China Law Blog (aka Best “Chinese Business Blog”) offered 3 posts recently about Chinese companies doing business in America: “Ten Reasons Chinese Companies Fail In The United States“, Why United States Lawsuits Against Chinese Companies Are Trending Up. Just Follow The Money, Why China Companies Are A Litigation Mark (As In Sucker), Part II. To summarize my take-aways, Dan basically is saying that Chinese companies in the US face problems because:

• Chinese companies purchase sub-standard consultation services on the cheap, which leads them to make many bad decisions.
• Chinese companies often do everything cheaply- including the hiring of employees – and with a short-term mindset. (More on this point, I recommend Bill Dodson’s article, “China’s Casino Economy“)
• Chinese companies are not marketing oriented, and hence don’t develop brands, don’t do good industrial design, don’t listen to customers, etc.
• Chinese companies are being sued more often, in part because they don’t know how to defend themselves in America (because of reasons above) and in part because they now have more business activity in America.

What interests me here is the implications for future business practices of Chinese companies.

I wrote before that I’m worried about the End of the World… about the coming trade war…about whether China will be open for business for foreigners. The above points give me hope. Not because it shows that Chinese companies will need people like me in the future (actually they won’t… they’ll need people like Dan at China Law Blog), but because this shows how the American legal system will help change Chinese business practices for the better.

Several people have commented that there will be two Internets in the future; the Internet and China’s Internet. The same appears to go for everything else; there will be a Market, and a China Market…and the two will never meet. Baidu is fine playing just in China. Just as Tencent. Just as Lenovo. Just as Haier.

Actually…no. Baidu maybe will stay in China. Obviously Haier cannot. Lenovo cannot. The Chinese electronics, automotive, white-box, and pharmaceutical industries cannot just stay in China. They, like their Western counterparts, must expand, or eventually die. By expanding, they will need to play by the rules of foreign law codes. I hypothesize that they will probably also need to internalize international business norms into their own China business practices because their China business will impact their expansion.

Past “sins” that Chinese companies commit in China may not open the company to risk with Chinese courts. But when the company steps outside of China, they are vulnerable for their past sins. The more Chinese companies realize this, the more they will work to correct past mistakes. An example that comes to mind is about China exporting their high-speed train technologies abroad. When Chinese technology companies get serious about bidding on international transportation projects, they will be challenged by foreign competitors, who own lots of international patent rights. This did not happen so much in the past in part because a) Chinese companies were not going abroad, and b) multi-nationals did not want to get into fights that could harm their activities in China’s “emerging market”.

Now, the Western companies are starting to see more benefit in litigation… in the United States. Therefore, I predict that as the companies expands, they will (in my theory) need to negotiate with Western companies in order to avoid litigation risk. In this way, Western companies may become gatekeepers to Western markets.

The post is about a China Daily article about how boat-ownership can be considered a business expense. Stan’s common-sense point is basically how stupid and hypocritical can people be to think that yacht ownership is anything other than an ostentatious display of wealth. Furthermore, how can people have the balls to claim a boat as a business expense.

I used to spend every weekend at a Western built-and-managed marina near Suzhou because my previous company used the facilities to host corporate off-sites for customers. At the marina, we got to see the local richy-rich guys drive up in Porsche SUVs, wearing popped-collars, a purse on one arm, and really nice eye-candy on the other arm. They would spend a few hours on their boats in the harbor. However, they often would not take the boats out, because the Marina never bothered to properly dredge the channel out to the lake (this is related to a large problem with lack of private waterway rules and regulations in China). So they would sit around in the hot hot sun, next to the humid lake, doing…nothing.

