China – Perspectives

I was recently involved in a negotiation to set up a distributorship in South America for Electric Scooters made in China. As usual we did all the research into the technology, the industry and then went on to the task of selecting the vendors. The technology is fairly basic, an electric motor powered by a battery (or bank of batteries) and the rest (frame, brakes, wheels, etc.) are components borrowed from gas powered scooters.

Chinese companies also have been making electric motor applications, like electric bicycles, golf cars and forklifts for more than 20 years, we thought that the biggest issue as it is normal in China would be to find a reliable qualified manufacturer, to do this we focused our search in the Wuxi area as there is a very large concentration of Motorcycle and Scooter manufacturers. Technology, designs and even molds are shared amongst most companies in the area and even some as far as Guangzhou. Frames, body moldings and basically all components are designed to be used on motorcycles and Scooters both gas and electric.

We investigated the usual sources, search engines like 163.com and the “gold” members in Alibaba, MadeinChina, Toto as well as the local retailers in Shenzhen and Shanghai to assemble a list of manufacturing companies to visit and qualify for the investors in South America. Unfortunately, even though the Internet sourcing sites are trying to qualify vendors we find that well over 50% of the vendors listed in these sites, including Alibaba, either are unreachable, don’t exists or simply are trade companies claiming to be manufacturers. The rule of physical visits to factories is imperative in any serious sourcing even though getting to the correct address, phone numbers and a contact names are still very difficult to get in China.

We visited six different manufacturers which also turned up typical results of manufacturers that claim to own the molds, designs, for the same products that we saw  in several different factories. We finally settled on a company who has been in the  Scooter business for 14 years. We visited the factory and had meetings over the course of one week and concluded with a signed agreement for exclusive representation of their products in South America. We bought 4 samples of different models for testing, development of marketing  materials, user manuals and warranties.

The Distributor in South America started to have initial meetings with local retailers armed with our samples and drafts of the marketing documentation. The feedback from a few of the retailers prompted us to investigate some modifications to improve speed by 10%, which led to additional meetings with the Manufacturer. During the testing of “bigger wattage” motors we started to notice some discrepancies between the speedometer readings and the rated speeds, which we blamed on the exchange of motors, however upon using a GPS unit to attain accurate speed readings, we found that in fact the real speeds were quite lower that manufacturer stated speeds or the speed shown on the speedometer of the Scooters.

The use of a GPS unit led to a huge surprise on our part, as it turns out that the speedometers in the scooters read 60 km/h, when the real (GPS measured) speed showed 40 km/h. We tested the original models in their original configuration and even changed GPS units to ensure that we were getting an accurate reading and the testing yielded the same results. We immediately scheduled a meeting with our manufacturer in their offices to discuss our findings. Much to our surprise they laughed when we brought up the testing and the results. We were dismayed by their reaction, but as it is the case in many conventional Chinese business situations, dealing with a complaint or discrepancy laughter or smiles is quite common.

After a little conversation they clarified in a very matter of fact way that they knew about this fact. We stated that in America or even South America this discrepancy between the speedometer displayed speed and the actual speed of the vehicle could lead to not only dissatisfied customers but potentially to law suits. The Manufacturer quickly assured us that this is standard practice in China; “all gas and electric motorcycles and scooters, have their speedometer adjusted to show higher speed”. They assured us as if this fact would make it all OK.

In fact we did actually take a GPS and conducted some testing even of some of the Chinese manufactured Gas Scooters now being sold in the USA and indeed it is true all the scooters we tested regardless of manufacturer (Chinese) or weather they are Gas or Electric are off (move slower) by at least 15% of the speed showing on the speedometer. In our conversation with the manufacturer they clarified to us that in China it is common practice to “give” the customer what they want, even if it is only perception.

Then they explained that if the actual speed of the scooter was for example 47 km/h they would add the “chinese” additional 10 which would make it 57 km/h and since 57 km/h is near 60 km/h they would round it up to 60 km/h. Then adjust the gearing of the speedometer and of course all the marketing materials to say that they Scooter attains 60 km/h. Fortunately for us this manufacturer is a trust worthy company who was willing to own up to the truth (even though after the fact) and then work with with us to manufacture a product that will show actual speeds on it’s speedometer.

