December 12, 2007
FDA Inspectors Embedded in Chinese Food Production System?
From the New York Times: China Agrees to Post U.S. Safety Officials in Its Food Factories.
Embedded, like Judith Miller in Iraq?
Michael O. Leavitt, secretary of health and human services, said he expected that Food and Drug Administration officials would eventually be embedded in China’s food safety bureaucracy to help train Chinese officials and keep records on their inspections.
Did Mr. Leavitt make use of the word "embedded" in conversation with the interviewing journalist, Steven Weisman? Or did Mr. Weisman himself choose that word, pregnant with negative connotation, while lacking a direct quotation from Mr. Leavitt?
China and the United States, seeking to ease the furor over the safety of food exports, signed an agreement Tuesday calling for a greater American role in certifying and inspecting Chinese food products, including an increased presence of American officials at Chinese production plants.
This should help, shouldn't it? English speaking inspectors in an entirely Chinese environment. Many thousands of factories to be monitored -- extraordinary cost of bringing American inspectors to China, housing and feeding them, etc...
This agreement will provide an opportunity to have our people here on a continuous basis with expertise so that we can work with our Chinese colleagues in helping to develop good practices,” Dr. von Eschenbach said.
People is plural, meaning at least two. But the precise number of inspectors was not actually specified.
American officials said that the agreement did not cover all the food products sought for tighter inspections, but that it could be expanded. It is to cover some preserved foods, pet food ingredients and farm-raised fish, all products that the United States has said were tainted.
But, wait! Only a few food groups would undergo any inspection at all.
One may conclude that this initiative has been a major failure, from conception to implementation, on the part of American food and safety officials. Can one, however, consider this a public relations success?
Posted by Richard at 7:03 PM | Comments (0)December 10, 2007
And Wahaha Laughs...
We briefly posted on the Danone-Wahaha scandal in June. Now comes the sound of the other shoe dropping. From the Wall Street Journal:
A Chinese beverage maker won a trademark arbitration ruling against joint-venture partner Groupe Danone SA, the latest legal twist in a closely watched case and one that is unlikely to end the dispute.
The Hangzhou Arbitration Commission said the period had lapsed during which Danone was eligible to file its case against Hangzhou Wahaha Group Co. The case was aimed at forcing Hangzhou-based Wahaha to honor alleged obligations to transfer ownership of the Wahaha brand to the companies' joint ventures, a key aspect of Danone's effort to re-establish control over the Wahaha business in China.
Paris-based Danone said it is "shocked" by the result and is studying its options.
Shocked!
On a related note, a Harvard Business Review study of the supposed influences of Mao on modern Chinese managers, refers to the CEO of Wahaha:
High-profile Chinese business leaders who have used...Mao-style tactics to dominate their managers include Zong Qinghou, the founder and former CEO of Wahaha, the French-Chinese beverage joint venture. Zong recently circumvented the formal organizational procedures during a dispute and mobilized Wahaha employees to publicly denounce the French management. As of this writing, no settlement of the dispute was in sight.
Is it accurate to state that managers emulate Mao? Any case, apparently analogous, requires one to trace an influence from cause to effect, which the authors do not seem to attempt. And what is the benefit of an analogy so tenuously tied?
Instead, it is more accurate to say that mainland Chinese in positions of authority, and to a lesser degree Chinese outside of the PRC, share a purposefulness in their methods, often ruthless, usually creative, straightforwardly ambitious, enormously resourceful and extraordinarily authoritarian.
Posted by Richard at 9:21 PM | Comments (0)December 4, 2007
Fairclough Visits Chery Factory
Gordon Fairclough of the Wall Street Journal visited Chery's main auto plant in Wuhu City in Anhui Province. As you may recall, Chery was -- remains? -- a focus of intellectual property disputes and safety concerns (crash test pix here; video, here). Rather surprisingly, Fairclough was allowed to video the main production line. Then again, perhaps not. Chery's deal with Chrysler to sell cars under the Dodge name in the U.S. is ample reason to garner positive publicity. Here's the WSJ video, courtesy of the WSJ site:
Posted by Richard at 1:24 PM | Comments (0)September 27, 2007
Who Will Apologize Next?
The American Consumer Product Safety Commission has issued another set of product recalls involving leaded toys and jewelry from China. (Golly gee willickers, but don't they look so cute!)
In Bejing, Commerce Ministry spokesman Wang Xinpei on Thursday said: "Our attitude toward the toy problem has always been the same, that the problem is one in a thousand."
With several million products already recalled and many more likely to follow, that ratio may be somewhat erroneous.
The $64,000 Asia Business Intelligence question: which of the American companies involved in the recalls will be the next to suddenly appear with Chinese officials, apologizing deeply, humbly and profusely to the government, exporters, manufacturers, factory workers, transport carriers, freight forwarders, longshoremen and God knows who else in China?