I completely understand Stan’s feelings about the super-rich boat owners. Now, to play Devil’s advocate:
1. What else are rich people going to spend money on? Another mistress? A Ferrari for the children? Another apartment to buy and leave empty until ready to flip? My point is that buying a boat at least produces jobs and lays the groundwork for recreational boating in China. As more Chinese achieve “middle class” status (assuming that really happens), this will help boating become more accessible to “the masses”. I think that there are far worse things for “The Rich” to do than buy a boat. (i.e. more golf courses)

2. Hot women on boats are cool. I would do this (if I was rich, and not married to a hot woman already).

Suzhou Covner's on a boat

Beginning with its first product, OICQ (the former incarnation of Tencent QQ), which copied ICQ, Tencent has never been able to bury its “copying gene.” First it brought in QQ Show and a line of value-added products from Korea, then it imitated Sina by building a portal website. In online gaming, it copied Ourgame (联众) by developing a platform, and then like Shanda brought in international players, started in-house development (like Netease). Then there was the C2C e-commerce site Paipai, and the third-party payment service TenPay (财付通). Without exception, these were “shanzhai” products, which lies at the root of the hatred for Tencent.

I agree with the sentiment. However, all of this were first copied from US high-tech companies. So, to me, Tencent’s competitors attacking Tencent because Tencent “copies” earlier entrants is sort of hypocritical.

Dan says:

[according to Forbes article] China’s leadership understands engineering [because] In China, eight of the nine members of the Standing Committee of the Political Bureau, including the Chinese president, Hu Jintao, have engineering degrees…So what? Running a country is running a country and there is no evidence that those who are better able to design a television are any better at running a country than those who are not.

Of course Dan is correct.

Jimmy Carter was (at least until George Bush), indisputably the worst American President since Hoover and he was (I think) the only engineer.

How dare you! Carter didn’t start wars in SE Asia, invade Cuba with irregular troops, etc. Please don’t repeat right-wing BS about a great man (and a not-horrible President)

China’s leadership wants to out-innovate the U.S. China’s political leadership has made technological innovation a leading goal in everything from supercomputers to nanotech. …. Again, so what? The United States’ leadership wants to out-innovate China and it too has made technological innovation a leading goal. …

Yes, but there is no denying that China has more coherent industrial policy, which the United States lacks. Actually, China is not so good at realizing their industrial policy because it seems that it tends to promote older and less competitive technologies in the energy generation and infrastructure sectors and others. But at least China’s stimulus spending goes to Chinese companies in targeted industries…instead of too banks.

China is getting U.S. technology, all of it. In 2008, Sony Corp. closed what was identified as the last television manufacturing plant in the U.S., in Westmoreland, Pa. It shifted work to an assembly plant in Mexico, but the vast majority of TVs’ electronics components are made in Asia. (Dell sources $25 billion annually alone in components from China, for example). This just about cinches it, I guess. If the United States is losing television manufacturing then it must be falling behind on the newest technology.

This, here, is the key issue. Those of us who live in China all know that the education system has problems and does not produce engineers or, just people, who have the ability to innovate themselves out of a cardboard box. We all know that China’s lack of IP protection also hurts innovation. And we all know that a lot of industry has moved out of US to China. But what I do not know is a good analysis of the extent that the technology transfer to China has really helped China get ahead in a broad range of technologies.

Everywhere I go, I see factories with so-called R&D departments. However, the vast majority of this “R&D” is really customization work for the Chinese market. Many companies transfer patents to China. But they usually just transfer old patents in order to get tax breaks. I know in the pharmaceutical industries, there is a lot of R&D work in China. But a great deal of this is just chemical synthesis. Big Pharma transfers to China the grunt-work of R&D, much in the same way software companies transfer code-creation to India. Its not something which will help China get ahead in any technology curve.

So where is the analysis of how much cutting-edge technology is really moving over to China? I’m very curious about this. Just an observation from my personal experience. I have been living and working as a consultant in Suzhou for the last 6 years. Suzhou is one of China’s most advanced “showcase” industrial zones. And in all the time I have been here, I have never seen a company which performs cutting edge research, or any real development work other than China-market related development and customization.

Then came the news that China renewed Google’s Google.cn internet ICP license. Cool, I think. China avoids bad press. Google gets to provide some services on Google.cn, and Google maintains the ridiculous picture-link to Google.com.hk. The world is a little happier. And I don’t need to post about it. Or so I thought. I’m just not the type of guy who lets things go.

