selling in China, one viable strategy to consider is to develop a relationship with a manufacturing partner who also has distribution of his/her own products in China. It could be a road into the domestic market if you take the time to select and develop the right partner.

On Chinese Negotiation Style

I found an insightful article here. Essential reading for those doing business in China.

Be sure to look at the comments and other links on the page.

The Changing Face of Manufacturing in China

Very informative article from CNN here on the pace of change and recent trends in the manufacturing arena in China.

Business owners who source in China should have a sense of the cost structures of their manufacturing partners. Here’s what it’s like in various parts of China (also from the article):

Zhang offers workers around $300 a month (in Guangdong Province), plus accommodation and other benefits. He said factories are paying $180 a month in inland provinces, and workers prefer to stay close to home despite earning 40 percent less.

“The labor market (in China) is composed of people who move from inland areas to industrialized parts along the coast,” said Joan Brugués, who manages many industrial companies in southern China through GChina, an investment fund.

Books on Doing Business in China

I’ve been browsing and sometimes, purchasing, books on doing business in China for the past 15 years. The sad truth is, most of them aren’t worth the paper they’re printed on. Even the Harvard Business Review book on doing business in China is outdated and almost completely bereft of relevance.

The good news is, there are a few books out there that provide truly useful insight into the Chinese psyche, Chinese values, and how to create relationships that will later become levers you can pull to get things done in China.

I have posted links to these books in the Books section of my links area. Check them out, get copies of them if you can. You’ll be glad you read them.

The Value of Speaking Chinese in Business

When conducting business in greater China, the expectation on the part of most foreign businesspeople is that they’ll be able to use English to communicate with their suppliers and partners.

While I think this is a reasonable expectation when you are a customer (when you are the supplier, not so much), there are a number of drawbacks to not being able to speak and read Chinese if you source from greater China or do have investments in the regions.

First, not knowing the language means you’ll miss out on many of the cultural subtleties that are part of communication across cultures. For example, Chinese-speaking people will often use the phrase “Bu(4) hao(3) yi(4) si(4)” as a “politeness buffer” when making a request or apologizing, but this phrase doesn’t translate well into English-only conversations. Its direct translation is “Not good meaning,” but of course this makes no sense in English. A close English equivalent might be “Sorry to trouble you” or “My apologies,” but most Chinese-born speakers of English won’t be able to immediately make the shift from a culturally-driven impulse to respond appropriately to a situation (i.e. the need to say “Bu(4) hao(3) yi(4) si(4)”) to a culturally-appropriate equivalent response in English.

If you don’t speak Chinese, you’ll miss on on things like phrases that show a Chinese person’s willingness to be conciliatory or polite, and on other linguistic indicators of how your Chinese partner views your relationship. (Certainly, NOT saying “Bu(4) hao(3) yi(4) si(4)” when the listener has been inconvenienced and can understand Chinese is indicative of the speaker’s lack of respect for the listener, or the speaker’s lack of social grace, which is another possible cause for concern in business.)

Second, there are several concepts in Chinese that don’t have good English translations, and so you won’t ever hear them if you don’t speak Chinese. For example, when you converse with Chinese people in their language, they will sometimes express the sentiment that something has happened-two people have formed a successful partnership, for example-for reasons that can only be explained by “yuan(2) fen(4).” The meaning of this word is sometime translated into English as “destiny” or “serendipity,” but I don’t think it is possible to translate it in a way that will allow a non-Chinese speaker to truly understand the depth of its meaning. If you don’t speak Chinese, your Chinese partners won’t be able to use words like “yuan(2) fen(4)” that have deep cultural meaning.

Third, if you don’t speak Chinese, you won’t realize that many of the things your suppliers or partners say to you in English are direct translations from Chinese. You’ll just think your Chinese partner has a pretty tenuous grasp on English grammar and usage. For example, if your Chinese partner tells you: “We must get along together so that we can understand each other,” you are likely to think you’re dealing with a strange person. In fact, your Chinese partner wanted to say “We should spend time together so that we can understand each other,” but the Chinese for “Get along together” and “Spend time together” are very similar and are often incorrectly translated into English. If you don’t speak Chinese, you won’t be able to translate the strange English you hear back into Chinese in order to understand what your partner means.

Those are some of the problems with not being able to speak Chinese but doing business in greater China. Let’s have a look at a few of the many advantages of being able to speak Chinese when doing business in greater China.

First of all, if you speak Chinese well, you will have a closer bond with your counterparts than those who don’t speak Chinese. While very few Chinese people are capable of viewing a non-Chinese as someone “just like me,” being able to speak their language reduces the vast cultural gap by at least half. There are definite advantages in business if you can speak your partner’s language.

