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China reality check. Please.

by Dan Harris

Got an email today in response to our post, When NOT To Fire Your “China Guy.”  The email was from my friend and China hand, Kurt Braybrook, owner of Fatwater Consultancy. Kurt’s email essentially said, “you got that right” and it also referred to a piece he wrote on China six years ago. Kurt says that piece is as accurate today as it was then and he sees it as a good follow up to our “China Guy” post. I generally agree, so here we go with Kurt’s slice of China reality:

For many Westerners, China appears to be rife, rampant and thriving with IPR violations, poisoned environments and poor quality control. Reports of lead-laden toys to toxic toothpaste are beamed into the daily feed via the digital osmosis of CNN. Coupled with the fact China is quick to blame everyone but themselves when it comes to crisis management, it is little wonder the chasm between perception and reality spans a newly globalized world.

Yes, for China these factors are a struggle.

China’s recent history was not a fertile breeding ground for middle management expertise. In years past , China’s industries were state-run and whether they prospered or failed made little difference: a quick fudging of the numbers and all was rosy. Quality control and management were foreign words for companies propped up by the state.

Fast forward 35 years. The pitfalls of doing business in China are deep, the potholes — numerous. Unscrupulous business consultants often tell newcomers what they want to hear instead of the reality of what needs to be heard. These individuals always know the right contact person (known as the houseboy syndrome) ensuring they can “meet every need.” Choose new-hires carefully or you may end up employing the extended family of a member of the office staff, effectively able to hold your enterprise hostage when the going gets tough. As it is in the West, due diligence is key to everything.

In price negotiations with suppliers, remember to keep control and lead the negotiations. A newly hired 25 year-old office employee may have impeccable English but their skills in negotiating a multi-million dollar contract probably are not up to the task. An employee of the same skill level in the home office would not handle this type of situation. Keep in mind Chinese contacts (including your employees) will often negotiate themselves a kickback. It is your job to prevent that.

Realize that your supplier is often dealing with countless subcontractors for materials so the chance of delays runs through a long chain. You will find that your Chinese manufacturer will often wait until the last minute to break bad news to you regarding delayed shipments, defective product or any number of unwanted problems. Understand that this brinksmanship can be traced to a society where responsibility for bad news or failure to meet planned objectives could result in criticism, ostracizing or even severe punishment.

Patience of Buddhist proportions coupled with an understanding ear and clear channels of daily communication are paramount to success. 90% of failure in China is due to miscommunication.

Do not forget, Chinese counterparts are speaking and writing in a second language they probably do not fully understand, especially idiomatic Western expressions. Understand that note-taking for them can be a difficult task, especially listening and being able to get it on the paper when it is coming to them at light speed. So avoid ambiguous jargon and slang-ridden sentences. Write emails in a clear concise manner with bullet points that offer next-step solutions. Follow up with brief phone calls to clarify the email and to see how much of what was “accurately” communicated truly was. The more information plowed at Chinese contacts, however well intentioned, just gives them more to trip over. Keep it short, simple and positive.

Set aside your emotions. This is business and it is on a global scale. Manufacturing (and indeed life in general) in China is an emotional roller-coaster. Avoid temper tantrums and knee-jerk reactions when things go wrong; they definitely will go wrong. Step back, breath, focus and, if possible, let a day go by to see how the situation works itself out. Oftentimes it will.

Understand also that repeated snide communications and micromanagement emanating from foreign headquarters will often lead to a digging in of the heels and deliberate sabotage from the Chinese side. Stay calm, and above all else calculate timelines by adding in an extra three weeks to anticipate for unforeseen delays, which will be numerous. Check that calendar! China has 2 major weeklong holidays. Chinese New Year, and October 1 “golden weeks” wreak havoc on timeline management. Factory employees have no qualms about quitting their jobs as these holidays approach.

Try to differentiate your manufacturing base. All too often an avalanche of purchase orders on too few factories will result in burying the company’s reputation. Chinese factories just do not have the middle management capabilities to ramp up as fast as Western companies expect. Chinese factories usually will  not turn away the business; most are hungry for work as they survive on razor-thin profit margins. They will promise you the moon and the stars but you will end up in a crater.

China is a developing economy. Do not let the flashy pictures of China’s major coastal cities delude you into believing otherwise. The country is poor with a gargantuan population. Most factory workers are part of a floating migrant population from the outer provinces where poverty is the reality. They are not usually terribly well trained, nor are they particularly gung-ho about their jobs.

On the other side stands western companies that all too often mercilessly crack the whip for lower, lower, lower prices to feed the shelves of behemoth “Marts” choked full of cheap stuff. Contemporaneously, Western inspection personnel pick, prod and poke through factories with fine-toothed combs and hand out threatening letters that “demand conformity to our standards.” Sadly, conformity means price increases, a double-edged sword for many factory owners. Once factories comply, the increased costs raise the prices and factories are unceremoniously dumped by those who pushed them towards said standards. A Catch 22 on an exponential scale. Knowing its potential fate, Chinese manufacturers all too often cut corners by substituting in cheap counterfeit materials and ingredients to create margins that will allow them to survive another day.

America has become the victim of its own gluttonous consumerism.

The solution — to the extent there is one — is to be proactive and to anticipate the potholes. Partnering with factories, introducing Western practices in factory layout to increase efficiencies, reducing wastage and maintaining viable profit margins are the keys.

Because in the end, you get what you pay for.

Welcome to my little slice of China.

Dan Harris is founder of the Harris & Moure law firm, a boutique international law firm focusing on small and medium sized businesses that operate internationally. China is the fastest growing area for the firm. Dan writes as a source of China legal and business information.


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