This is yet another example of the difference in how business practices are interpreted so differently in China from many places in the western world. As a conclusion if you or your company are in search of manufacturers in China the rue is physical visits, double check all stated specifications and inspect product prior to shipping to your destination. I will write in a different post regarding conflict resolution with a Chinese manufacturer.

Traveling into or in China with an American Passport draws a lot of attention, unfortunately in the majority of instances with a negative connotation. I have had the fortune of traveling to many countries in Europe, South America and Asia as a USA citizen and I must admit many times feeling quite spoiled by the “no prior-visa required” to enter many countries with stays of at least 30 days at a time. The first instance of feeling singled out due to my USA passport was when I had to travel to Brazil on business and was obligated to stand in line at the Brazilian consulate in Madrid at 6:00 AM to get an appointment at 11:00 AM and then pay $450 USD for a business visa. But, this would not a lot in comparison to what I have experienced in China.

Granted, I clearly understand that many countries have developed a “pay-back” attitude towards the USA based on it’s treatment of their citizen’s wanting to travel to the US. In some cases the US requiring people to set an appointment a year in advance for a personal interview with a US Immigration officer and having to show proof of having enough collateral (homes, business, bank accounts) in the home country to ensure that the person would have to be a fool to want to stay in the US illegally.  Then quite often being denied the tourist visa despite jumping through all the hoops.

In addition to the “special” treatment of USA passport holders by the Chinese Visa Authorities (more expensive and longer process than for citizens of other countries) you will quickly realize that prices for many things are much higher if you are an American or have the misfortune of being perceived as one. This begins with shuttle buses from the airport and from other border entry points and is prevalent in everything else from food to shopping anywhere.

My Chinese friends affectionately call me “money face”, but they are not talking about my face, they are talking about the prices that are quoted whenever I or even they inquire while shopping with me for just about anything.

Chinese vendors have a very clear understanding of the exchange rate and they also know that everything in the USA and Europe costs a lot more than in China. They know that even if they charge you 5 times more than they would charge a Chinese person; you will still smile and think that you are getting a bargain compared to USA or European prices.

In some cases you will have no choice; for example a plain black cup of coffee generally speaking will cost you from $4 to $12 USD depending on the location of the establishment. You may say OK, if the coffee is good!… but remember, Chinese are tea drinkers and know little to nothing about Coffee, so you may get worse than truck stop coffee for these prices; I have!

But the most serious and unpleasant situation is that many Chinese hotels simply do not welcome Americans (or the like), some hotels in China are exclusively for Chinese citizens. The idea that as an American you can come to China and travel in an “ad-hoc” manner or on a tight budget very quickly becomes nearly impossible. I actually have been refused entry at a hotel on the basis of being a foreigner even after my friend made the reservation online. Now granted these are not 5 or even 3 star Hotels. Again, remember that common perception is that if you are an American (or look like one) you will only stay in 5 or 4 star Hotels, you won’t mind paying $12 dollars for a cup of coffee and of course you will buy a Rolex knock-off on the street for $200 USD.  Chinese perception of Americans is very Hollywood based.

I have not been able to get a clear answer on the hotel issue, I have been told simply that these hotels “are only for Chinese citizens” and I also have been told that the reason is that “no-one in the hotel can speak English”, even though I was accompanied by people who speak Mandarin at the time.

Unfortunately this makes travel in China as an “adventurer” somewhat impossible. You can certainly travel in China as a American and on your own if you stick to the 4 and 5 star hotels which will cost you in the range of $150 to $400 + USD per night.  You can also take tours designed for foreigners with tour guides who speak English. Beware that tours for foreigners are designed to be shopping centric, out of a one day tour, you may get 60 minutes to tour the Great Wall and the balance of the time being shuffled to “factory” or “museum” tours which are in fact, 5 or 10 minutes of looking at some art and 30 – 40 minutes of a selling presentation. Yes, the tour guides get a commission on all sales from these tour stops and will often pressure you to buy!