Second, if you can speak Chinese, you won’t miss out on all of the things that are not translated during a negotiation.I’ve interpreted many such meetings, and there is no way to communicate all of the subtleties of the communication coming from the Chinese side.

Third, and probably most obvious, you’ll save a great deal of time and energy if you can speak Chinese fluently. You won’t be as beholden to helpers, and you’ll have a much better understanding of the culture you’re operating in.

Finally, I find that if I display enough cultural and linguistic knowledge, it is easier for me to win trust, and easier to ask for favors and concessions. This usually takes place after all of the details of a deal have been discussed during the day and we are out having dinner and drinks. Many times, I’ve had Chinese partners, after the second or third drink, lean over and whisper in my ear something like: “Brother True, I’ll give you what you want.” That wouldn’t happen if I didn’t speak Mandarin.

Note: It should also be pointed out that, sometimes, there are advantages inherent in being very dissimilar from your Chinese partners. For example, sometimes it give you a sense of mystery that you can use in a tough negotiation to trap your counterpart. In other situations, you can use your foreignness to get what you want by hinting that you know that Chinese people are usually kind to foreigners and that hurting a foreigner in business would be very shameful behavior indeed.

So this begs the question: How do I learn Chinese, and how long does it take? And perhaps: What do I do if I don’t have the time to learn Chinese?

To answer the first question, check out my other blog, The Lingua Franca. The answers are all there.

To answer the second question: Hire a consultant. You need guidance, even if you’re just going to China on a two-week sourcing mission.

Negotiating with the Chinese

You’re sitting across the negotiating table with your Chinese supplier. Your agenda? (1) Lower your cost per unit by 8%, (2) Speed up production time per 40′ container by one week and (3) Get them to accept more favorable payment terms (e.g. 30% down, Net 90 on the balance).

His agenda? To make as much money as possible and (this is very important), to gain as much face as possible. Hence, your request for lower cost per unit, despite quantity increases, isn’t going to go over very well if you ask for it directly. Secondly, your request for increased production speed will reduce his flexibility in scheduling his jobs. Finally, your request for better payment terms means he’s got to pay more in interest on his operating capital.

Note: If you’re Nike, GM, or Wal-mart, none of this applies. If you’re a medium or small enterprise, read on.

If you say something like “We’ve increased our quantity to nearly three times what it was last year, so we’ll need you to cut your costs by 8% per unit,” you’re going to get this response: The boss will furrow his brow, scratch his chin, and say “That will be very difficult” or alternatively, “That is very inconvenient for us.” What that means, in plain English, is…..NO!

The boss will then explain the fact that his own costs have increased over time. Labor, materials, equipment, rent. Everything has gone up. He was thinking about asking you for a price increase! Also, you don’t do things very efficiently. You send POs, then make changes to them. Some of your preferred suppliers are difficult to work with. Etcetera.

Why did you get this response? Perhaps the more cogent question is, how do you get the response you want?

If you’re a typical Westerner, you won’t really like the answer.

You’re going to have to throw yourself at his mercy, and in doing so, appeal to his social obligation to save your face and to his desire to increase his face.

This is why saying to a Chinese supplier “You know, there are several other factories we could work with here?” will only stall and complicate negotiations. You’ll just irritate them by saying this.

So what do you say? You give him the opportunity to help your business as a bona fide partner by saying something like this: “I’m facing serious competitive pressure in my market. You are my partner–without you, I couldn’t get anything done. If I don’t find a way to decrease my costs by 8%, I don’t see how I can stay in business long-term. Please, Mr. Wang, can you take a closer look at your production costs and find a way to lower my cost per unit?” If you can manage to tear up and let your voice shake a bit, even better.

I know it seems counterintuitive for a Westerner to talk like this (it seems like butt-kissing to most of us), but this is what works in China. You aren’t butt-kissing. You are appealing to a very powerful sociological force: The obligation to give face to a customer who has humbled himself before you, and the desire to increase one’s own face by playing the traditional role of the hero. In this case, the damsel in distress is your company.

And if you think about it, it doesn’t really hurt you to try this. If you don’t get anywhere, you can always try the tactics you would normally try in your home country (e.g. find another supplier, strong-arm your current supplier, whatever).