Posted by Richard at 8:08 PM | Comments (0)September 21, 2007
Mattel Apologizes to China!
A shameful kow-tow.
"Our reputation has been damaged lately by these recalls," Thomas Debrowski, Mattel's executive vice president of worldwide operations, told China's quality watchdog chief, Li Changjiang, in the Chinese capital.
Mattel takes full responsibility for these recalls and apologizes personally to you, the Chinese people and all of our customers who received the toys."
"But it's important for everyone to understand that the vast majority of those products that we recalled were the result of a design flaw in Mattel's design, not through a manufacturing flaw in Chinese manufacturers."
As of 1300 UTC on the date of this posting, the Mattel website does not display any such statement.
Beware, all ye who dare to accuse.
UPDATE (2100 UTC):
Even the Wall Street Journal, that supposed bastion of the free market ideal, and its interviewees miss the point entirely:
it also would also seem logical for Mattel officials to take a respectful stance toward Chinese officials, as 65% of its products are built there. Drew Thompson, the director of China Studies at the Washington-based think thank, the Nixon Center, says maintaining good government relations is crucial for companies that want to build a lasting corporate presence in the country. "It's incredibly important," Mr. Thompson said. "It's everything." Bates Gill, who has worked as a China specialist at the Center for Strategic & International Studies, agrees, noting that while it's important to maintain good governmental relations in most countries, it might be more so in a country like China. "The government has a lot of control over the full range of factors of production in China," Mr. Gill said. "From land usage, regulatory questions, licensing, labor, all of these inputs for profitable production in China are, you know, controlled and can be manipulated by state authorities. So you have to be cautious and make sure that those relationships are positive."
Why is it that, when discussing China, shameful bootlicking subservience under threat, a requisite of behavior before the ancient Imperial court, is tolerated by the most modern of businessmen and academics? Why is it blithely explained away, simply as an act of necessity, even of survival? Lord Macartney refused to bow to Qian Long:
In Peking Macartney refused to kow-tow, or make the nine prostrations, unless a magistrate of equal rank would kneel, and bow nine times before a portrait of George III. Both sides declined to yield. Finally, not in the palace, but in a garden, informally, the British minister obtained audience of the emperor, but in reality he was received and treated as tribute-bearer from a vassal state. Trade was opened at Canton, but the British foreigners agreed to obey the local magistrates. In a word, there was no "extra-territoriality" as yet. The foreigners' place of business was called a "factory."
[Note: If enough readers ask for it, I will find the incident in Macartney's journal of the trip, published ca. 1793.]
Bravo for that Brit! Who has the spine now?
Mattel's apology should be publicly and vociferously deplored, not simply for the craven act itself, then for its assuredly lasting after-effects upon other foreign firms, who will now find themselves pressured to act similarly, at pain of who knows what sanction.
I regret to say I can not commiserate with Mattel executives on their decision to cave. Instead, this is a lesson to all those who would foolishly place most of their eggs in one basket. I've been saying it for years, boys, China is a tough town. They play for keeps. Diversify or suffer. Or they're going to have you by the short and curlies. If they don't already.
Posted by Richard at 1:55 PM | Comments (0)July 17, 2007
What Happens When Your Chinese Supplier Says: Sure, Go Ahead, Sue Me!
Because American states must, in most cases, enforce a judgment issued by the court of any other American state, Yanks in business tend to take for granted that fabulous feature of our legal system, known as "full faith and credit." [A dear relative was wont to say "for granite," but the malapropism is nevertheless just as valid, i.e., written in stone.]
But nations do not fall within the American constitutional system: American court judgments aren't not often enforced outside of the U.S. Unless, of course, there is a treaty between the U.S. and a foreign nation, there is little chance a court of that nation will recognize and enforce an American judgment. And, lest we forget, vice-versa.
For this brief post to be of any value to you, I must mention Don Clarke, who teaches at Harvard. He's written a brief article, entitled "The Enforcement of United States Court Judgments in China: A Research Note," and even if you are not an attorney, it is worth your time. Don says, in essence, that Chinese courts do not recognize and haven't enforced an American judgment.
My point in recommending you read Professor Clarke's article is this: here lies an important lesson for American companies who do business with China. Don't expect you can take an American judgment against a Chinese company to China and sue upon it. Your American judgment will not be recognized. Your more likely remedy would exist when the Chinese company has established sufficient presence in the U.S., such that you can sue the company in an American court. But unless that Chinese company has assets in the U.S. upon which you can levy, you are unlikely to recover very much at all.
What implications does this have, exactly? For importers, for example, the Golden Rule is to guard your money carefully -- before you even enter into a transaction with a Chinese exporter. Do not pay up front and then expect to receive product. You may not receive it once the money has left your hands. You will simply have no recourse.