Of course you can also hire a private bilingual guide for as little as $50 USD per day and be able to choose where and when you want to go opposed to the group tours shuffling you at their pace. It is also very important to note that many tour sites or museums are only replicas as much of the original Chinese artifacts were either moved out of the country or destroyed by the Communist movement.

Many young Americans have packed up two pairs of jeans, a few translation and guide books and toured Europe and south America on their own experiencing the countries at the local level and spending very little money. However, China is not near that option yet, this is partly due to language and safety reasons but also largely due to the remnants of Communist styled government policies in China.

I did manage to sneak into a Hotel reserved strictly for Chinese citizens by waiting outside the hotel while my friend concluded the registration, and the result was… that I did not want to stay in the hotel after all. I have done my share of business travel staying in 4/5 star hotels, but I also have done my fare share of travel while avoiding tourist traps and getting as close to the local experience as possible. Unfortunately this hotel turned out to be a little too local for my taste. (see pictures)

This Hotel - Exclusively - only for Chinese citizens

The cost was approximately $15 USD/night. I did not stay in the hotel, I only took the pictures, then moved to a different hotel. However, the experience did shed some light on the possibility that these hotels reserved for Chinese citizens, may simply lack an official certification which would allow them to host foreigners.

On the positive side I have discovered a very economical hotel chain similar to the La Quinta or Hampton Inns in the USA, called 7 Days Inn Hotels (see photos) rates for this hotel start as low as $25 USD, rooms are clean and the hotels are safe.

Chinese hotel chain - 7 Days Inn - very nice, inexpensive hotel.

I do have to caution you that some of the locations of this chain may refuse to let you stay on the same premise of the hotel not being for Americans. However in any of the major cities there should be no problem, but always keep in mind that life will be much easier if you do have someone with you who speaks Mandarin and can read basic simplified Chinese. While the 7 Days Inn hotels have signage in English and the room information sheets also have English, the website does not support English, the staff will likely not speak a word of it and surrounding restaurants and transportation may not be foreigner enabled.

In all cases it is highly advisable if you intent to travel on your own in China, that you carry Yuan (RMB) in cash, dollars will be difficult to change in areas that don’t have branches of the main banks and also your credit cards will be worthless anywhere outside of downtown Beijing or Shanghai or the International Hotels like Shangri-La, Hilton, Hyatt or similar. You must also beware that everywhere you go your Yuan bills will be closely inspected for counterfeits and is likely that you will get some of them possibly even from the bank, so don’t be alarmed when someone rejects a bill from you, even the same bank where you got it. The most common bill is the Y100 which of course is the most popular counterfeit, but it is only $14 dollars you will loose if you wind up with one of them as you will have no other recourse.

As a whole Chinese are fascinated with westerners, the further you get from downtown Beijing or Shanghai the more people will literally stop, point and stare at you. Many young girls will smile nervously then say “hello” and many service people will try on you their best “welcome – please sit down”. Don’t be surprised to have many of them point a cell phone at you to get your picture. If the people you meet manage to speak a little English they will quickly declare their desire to be your friend, but it is more likely that you will make friends in the course of doing business than in a plan of tourism.

Chinese are very reserved with outsiders, even if you are friends it is not likely that you will ever be invited to their home. But, when it comes to shopping and touring you too will be identified as “money-face”.

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To begin to understand Chinese Culture we must understand how some ancient traditions still rule decisions made by most Chinese people in business and personal life today. The following story was told to me by a life long student of Feng Shui. When I first heard it, I simply smiled in disbelief and disregarded the story as funny. However the story surfaced again as I met other people in China and I now feel compelled to write about it as yet another relevant point in understanding the Chinese culture.