One of my consulting clients was a company whose boss refused to adapt to Chinese communication styles. He comes from an aristocratic family, and could never understand or countenance the need to humble oneself and ask for help. He treated his Asian suppliers the way he treated his American suppliers: You work for me, so get in line, or else. His Chinese suppliers felt insulted and unappreciated, and after a time, did everything they could to rip him off. I had all ten fingers and all ten toes in the dam, trying to keep the relationship from breaking, but after a few years, it did indeed break. The relationship ended messily, with threats of lawsuits back and forth.

Do you want to do your manufacturing work in China? Then you’d better learn to communicate with the Chinese. You’ll be leaps and bounds ahead of your competition, who are thinking “Culture? Schmulture! A supplier who won’t do what I ask can kiss my Western butt!” Meanwhile, you’re getting the unit pricing, delivery schedule, and payment terms you want.

Now, do you want to sell your products in China? I’ll write about that in my next post.

Choosing a Chinese Name

I typically frown on the way English names are translated into Mandarin. Unlike the way foreign names are translated into Chinese, Chinese parents give their children names that have meaning. For example, a popular man’s name among the Chinese is “Jun Xiung,” which roughly translates to “handsome and brave.”

The preferred method of translation for Western names is to choose Chinese characters that rhyme with the English name in a process known as phonetic translation. Under this method, my last name, Black, would sound like this “Bu Lai Ke.”Roughly translated, my transliterated surname means “cloth come guest.” In order words, laughable gibberish.

When you choose a Chinese name, you have three choices:

1. Phonetic translation of your full name into Chinese: This is the method used for the names of public figures. It will immediately peg you as a foreigner, which can be a good thing, but in the end, you’ll have a very non-Chinese name. If you’re going to work in China for a while, I don’t recommend this.

2. A Chinese surname and a phonetic translation of your first name into Chinese: Under this scheme, if your name is Mark Davis, your Chinese name might be “Dai Ma Ke.” “Dai” is a Chinese surname that matches the sound of “Davis,” and “Ma Ke” is a phonetic translation of “Mark.” This is not a bad way to go, even if you’re going to be in greater China for a while.

3. An authentic Chinese name: I recommend this for someone who is planning to learn Mandarin and get involved in local society enough to justify having a name that makes him/her sound like a Chinese person. This is what I have–my Chinese name is Chen Chu Yi. Not much like my real name!

At our Dancing with the Dragon training seminars, we translate all attendees’ names into Chinese as part of the service. I will typically use the third method described above, unless an attendee specifically requests something else.

Cultural Differences, Part One: Relationships East and West

Over the next few months, I’ll post a series of articles on the many cultural differences between Chinese speaking and English speaking people.

Eastern and Western cultural differences is a topic I deal with frequently in my training work. For example, I recently delivered a seminar entitled “Cultural Differences in Communication” to a group of Citibank managers, and delivered a somewhat similar talk at the European Chamber of Commerce last summer.

Today’s post deals with some of the differences in how relationships are formed and managed in greater China and the West. We’ll start with a question:

What is the primary basis of a deep friendship?

(a) Shared values and interests, i.e. “You and I think alike on several subjects, and we’re interested in the same things.”

(b) Mutual trust and loyalty, i.e. “I know you’ve got my back.”

(c) Shared identity, i.e. “We both work for X company” or “We’re in the same classes.”

(d) The potential for mutual benefit, i.e. “We can help each other out”or “We can take care of each other.”

If you answered (a), you probably grew up in a Western country such as the United States. You choose your friends based primarily on a shared set of values, on your ability to communicate with and relate to someone, and on shared interests in things like sports, movies, and music. Trust and loyalty (choice b) are important later in the relationship, if it progresses far enough to be considered a deep friendship.

People who answered (c) or (d) probably grew up in an East Asian country such as Taiwan.

Personal relationships in many East Asian countries are often formed for very pragmatic reasons. It is very common for people to work together to achieve a goal and help each other out as friends based primarily on the benefits they can provide to each other. Certainly, trust and loyalty are important dynamics in these relationships, just as they are in the West.

This does NOT mean that people in this part of the world won’t enter into friendships with another person because they like that person. It also does NOT mean that everyone is looking for an angle. It simply means that relationships here are often based on a sense mutual benefit or shared identity, far more than they are in the West. Some people have hundreds or even thousands of “friends” in their phone lists. These friends are often mentally categorized by what they are able to do for person who considers them friends, and by what the person who considers them friends is obligated to do for them.

In greater China, local people are often shocked to learn that foreigners who live here aren’t immediately friendly with other foreigners. “Aren’t you all foreigners?” they ask. It is unfathomable that such a shared identity doesn’t generate feelings of friendship.