The wise prefer to spend the extra fee to open a letter of credit, payable upon your acceptance of the product, rather than resort to prayer. Now prayer is a good thing, but its efficiency in trade is yet to be proven. Who wouldn't spend the extra? Many inexperienced traders. Perhaps you. Especially if you are new to importing -- and some I've spoken with are sourcing via the internet without even visiting the physical location of your provider -- you should never blindly pay cash up front. [If you haven't visited your supplier, you are neglecting essential due diligence.] But even if you have longstanding relationships with your suppliers, I would not recommend anything but L/C based transactions, except in the rarest circumstances (emergency circumstances where a mold needs to be opened immediately, etc.). Continue to pray, by all means, but, with some recourse in your own country, you won't need to pray so very urgently.
More on the practical aspects of Don's article in upcoming posts.
June 22, 2007
The AFL-CIO and Chinese Unions
Today's post contains a few questions I'm hoping some of my readers might be able to answer.
This WSJ article on American labor union officials and labor activism in China is an interesting read.
The All-China Federation of Trade Unions (ACFTU) is a government department. Its management does not take its cue to any degree from laborer members, who, by the way, must, without exception, join. There are no benefits to speak of - except perhaps for the annual ticket to see a movie (forget a first run) and perhaps a box lunch.
[Here is a video interview with Andy Stern, President of the Service Employees International Union, speaking on his union's involvement with Chinese unions. Thanks to Bob Kapp for the onpass.]
It strikes me as incredible that American union officials have any sway without explicit approval and active participation of the Chinese Communist Party (CCP) at the highest levels – and certainly the encouragement of labor activism in general is not at the top of the Party's “to do” list.
So here are a few questions to my readers:
1) Can anyone point me to research on CCP control and oversight of the ACFTU? Is anyone working on AFL-CIO involvement in the Walmart “unionization?” The WSJ story does not refer to sources other than foreign union spokesmen, and I wonder if scholarship has been done on the subject.
2) This may be well out in left field, but it strikes me that there exists some American legal stricture upon union mobilization in connection with Communist controlled labor unions. Am I mixing something up? Call this a junior moment, if you will, but some legal thread somehow perhaps related to COCOM of years ago is telling me some federal prohibition exists.
Posted by Richard at 3:22 PM | Comments (0)June 12, 2007
Danone Sues Wahaha -- Accuses Partner of Parallel Operations
Danone is now sadly forced to wash its dirty linen in public:
"After a long investigation, Danone officials concluded that their closest partner in China, Wahaha’s longtime chairman, Zong Qinghou, was operating a series of secret companies outside the joint venture — companies that were mimicking the joint venture and siphoning off millions of dollars."
This has happened numerous times in the past -- the most famous case being the American paper company which set up a joint venture factory in the early 1990s, only to find that its partner had set up a factory across the street in competition with it, making use of the machinery, workers and expertise the American company injected into the venture.
Who says history doesn't repeat itself?
Posted by Richard at 11:38 PM | Comments (2)February 23, 2007
Another Chinese Super(business)man?
James Fallows reports on yet another rags-to-riches megalomaniac. Mr. Fallows's report, perhaps unknowingly, has caught in a 5 minute video all the usual characteristics of this Chinese type: xenophilia (but at a distance), imitation of "best practices," massive display of wealth, rigid enforcement of conformity among his employees, the creation of a personal ideology and, of course, assistants crowding round hoping to collect every tit-bit of his wisdom.
Posted by Richard at 6:09 PM | Comments (0)January 19, 2007
Shangai Bribery Case May Entangle Western Corporations
What? Bribery, McDonalds, Whirlpool, McKinsey, Shanghai -- all in one paragraph? Without further comment (as I am working feverishly on a project), let me direct you to this New York Times article.
Posted by Richard at 7:48 PM | Comments (0)January 3, 2007
Audio: Who's Not Making Money in China?
So who's making money in China? You'd be surprised to hear who isn't...
January 2, 2007
Who's Not Making Money in China?
While McKinsey spins a positive take on the potential for growth in Chinese consumer spending, foreign businesses in the consumer luxury space respond in the negative.
When Eric Douilhet opened China's first Paul Smith and Moschino fashion boutiques in 2002, he didn't expect they'd be making money by now. He didn't think they'd be losing this much, either.
``I was definitely expecting sales to be higher, the losses to be smaller,'' says Douilhet, 43, president of Bluebell (Asia) Ltd., which also operates Jaeger clothing and Davidoff cigar stores in China. ``People are too optimistic about China.'' He declined to quantify the losses.
We find this extremely interesting, considering that it has recently been reported in the Taiwanese press that over half of the largest 250 Taiwanese entreprises in China are barely profitable.
調查指出，國內前兩百五十大集團，大陸投資佈局呈現「三高兩低」！投資金額高、營收規模高、負債比率高，不過，平均稅後純益低、平均純益率低；將近五成虧損，平均每家純益率只有百分之二點零五。
Which idea do you buy into - a future Fort Knox or a grinding money-pit? Perhaps both are fundamentally correct. The snail's paced growth of a consumer market in China does not necessarily dovetail with one's hopes for a consistently profitable revenue stream.