Luo Pan Compass used in Feng Shui beliefs

First I want to show a brief technical description of Feng Shui as written in Wikipedia in an effort to set the stage for the story. Feng shui (traditional Chinese: ??; pinyin: f?ng shu?) is an ancient Chinese system of aesthetics believed to utilize the laws of both Heaven (astronomy) and Earth (geography) to help one improve life by receiving positive “qi” (chi). The original designation for the discipline is Kan Yu literally: Tao of heaven and earth. The term feng shui literally translates as “wind-water” in English. Traditional feng shui practice always requires an extremely accurate Chinese compass, or luo pan, in order to determine the directions in finding any auspicious sector in a desired location or exact directions in which various objects, rooms, materials etc. are to be placed.

Map of China before 1921

I have not been able to verify or validate the geo-political truth about this story, but in a very funny way I am not surprised at all by the possibility of truth after some of my experiences of life and business in China.
According to this story up until 1921 China’s geographic map resembled a tree leaf similar to that of a Maple. The story goes on to tell that this is the reason why Japan whose geographic map resembles a silk worm kept attacking China and vying for control of it’s large land span. The story according to the Feng Shui belief takes root in the significance of shapes, position and the implication between geographic location and “astral plains”. The story depicts a green leaf regardless of it’s size as very vulnerable to a silk worm who must eat as part of it’s natural position in nature.

China - a green leaf and Japan a silkworm

The story tells that this is the reason why China was willing to let go of part of Mongolia in 1921. Again, I emphasize that this is a “funny” story and not a historical fact; but nonetheless it must be a lesson for us westerners in how Chinese think about many things. The story says that upon letting go of “outer” Mongolia, China’s geographic shape came to resemble that of a chicken… and yes you guess it! The Chicken can eat the Silk Worm, therefore the Silkworm became “neutralized”.

China - after 1921 separation of "outer" Mongolia

The story does not stop there, it goes on to say that the reason that China has never been willing to acknowledge Taiwan as an independent country is because the Chicken then would only have one leg and it would cause it to be unstable. The other leg being Hainan, the chinese Hawaii south west of Hong Kong. Interestingly, this story/theory can actually be easily translated to current socio-political implications between China and Taiwan. The Taiwanese with their American technology have become the leading edge of China’s technological development.

China - the chicken and Japan the silkworm

As a final topic, the story also addresses China’s unwillingness to let go of Tibet after many decades of it trying to succeed as an independent country, in-spite of the prevailing Chinese popular opinion that Tibet is nothing more than a wasteland full of poor people. Apparently Tibet is very important to China, according to the story if Tibet left China, then the Chicken would not have… a rear end, thus rendering the chicken unable to function.

China - Why Tibet can not be allowed to succeed

Again, the first time I heard this story I only smiled, but as I increase my understanding of Chinese culture is become evident to me that it is not important if the story is true or not. What is important about this story is the inside that it provides into Chinese culture and the justification for decisions and influences that affect daily life and business in China.

This post takes a quick look at how the downward global economy is accelerating a process that was already under way before the USA’s triggered the current economic recession. The process or realigning it’s trade partners is how China is shifting it’s focus from inter-dependency to North America and Europe to a new and different one in South America, Africa and Australia.

Chinese people embrace consumerism.

The topic of “China needs the USA” is a very hot topic these days both in North America as well as in China and while there are clearly politicized and nationalistic threads to it, there is also a cold reality in play. Even if China was to overreact and “close their doors” as they have done in the past, they will still need raw materials and food from other regions in the world due to the continued growth in population and large cash reserves. The demand for raw materials and some food grains will remain and grow, unless China’s tight controlling central government is willing to stop the momentum in growth of it’s middle class, which at this stage of the game will likely cause a national uprising or even a civil war. (more…)

It is true that at the large corporation levels (multinational), Chinese companies behave like most western companies, but this quickly changes as you move to dealing in government operated businesses or the smaller than $50 million USD companies. In this post I will focus on pointing out the differences that I have identified as the most notable in dealing out side of the global corporation environment.

Traditional Chinese business meeting - Tea set up.