One of my favorite bloggers, Kai Pan, ofchine/divide, recently posted about Mr. Henry Blodget , a media-analyst, getting the Google story wrong.¹ At first, I was not interested in his post (sorry Kai Pan) because I now realize that there are many highly paid “experts” who give expert opinions about China which are completely wrong. This is just nothing new. Everyone in the media gets it wrong. Really, for me, the biggest part of the story is how everyone gets it wrong, yet they get paid big money…while I don’t get paid big money, but I get everything right (because, you know, I’m just that awesome, so I’m always right).

This is how I will look when I'm reincarnated in the 24th century

In its breakdown of how the analyst got it wrong, Kai Pan brought up many good points. But there is one point where I somewhat agree with Mr. Blodget.

[Blodget]“Importantly, it wasn’t Google’s decision to stop censoring that was a bad one. It was the way in which Google handled the decision. By making a big announcement and and redirecting its search engine to Hong Kong, Google left the Chinese government no way to compromise without losing face.”

[Kai Pan]Wait…what? Yes, Google tried to use international and public attention to shame the Chinese government on its censorship policies. That was a ballsy move but it failed. … In fact, it can be argued that this redirection was something of a face-saving move for Google because it allowed them to claim they were still offering a search engine but without having to self-censor.

I agree with everything Kai Pan says in his post. However, I agree with Mr. Blodget on this point: I think the decision to “move” to Hong Kong needlessly antagonized the Chinese government, without providing any material benefit for Google’s customers. Yes, it was a “face saving” maneuver by Google. Yet I propose a better strategy (note: because will be reincarnated as The Captain, I feel perfectly qualified to propose another solution).

My proposal is this: Google should abandon google.com.hk as a destination for Mainland netzeins. Instead, make Google.cn into a kick-butt site which showcases all the wonderefull tools that Google can legally provide in China: calender, email, docs, maps, translate. Maybe add in some Android-related mobile services as well. Google.cn can be what Google is becoming; an online office. Then, have the search link redirect to Google.com, but with a tag to start the Chinese interface.

Why send netzeins to Google.com? Because Google.com was what the professional city-dweller caste of China used before 2005. Because this type of netzein uses Google because it is NOT Chinese…it is international. Google should stick with its “international” positioning because that is what differentiates it from Baidu. On the other hand, Google.com.hk is just a loophole used for face and PR. It reminds people of Google leaving “mainland”, whereas Google should be reminding Chinese people that the internet ideally surpasses borders.

I got an even crazier idea. How about on the Google.cn site, add a huge button link to Google.com’s search engine, AND a search box for its competitor, Baidu. Let the Chinese netzein see how the searches are different. This way, Google can drive home its positioning as the “global” search provider, which also provides great tools. At the same time, it can point the way to the “local” search provider, with its government and corporate sponsored search rankings. Chinese netzeins can then see the difference in quality between the two services.

When I saw the article today, May 30th, I started to prepare a post about why Mr. Kaplan’s comments are both wrong and hypocritical. However, Kai Pan of China/Divide already finished his post about the Huffington Post article. And as usual, Kai Pan wrote more, and better, than what I would have accomplished. (China/divide seems to be blocked in China now… Kai Pan, if this gets to you via trackback, I just got to say I hope you change your IP address so that I can visit your great site.) So instead of writing about why Mr. Kaplan is wrong, here I will just summarize Mr. Kaplan’s article, and focus on the areas which China/Divide did not cover in its response.