As we have stated consistently over many years, investment in China must be approached skeptically. Expect less where more seems possible. Temper enthusiasm with caution.
Posted by Richard at 1:31 PM | Comments (1)November 29, 2006
A Few Thoughts on Excitement in American Business Culture
Jack Welch opined on the essential nature of excitement to spur on the managerial ranks. Get your managers excited about globalization, he once said, because it’s a complex task of gargantuan proportions. Get them excited. It sounds like a worthwhile idea.
But is excitement necessary or even beneficial? Is there real and lasting value to creating a buzz inside the organization?
I don’t believe there is, especially when it is manufactured. But the American businessman feels the need to tell the world that he is excited by…what exactly? How about these stimulating events: The release of a mundane software application…the 20th anniversary of an international trade education credentialer...a new financing program for a hardware store (CLOSED SUNDAYS) in the Midwest. Now can you get more blah than that? In fact, you can. Read a few dozen corporate press releases and you will find the excitement word in virtually all of them. But are statements like these professing excitement in the least credible? Do your best teenager impression and shout out: NOT!
Take this pseudo-excitement cannoned out towards the world and throw it back into the organization. Pep rallies for the sales force might make sense, but in very limited circumstances. All but the novice salesman is skeptical about management hype intended to stimulate action. The more seasoned salesman is disinclined -- on the basis of experience -- to swallow the hot air emanating from the etheral regions of upper management. [Does that make sense? Hot air should rise, but this stuff sinks.] Commiserating over a second martini after work, I have heard salesmen often say “Give me a product I can sell and the tools to sell it with” rather than “Give me more of that hogwash promising the world.” Dilbert fans working in the corporate world know what of I speak.
And yet American business managers insist upon generating excitement within their corporate structure, imagining it an equal to Fairy Dust. Countless consultants concur. (Chinese executives do not care whether staff is excited and refuse to excite them for any purpose, with very rare exception.)
[One may dispute whether the evangelicalism that permeates American business mimics the missionary zeal of American populist preachers – a parallel perhaps worth exploring, given the concomitant rise to influence of religious evangelicals in American political life.]
In business, however, I consider the need for “created excitement” to constitute, at the very least, a flaw in thinking, a generous waste of time and an effort in deception, if not self-deception.
Business is generally dull and repetitive work. There it is, I said it. Call me a contrarian, but while I surely recognize the joy in being given a challenge to one’s wits and experience, the details attendant to its resolution are rarely more exciting than a collection of 19th century door hardware. And yet a job well done, personal growth and a paycheck may make the grind very much worthwhile in one’s eyes.
Manufactured excitement intended to spur on the faithless to greater faith can not change the objective fact of daily dreariness; it may, to the contrary, make staff less likely to plod through the muck of minutiae. Indeed, in my experience, Chinese, the most unexcited of business managers, are far more likely to stick through the really hard work with far less complaining than Americans. There, I said it again. Americans wax eloquent about how hard we work, but, frankly, we come up short in comparison.
The nuts and bolts of business requires commitment and focus over lengthy periods of time. Excitement is brief – sustaining it requires a constant flow of propaganda. How much time and energy will you devote to creating the fantasy that corporate life is one big Orgasm? How many on staff will see through transparent efforts to manufacture a buzz? Welch’s excitement appears to have been a natural result of an effusive personality. Having never met him, I can only guess. But I have personally worked with only one leader who exuded a natural and genuine excitement on the job that was comparably infective over a long period of time.
The rest of the American managing world would best set its sights on simple professionalism – a plain honesty that recognizes the task at hand for what it is and, despite manifest hardships, sets to its resolution. American staff understand the value of a straightforward approach to their daily work. If you want to be a role model for your staff, don't try pulling the wool over their eyes. Avoid the hype and simply get down to work.
Posted by Richard at 4:25 PM | Comments (1)November 8, 2006
The Cost of Free Trade in China: Corruption and the FCPA
The Cost of "Free Trade" in China: Corruption and the FCPA
Bloomberg reports that a Beijing court has fingered IBM in the China Construction Bank corruption prosecution of Zhang En-zhao, the bank's former Chairman and once winner of an"Economic Person of the Year" award. Zhang is now the Person of 15 Years, the length of his sentence.
Documents issued by the court state that the company paid an agent US$225,000, which sum was channeled to Zhang. (No, no, we're not talking about Wang Xue-bing, Zhang's predecessor, who was also forced to resign and convicted of bribery. This is the the new guy. Well, not any longer.) We must note, however, in all fairness, that the mere inclusion of this information in a Chinese court document does not necessarily make it true. Regardless, it is now in the public realm.