1. Relationship first! Chinese people as a whole value relationship much more than American people do. In business the initial effort is usually 80% – 90% focused on developing the relationship. In fact, the objective of a business meeting is to develop a relationship (in Chinese terminology; a “cooperation”). Opposite to the American approach of “closing” the deal. American business culture has common phrases like “business is business” and “we don’t have to be friends to do business”, implying the order of importance. Chinese practice the opposite, we have to be friends to do business. (more…)

Luo-Ho District Mall in Shenzhen, China

Why not? Thousands of people do. A few years ago when I started looking at China for business opportunities I started to look with my American corporate business trained eyes, after some research I learned that there are many ways in which foreigners can do business in China. I say after a while because getting precise information on rules, laws and regulations can be as difficult as getting directions in Chinese-English on how to get from point “A” to point “B” in downtown Beijing.

China is literally writing commerce law as we speak, many laws are not only not existent yet, but the ones that exists are left to interpretation at local levels and many lawyers are actually ex-army people who are given an honorary degree. Most Chinese citizens simply laugh when you ask about incorporation laws, tax laws, banking rules, etc. Now make no mistake, the central government has it’s ways of making sense of all this chaos. For example banks are required to report an all bank transactions involving foreign entities to the central government, thus making very difficult for foreigners to do anything different than what the current rules will allow with the added complexity of the local interpretation. This later fact can lead to disasters if the central government interpretation differs from the local one. (more…)

Confident and ready for the New China

They are learning English, they are able to surf the internet, they are confident, they are curios and they are very proud to be Chinese! There are many subtleties of the Chinese culture that are now becoming more clear for me, as I get deeper into the Chinese culture of today and as I become more accepted. Of course many things are improving because I can speak a few basic sentences in Mandarin and understand quite a few, in return people also open up a lot more to me.

I suppose that it is no surprise to find that the older generation still gawks at me as if I came from another planet, but young (I mean children) people readily will approach me to try out their best “hello” in English. Many of the older generation Chinese still believe blindly that Europe, the USA or Australia are the promised land. I mean this in the sense that they believe these countries are the panacea to poverty, sickness and lack of opportunity for the poor. The “Hollywood” view of the world. (more…)

From iPods to the latest Nokia phones - Copies.

Before coming to China I had many friends ask me to figure out what products we could sell to the fast growing consumer population in China. Much to my dismay and everyone else’s, my answer as I started to report back was; nothing! absolutely nothing!.. they have everything, every brand , every product, even in the poorest of neighborhoods!

Well, at least a copy of everything!

It is absolutely true that the Chinese government is trying very hard to control and implement systems to monitor the infringement of design and utility patents, copyrights and intellectual property, but it is also true that it is an uphill battle. The “copy” manufacturers  are not selectively focused on American brands, in fact they copy one another all the time. I have looked at many innovative products in China which are not copied from the Japanese or the USA or European manufacturers, but from their own neighbors in Dongguan or Shanghai or a few blocks away. (more…)

Retired Chinese play checkers.

I have now been traveling in and out of Asia for the last four years, of these four I have spent 13 months, actually residing and doing business in China. I have to admit that coming here I thought that I would have a very open mind, after all, I once was an immigrant in the USA and have traveled and done business in many countries… but, much to my surprise found my self falling into many “generalizations” and prejudices.

At a basic level Chinese people are no different than people in Des Moines, Iowa; they all want good health, family, a good school for their children and a prosperous future. They all long to be fruitful at their job and be able to enjoy their hours of relaxation. It is how their cultural roots make them go about achieving this that is very different from the west. Almost on a daily basis I am reminded that I am not in Kansas anymore! (more…)

Cultural Revolution

Well, after reading many blogs about many things, some great and some well, not so great… I decided that I would launch my own. My goal is to be one of the “good-ones”. So, I will begin with a straight forward introduction to the purpose and reason for the blog.

If you are interested in reading about me and my background you can click on the “About” tab. In a very brief summary, I am an American-Business man and as such I will follow a few simple business rules in this blog, hence my urge to state a “purpose” and a “reason” to launch the blog. (more…)