The main point of Mr. Kaplan’s post IS NOT in the introduction, where he says that Apple has a responsibility to move production out of China for various reasons. I won’t go into his corporate ethics “main point” in the introduction; its to hypocritical for me to digest. And anyway corporate ethics is not really the point of the article. That starts in the second paragraph:

Let’s first look at what’s gone wrong at Foxconn, the sprawling subcontracting plant where iPads and other high tech products are made in Shenzhen, north of Hong Kong. Let’s look at the most fundamental point first, at least as it relates to the United States. That is that the workers at Foxconn’s plant are paid $130 a month. Assuming that they work four fifty hour weeks a month, this translates to a wage of 65 cents an hour. That is basically a slave labor wage, at least as compared to the wages in western markets where the iPad is sold. How can we continue to tolerate a trading system that not only allows this, but in fact encourages it? It is true that workers in China seem to want these jobs because the alternative is even worse, but even that conclusion has now been thrown into doubt. If it’s such an ideal career path, why have ten workers thrown themselves off buildings at the Foxconn plant (nine died and the other suffered severe injuries), why have their been reports of security guards abusing workers, and why has the work been described as relentless, as “making people numb,” as turning them into machines?

This is called China bashing. He went from talking about Foxconn to implying that Foxconn’s situation is representative of China’s work environment.

Without any evidence, Mr. Kaplan blames the suicides on Foxconn. My goodness… I don’t want to defend Foxconn. But at this time, to blame suicides on the Taiwanese manufacturer is wrong. Its certainly not right to blame the suicides on work which “makes people numb”. Monotonous work is the norm at most factories…particularly contract manufacturing services companies. However, I’m pretty sure a lot of farm work – where about 50% of China works – is very monotonous as well. You know what is another really numbing work? Busing tables in a restaurant where Mr. Kaplan eats with other politicians. The average American “bus-boy” will have a lot more dangers and difficulties in life than the Foxconn employee who can send most of his / her entire wage home to support his family while his own living expenses are paid for.

Mr. Kaplan may have met with lobbyists from the American Chamber of Commerce, who would have informed him and complained about the effects of China’s Labor Law, which gives far more protections to Chinese workers than American workers have. Of course, the law often goes unenforced. Recent articles about Foxconn point to the problem of unenforced laws. I have heard from many Chinese people about this lately. Many of them believe that Labor Union at Foxconn is probably corrupt. I have also heard many people say that the security guards at Foxconn are all mafia-types who may have murdered or bullied-to-death the suicide victims. That’s all just rumor, but it does follow a certain logic; without some internal police force to keep workers in line, what is there to prevent labor strikes from occurring in Foxconn’s “mega-factories?” Anyway, its clear that Foxconn has management “issues”, but not all factories in China have corrupt production managers which take bribes from their own operators, like what appears to take place at Foxconn. Most foreign-owned manufacturers in China do not have mafia running the corporate security services. Mr. Kaplan misleads his readers by implying that Foxconn’s issues are the norm in China-based manufacturers. .

New Taikongren's Advice standard graphic for posts related to Foxconn

From Shanghai-ist, Elaine Chow published a translation of a new letter (original in Chinese here) which Foxconn want’s its employees to sign. I feel its so stupid it can’t be true. Sort of like some of the reality TV shows I never actually watch.

Anyway, the letter advices employees to seek help if they need it, contains a bunch of corporate-y pleasant stuff, then ends with this:

3. In the event of non-accidental injuries (including suicide, self mutilation, etc.), I agree that the company has acted properly in accordance with relevant laws and regulations, and will not sue the company, bring excessive demands, take drastic actions that would damage the company’s reputation or cause trouble that would hurt normal operations.

I should be more professional in this blog, but the only thing that comes to my mind is “WTF?” So the employee must acknowledge that if said employee kills himself, it had nothing to do with Foxconn. Wow.

I really have no advice on this. I cannot point to this and create a case study or example. This issue does not raise questions about employee-management relations, or HR best practices. This issue just creates the question, “How can they be so stupid?”

[update 2010-May-27] So another one died today. There are not many people reading my blog today, but I should assume that there will be millions who read it in the future. So I should make one point clear: the most stupid thing about this is that some young kids through away the world and enter the void for NO GOOD REASON. Yes…I’m saying the kids who killed themselves were stupid. Grossly, unforgivably stupid. They threw away the gift of conscious life…which is the most valuable thing in the universe. I’m not saying they were stupid because of society or their parents…I’m not someone who will look for blame here. But I do not believe that Foxconn is responsible for this. Foxconn is responsible for its environment in general. It is clear that they do not manage their people well. It is clear that they don’t know how to manage marketing in a crissis situation. It is clear that they have a lot of Dilbert-types. And I personally don’t believe that the swimming pool they are showing off to reporters is really available to most workers. But its silly to blame the gross stupidity of someone who commits suicide on the company. Unless there are truly some horrible, criminal things happening in the company, but I have not seen evidence for that.