The idea that one must buy favor permeates Chinese society, even down to the lunch offered by a family member asking for assistance. But bribery and the Foreign Corrupt Practices Act do not mix well. Since most commercial transactions can not be accomplished in China without the former, in one form or another, the latter tends to suffer when sales figures must be met. As to the actual payment of moneys, most corporations in China who fork it over do not do so directly, but instead make use of third (and fourth) parties -- often foist upon them by potential customers, but sometimes selected. Payments may be made within China or even overseas through a wide range of entities that may help mask the payment. One can be as sure of crisp US $100 bills in a satchel as often as numbered Swiss accounts.
An important note: the use of agents does not necessarily shield the American executive from prosecution. Actual knowledge that a payment or a promise to pay will be forwarded to an official is not required: constructive knowledge -- you "should have" known, given the facts -- can make the exec just as liable.
And is it even debatable that Zhang is an official for the purposes of the FCPA, when the CCB is a quasi-governmental organ of the state of China? The big spender [click this link if you want a good time] in China remains the state. How does the exec defend foregoing a big sale to a quasi-governmental organ and a payment to its key decision-maker in a market your headquarters believes will save the company?
(By the way, when senior management passes out copies of the FCPA -- with the notation in biro "read this and make sure you do not violate this law," as once happened to an American I know, it does not mean they care whether you violate the law, but just that they don't.)
The U.S. Department of Justice has grown increasingly serious about enforcement of the FCPA in recent years -- note the FIS investigation already in progress at the DOJ and in China, also stemming from the Zhang corruption case. But the acts of corporate bribery in China are so numerous, the proof for which is at best difficult to develop, that this the notation in Chinese court documents is an obvious anomaly. (Then again, when all the facts are known, it may be as much of a slam-dunk as might be attributed to George Tenet.) A squealer would seem to be the more common route to an investigation.
If you have not seriously considered it before, now is the time to give serious consideration to the value of risky behavior in light of the demands presented by the FCPA, the DOJ and, now, it appears, the Chinese government.
Posted by Richard at 1:50 PM | Comments (0)October 13, 2006
IBM Moves Division HQ to Shenzhen
The New York Times reports that IBM has moved its procurement division from Somers, NY to Shenzhen.
Just 20 years ago, IBM had only a handful of staff resident in China, not buying, but selling PCs made elsewhere in Asia and the U.S. Yes, even in the U.S.
Tempus fugits. One is only surprised how long it took IBM to place its most senior procurement manager and his staff nearest its suppliers.
Posted by Richard at 12:08 PM | Comments (1)August 28, 2006
Reflections on Transitions in Japanese Business Practices from the Bubble Era to Today (Part III)
Highly Adaptive Abroad, Japanese Firms Struggle to Integrate Global Best Practices at Home
[Editor's Note: With many thanks to the author for his insight, we conclude Shawn Beifuss's series on Japanese business management practices. Part I may be found here; Part II, here.]
Fast forwarding from my departure from Denso in 2002 to today, and I currently have spent just over one year employed with a Japanese logistics provider based in Tokyo. Operating in the middle market and family-owned since 1924, this firm’s work environment illustrates the fact that the majority of Japanese companies—primarily the 2nd and 3rd tiers—have been heavily insulated domestically from learning the lessons that firms like Denso have by venturing abroad in the late 1980’s. Especially in the Japanese trucking industry, which is fragmented amongst approximately 60,000 firms, the traditional approaches to strategy management and human resource management remain entrenched.
This traditional style of strategy management possesses a decision-by-committee orientation that encourages highly iterative versus transformative initiatives. By iterative initiatives I refer to activities that seek to improve upon past practices without a significant change in management structure, systems and philosophy. Transformative initiatives on the other hand typically require a paradigm shift where the perceptions of and approaches to a firm’s current business realities experience foundational change. In the iterative environment, improvements can “get by” through reliance on the homogeneity of the Japanese workforce to bond together towards a common goal. This approach doesn’t employ communication tools that explicitly link a pronounced strategy or policy to individual objectives—it is assumed “the group” collectively understands their role in relation to policy announcements.
Obviously, such an iterative approach requires a longer time horizon to effect change; in this context, human resource managers can feel at ease with the traditional seniority-based system that defers to length of employment or age level. Training in such an environment also follows an iterative approach—absent any external effort, employees learn at the pace of the firm. In the past, when Japanese firms could rely on a lengthy if not lifetime period of loyalty from their employees, this system made sense or at least was sufficient. But the Japanese employment picture of today has changed dramatically, and Japan’s 2nd and 3rd tier firms along with the Japanese tertiary educational system are struggling to keep up. Data released earlier this year on the program “Up Close” via NHK, Japan’s public broadcaster, showed that more than 30% of all new employees freshly graduated from college quit their job within three years.
From my experience working in my current firm and discussing this trend with our own new employees just out of college, as well as with friends working in other companies, it seems that the following conditions generally exist:
1.) Lack of fundamentals upon university graduation: The majority of university students in Japan graduate with very few of the skills necessary to be successful employees via their own resources. The university system is such that it is still generally based on the old system of deferring to companies to train and educate the workforce to be productive and successful.
