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.

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…)

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…)