The latest post on at Talent in China is about Job Descriptions (JDs), with a focus on “title inflations”:

The difficulties often start with the title. This is very important because of the fact that Chinese professionals cherish the title they hold, and because of title inflation. The logic for Chinese professionals is: “If everyone else has a high title why shouldn’t I have one too? Especially when it is so important to me in the first place.” In the fast-growing China market companies feel they have to succumb to title inflation to get the right people but the result is a mismatch between what the person has to do on the job, and what it might appear they have to do when you look at the title. For example, Directors usually don’t have to actually get their hands dirty with actual work, but if the ‘Director’ is really just a Manager, then he will have to. (Directors are defined as someone who manages managers, each of whom manages a team.)

I must say that I am also guilty of creating title inflation. I know Jack Welch says all that hooy about being “compassionately tough.” However, in real-life, in China, it is often necessary to move under-performing employees “sideways”, or even up, in order to make room for people who actually deliver results. Firing people…especially in a JV or SOE environment…. is just not an option. Not too long ago I lead a project to re-organize my customer’s marketing department. The company had multiple marketing teams, each with dotted lines to multiple Product Line Units in Europe and America. Each team was poorly managed. The then-manager of the biggest marketing team knew how to do outbound marketing, but could not empower his team to perform Product Management and Strategic Marketing tasks. Consolidating different departments under one marginally better manager would have more organizational value by unifying processes, resources, and creating opportunities for support. It would also separate the new marketing organization from the dotted-line superiors. Said European superiors were not happy about this, but I didn’t really care. The European dotted-line bosses were not effectively managing the marketing organization from Europe.

To merge the teams, I needed to move out the manager of the larger marketing team and remove his direct reports. We didn’t want to lose him; he was good at customer presentations and he had given 6 years of service to the company. But as a manager, he was dictatorial towards his subordinates, but passively shriveling in his dealings with other groups. I determined he was not going to develop as a better leader anytime in the near future. So I created a high-level independent contributor position for him. He viewed this as a demotion…which it was. But we gave him face by giving him a better title. And I helped convince him he would be happier without having to manage people to create a strategic plan (which he knew he was not capable of doing). The problems didn’t stop there. Moving people around became a sort of organizational puzzle, because there were quite a few high seniority valuable managers who could not manage due to their educational and cultural background. But we had to give each some relative “face.”

I have seen some pretty bad examples of title inflation. But in my experience this usually does not occure, as Mr. Mulligan suggests, at the Job Definition stage. Title inflation often occurs as misguided employee retention policies. And sometimes it occurs because managers think that a higher title will motivate people to work harder without giving them higher pay. A scary example of this (which comes from my Am-Pharm case study). There, the EHS “Manager” was an operator whom an expat manager promoted and gave him EHS responsibilities. However, the operator could not / would not think of himself as a manager. So when auditors found barrels of hydrochloric acid sitting around in the warehouse, the managers gave a warning to the EHS Manager for not performing his duties. But the poor EHS person said “but… you never gave me instructions to move out the waste!”

Generally speaking, its best to avoid title-inflation like the plague. It is very important to promote people to management roles. But that comes from leadership development, not from “title development.”

Interestingly, the conservative commentors on the site which China Challenges links to say that the law is stupid for two reasons: 1) that the law hurts small business, and 2) because private laboratories are better than third party laboratories for testing products made in China. In my not-so-experienced view, I think this second point sort of missed the mark. Isn’t the problem that Mattel… and many other companies… is not that their testing laboratories failed to test accurately, but that the companies failed to monitor their supply chain?