2.) Poor utilization of new human capital on-the-job: Since a significant number of graduating students no longer enter companies with the expectation of seeking lifetime employment or with the loyalty traditionally expected of new recruits, a mismatch between training and employee placement occurs. The result is many university graduates learn on the job at a pace below their abilities—I estimate anywhere from only 30-50%—and quit the firm before the company is able to maximize the contribution of that employee—this in a period of 3-5 years. As an example, one ex-coworker of mine spent three years in the finance department but, after leaving the firm, realized in later interviews that his knowledge of financial management and financial tools significantly lagged his peers of the same age.
3.) Death spiral of low expectations hindering corporate performance: With a significant number of new employees lacking the discipline and resourcefulness to self-educate and the majority of Japanese firms lacking the training systems to maximize employee contribution, there is an increasing trend of looking outside the firm for managerial talent. Often, these management hires are older workers forced into retirement in their 50’s and 60’s by larger firms restructuring or descending from the hiring firm’s own customers. In this case, the often lack of knowledge of the firm and its services/products upon employment ensures at least a short-term drop in corporate performance. At the same time, lower-level employees become more and more discouraged with a system that fails to provide dynamic personnel development and promotional opportunities that match pace with the challenges of today’s rapid globalization. A death spiral ensues where the firm continues to rely on older employees with a lack of practical and current business knowledge for management positions while these managers are considerably negligent in developing younger employees to eventually replace them.
The top-tier firms manage to hold their own in terms of training and have done a great deal to adapt to globalization and the use of global best practices. As the first and only Westerner to be hired in my firm, I am attempting to change the approaches and perceptions described above one step at a time. But these types of firms can hire the best talent in the world and they will be relatively marginalized or fail because they work in a system that does not identify, maximize and reward talent. Rather, a system that does cultivate talent in the appropriate manner can turn ordinary employees into stellar performance contributors.
Even being constrained by the type of system described above, I feel my Western education has cultivated in me the resourcefulness and discipline necessary to educate myself as needed to reach my professional goals. I honestly believe that one reason Westerners excel in innovation and leadership more quickly upon entering the workforce than many Asian employees is due to the Western tertiary education system. Although the students of Asian countries excel at the high school level in the testing of math and science knowledge, the majority of these students fall far behind at the tertiary level—in essence, the critical thinking and intensive focus on individual excellence that drives Western education is very absent in Japan’s universities. The difference can be clearly seen when comparing Japanese who have studied overseas at the university level versus the majority of their peers back home. So as a Japanese university student, if the first firm I work for upon graduation is not going to provide the foundation for success, it is up to that student to make-up the gap in moving along the learning curve. Unfortunately, from my experience so far, this perspective and skill set is difficult to transfer to my co-workers without being in a position as their direct superior.
Gradually, as more and more Japanese domestic firms realize that having a domestic-only business doesn’t exclude them from responding to the demands of globalization, those firms are demanding more from their management systems—especially such tools as metric-based performance measurement. This change will be painful and those Japanese firms that don’t initiate such a transformative effort will find themselves acquired by companies that will force it upon them, or gradually fall into bankruptcy, ceasing to exist. The strength of Japanese companies overseas, especially in the automotive industry, illustrates that it is possible for Japanese firms to succeed when the environment demands it. For Japan’s numerous domestic companies, it is of great importance to benchmark these success stories towards transforming their employee management syste
Posted by Richard at 9:29 PM | Comments (0)August 22, 2006
Reflections on Transitions in Japanese Business Practices from the Bubble Era to Today (Part II)
[Editor's Note: Today's post is the second in a series by Shawn Beifuss of Asia Logistics Wrap. Shawn continues his discussion of Japanese business management practices begun here.
On the subject of Japanese transformations, you may also wish to read "Major Legal Reforms Expected to Bring Wave of New Lawyers in Japan."]
After graduating from college and entering the workforce in the summer of 1998, I discovered that Japan’s leading companies were learning to adapt in markets outside of Japan quicker than many might have realized, or wanted to believe, in the Western business community. What opened my eyes was a four-year stint working for Denso Corporation as a production engineering liaison. Denso is arguably the world’s current leader in the auto parts industry and Toyota’s lead supplier. I worked in Denso’s Battle Creek, Michigan plant, Denso Manufacturing, MI (DMMI), where approximately 2600 American employees are currently led by a mix of American and Japanese management. The facility was the first established in the USA by Denso in response to Toyota’s own venture into Kentucky, and began production in 1986. A book titled “Small Town, Big Corporation” about the story of DMMI’s establishment is an excellent case study to read, but unfortunately is out of print and difficult to find. However, the point I want to make is that even while the Japanese corporate system was being advocated during the 1980’s and oppositely criticized throughout the post-bubble period, Denso was already establishing a hybrid of American and Japanese best practices at Battle Creek that would become the foundation of its strong business success and resiliency across North America throughout the 90’s and into the 21st Century.