A few more features of relationships in the East:

-Duty often trumps love. A Chinese person will be polite to an irascible uncle not because he likes him, but because it is his filial duty to put up with whatever the old curmudgeon dishes out. A person will help out a younger classmate or a junior member of her company because she has a responsibility to do so based on her higher status in the group.

-Friends may be called upon to help in ways that are quite inconvenient to them, and they are expected to offer assistance when it is asked for. Saying no is not really an option if you are a true friend. However, if your friend adheres to his own cultural mores, you will be richly rewarded for the effort you have made to help your friend. An organic accounting of favors granted is kept, and it is necessary to repay the giver of the favors with a reward that may surpass the value of the favor granted.

These two dynamics (duty and reciprocity) do come into play in Western countries, but not the extent that they do in the East. For example, in the United States, people are likely NOT to speak to a hypercritical, grumpy old uncle, and while people will try to grant their friends’ requests, they do not feel obligated to go far out of their way to deliver a favor.

Doing Business with the Chinese: Communication Breakdown

Many people ask me what it’s like to do business in greater China. One of my favorite songs from the classic rock era, “Communication Breakdown” by Led Zeppelin, often comes to mind.

I speak, read, and write fluent Mandarin Chinese. I conduct the daily business of life, as I have for the past twenty-two years, largely surrounded by Chinese people.

And still, I often have to probe, prod, and read between thousands of lines in order to figure out what is going on. You see, in greater China, speaking directly is NOT the virtue as it is back home.

Consider a discussion I had with a contract manufacturer (OEM factory) in Taiwan a year or so ago. I was there on behalf of a client, a food manufacturer. When I called the factory, on the recommendation of a distributor, they assured me up and down that they take all sorts of OEM work from companies both domestic and overseas.

Here’s a condensed version of the conversation I had with the boss (he had an assistant at his side the whole time), translated from Mandarin into English:

Boss: (Examining my client’s product). “We can make this.”

Me: “Good. So you already have the necessary equipment in your factory?”

Boss: “We’ll need to study this a while before we can start producing it.”

Me: “Of course. So, you have the equipment and can do it then?”

Boss: (Munching on one of the samples I brought) “This doesn’t taste very good. Too hard. Try one of ours.” (Hands me a few samples of his product.)

Me: (Politely trying a few of his samples). “Yes, it tastes very good. Of course, my client will want you to recreate his product from a formula. He’ll want you to develop a product that is very similar in look, texture, and taste to the product his produces at his home factory.”

Boss: “Your product doesn’t taste very good. Consumers in Taiwan and China won’t like it.”

Me: “Thank you for your kind advice. So, are you interested in producing this product? Will you work up a quotation for me on X kg?”

Boss:“It would take a long time to get this right before we could start producing it.”

Me: “I know. I have experience with making other food products. We’ll go for as close a match as we can get. If it takes a few weeks or even a few months, that’s okay. So, are you interested in producing this product?”

Boss: “Can you just put our products into your packaging? That would be easier.”

Me: “I’m afraid not. The client wants to sell his product, not someone else’s product. Mr. X, forgive me, I’m an American and we tend to speak directly. Will you tell me if you are interested in working with my client?”

Boss: “I don’t know. Making your product wouldn’t be very convenient.”

Me: “Thank you for your time.”

This really happened. It has happened many times in my years in greater China.

Do you see the vast differences in the way a Westerner might communicate and the way a Chinese person communicates? In China, a boss often won’t say “no” to a potential customer, even if his life depends on it. He trains his people to tell all prospects that his factory can make anything and everything, on the off chance that either he can make it, or his friend/brother/old high school classmate can make it and he gets his cut of the deal. He won’t answer questions directly unless pressed, and even then, he won’t like it. He also very often won’t understand that you want him to do some work for you in the way you want it done, not the way he wants it done. He’ll tell you “yes” at the beginning of the conversation and then, two hours later, you’ll learn that it’s actually a “no.”

And here’s the kicker–behaving and communicating this way is not only acceptable, but proper, a virtue even. Chalk it up to cultural differences, my friends.

I’ve gotten pretty good at figuring out the truth in this kinds of conversations, but I haven’t ever figured out a way to get a factory owner to speak plainly and directly. It just isn’t done here. So I continue to probe and read between the lines, and accept that this is the way it is done with 98% of the people I do business with in greater China.

Can you imagine dealing with a situation like this without knowing anything about Chinese culture?

The Bottom Line: You won’t get very far, operating in greater China, unless you are personally prepared to deal with communication challenges like these, or you are able to hire someone who knows local culture to deal with them for you. China and the West are a universe apart, culturally. That isn’t a gap that is easily bridged. (But it is an endless source of fascination for a few of us!)