As a liaison, I witnessed on a daily basis the tension of such a hybrid management system, but at the same time observed the characteristics that made the company quite adaptive and competitively stronger than American suppliers, such as Visteon and Delphi. This can be seen in the firm’s resilience and upward trajectory throughout the automotive industry’s struggles post-IT bubble and the 9/11 terrorist attacks—a period during which its customer base was almost 50% non-Toyota auto makers. Steeped in the principles advanced by Toyota via the Toyota Production System, Denso’s management succeeded in bringing about a culture where the predominantly American workforce adopted Japanese best practices and vocabulary in terms of team-driven, quality management and continuous process improvement. For example, words like kaizen, genba and heijunka do not need translation (continuous improvement, work floor, and leveling, respectively). Americans work alongside Japanese peers for every production line start-up and regularly participate in global innovation and quality circle tournaments sponsored by Denso Corporation headquarters.
At the same time, the predominantly Japanese management developed the ability to lead with the performance-based incentives and directness desired by American employees. Every Japanese president has been known to make regular visits to production lines to converse with employees; management feedback forums are held once per month so that employees can directly bring concerns from the genba to DMMI executives; and a famous process improvement incentive program supports individual kaizen suggestions that save DMMI money, but also over time provide employees with increasingly bigger rewards—the largest prize being a completely new, personally selected automobile via a DMMI customer. DMMI was able to do this through a unique co-management system where American managers pair up with Japanese transplant managers up to the vice president level (the president is always Japanese). Despite regular, ongoing tension regarding information sharing between Japanese and American managers, DMMI has been able to capture the strengths of both cultures in a management system that provides regular reviews, transparency, and a dedication to employee development and empowerment that has made the firm truly a model place to work.
Stepping back to the see the bigger picture, however, these advances by Japanese firms operating abroad often face barriers toward being modified and adopted, even partially, for Japan’s domestic business environment. My next post will look at some of the key challenges domestic Japanese operations face and provide some thoughts to remember for future discussion.
Posted by Richard at 1:42 PM | Comments (0)August 8, 2006
Reflections on Transitions in Japanese Business Practices from the Bubble Era to Today (Part I)
[Editor's note: "Even an idiot can make money in easy times," said a Taiwanese business friend, once one of the largest garment manufacturers on the island and long since retired. "But the test of your commercial ability comes when times are tough. Try staying afloat then."
During the 1980s, this editor worked for Japanese corporations in Japan during the so-called semiconductor wars with the United States. Japanese had become mighty competitors, reducing venerable American brands to so much rubble. How had they done it? Americans wanted to know the secrets of Japanese success.
But then came China, and, oh, how the mighty have fallen! Or have they? What about those famed Japanese business practices? Have the Japanese adapted to changing commercial circumstances, and, if so, how?
Shawn Beifuss of Asia Logistics Wrap, discusses these issues in a series of posts beginning today. We are grateful to Shawn for his insight and permission to post on Asia Business Intelligence.]
Part I: Overestimating Japan in its Rise, Western Business Underestimated Japan in its Descent
During Japan’s bubble years throughout the mid- to late-1980’s, there were many books and articles written for the Western business community that advocated the “Japanese way,” and warning the Western business community to either adopt Japanese practices or lose out in head-on competition. A widely read book that exemplifies this period is titled “Kaisha: The Japanese Corporation,” and is reviewed at Amazon as follows:
“Much of the literature on the legendary success of the Japanese corporation has rested on the premise that the Japanese possess certain cultural traits, not easily transferable to the West, that provide them with inherent advantages in executing corporate strategy (see, for example, William Ouchi's Theory Z). Abegglen and Stalk, however, maintain that the successful strategies of the best Japanese “kaisha” (corporations) are more imitable than not. They discuss such learnable, competitive fundamentals as debt financing, high retained earnings, a short-run concern for building market share, and a partnership with labor. While the preoccupation with the Japanese managerial style can become tiresome, Kaisha offers a different interpretation and is recommended.”
I was assigned to read this book during my first visit to Japan as an exchange student at Waseda University in 1996, already about five years into the post-bubble era. By that time, the vulnerabilities of Japanese firms were regularly appearing in domestic newspapers in the form of high profile scandal, bankruptcy and financial mismanagement that extended to large contracts private firms held with the Japanese government. The aura of the Japanese firm’s prowess seemed to be crumbling and looked to give way to the West regaining its sense of superiority as the leader in global business practices. This background context while reading and dissecting Kaisha provided insight into both the origins of Japanese firms’ perceived unrivaled ascension and the sources of their increasingly publicized failures in managing business realities.
One more trip to Japan from January to March of 1998 to complete my senior thesis helped solidify the feeling that Japan was entrenched, at least domestically, in a downward trajectory in terms of its business climate. During those three months I stayed with a good Japanese friend from a wealthy family, and even their household had become quite conscious of their spending, pessimistic about the Japanese economy’s future. Interestingly, my friend’s father, who was president of a large film developing chain, directed most of his criticisms towards the knowledge and education of his sons, and by extension the younger population of Japan. His concerns then about the learning and progress of Japanese youth seem very prescient today, but as I will illustrate in my second post, any wholesale dismissal during this period by Western firms regarding the state of Japanese competitiveness would have been mistaken.
[Part II may be found here.]
Posted by Richard at 3:17 PM | Comments (0)June 9, 2006
Sino-British Joint-Venture Dissolved for Rudeness?
Here is as curious a report as can be imagined. A Sino-British joint-venture dissolved because of one rude encounter between chief executives?
Beijing Guoan Advertising head Yan Gang said the decision [to dissolve the joint venture] came after he was called to London in April to discuss management problems and was allegedly given a brusque reception by WPP chief executive Sir Martin Sorrell.
"I have met a lot of people but never met anyone as rude as (Sir) Martin," Yan told the British newspaper.
"Because of this kind of attitude, we have been forced to cease co-operation with him."
One is stunned as with a brickbat over the forehead. Chinese are supremely practical beings -- a mere snub overwhelming commercial motives? There must be more to the story.
Can any reader, perhaps in the ad business, supplement?
Posted by Richard at 12:39 PM | Comments (2)March 30, 2006
Yours Truly, Interviewed
As part of his series on international business, Wayne Turmel, host of The Cranky Middle Manager Show, interviewed me recently on the state of Chinese business management. It was an honor to have been asked and a pleasure to have been interviewed. We hope you find it worthwhile as well. Here it is at Wayne's site on The Podcast Network. Alternatively, click this link to listen to an mp3 of the show. After Wayne's preface, we begin conversing at around the 5 minutes and 40 seconds (05:40) into his show.
May I also say that, during the lengthy hiatus from blogging, I was amazed and grateful to many readers for their kind email asking where I had gone to. It was only the rush of pressing projects that kept me away from this site, and I will be back writing within the next few days.
Posted by Richard at 7:26 PM | Comments (1)November 21, 2005
Revisions to the Chinese Company Law
Few Chinese would give much credence to the notion that law is at all important to the their businesses, despite the growing number of regulations that impinge upon commerce. Traditionally, to the Chinese, whatever the law might be at the moment depends very greatly on the man who is executing it and your relation to him. This remains true to a large extent even today, especially since Chinese judges need not rely upon precedent, nor need they in practice explain their rulings.
However, given the many tens of thousands of lawsuits proceeding throughout China at this moment, far more than perhaps ever before, as well as the central government's insistence upon what it calls "rule of law," the law has become something like the fly that buzzes constantly around one's head, until one must take notice of it. And that is precisely what I would suggest. Your attorney will guide you through the minimal requirements that Chinese law demands of you in your particular situation, which with exception, will be generally less that what you would find inescaple in the West.
The Chinese Company Law has just been revised. The Legal Daily (法制日报) has reported upon the changes in the law with a brief comparative review, portions of which I have translated. Here is our first installment:
Understanding Revisions to the Company Law: A Comparison of the New with the Old
By Wu Kun
On October 27 [2005], the 18th Session of the Standing Committee of the Tenth National People’s Congress approved by majority vote the revised Company Law, to take effect beginning on January 1 [2006]. This is the third revision enacted by China’s legislative body to the Company Law since its passage on December 29, 1993, at the 5th Session of the Standing Committee of the Eighth National People’s Congress
As all know, the Company is the most important form of enterprise in a market economy. Enterprises with the company form do not represent the largest percentage among all enterprise forms, but their total capital and overall economic contribution far exceed other enterprise forms. At the same time, the company is an important mode by which the modern enterprise system is created. Currently, in China's state-owned enterprise reform, the use of the company structure to implement reform is very important. The revision of the Company Law and China’s company legal system contributes to the strengthening of China’s establishment and perfection of the Socialist market economy, hastening economic development. We may clearly discover, through a comparison of the old and the revised law, what of the new Company law will have various effects on the maintenance of the market economy structure.
1. Introduction of "Piercing the Corporate Veil"
Current law: Not in the current law.
Revised law: A shareholder who abuses the independent position of the company’s legal person and the shareholder’s limited liability to evade obligations, seriously damaging the interests of the obligees, assumes responsibility for those obligations.
To be continued...
Posted by Richard at 7:41 PM | Comments (2)July 29, 2005
Guest Column: Share Options Give Market a Boost
[Editor's Note: More than a few multi-national businesses have foregone international adoption of employee stock option plans due to local regulation. Employees in-country may come to believe, wrongly, that headquarters has decided to treat them unfairly when the real obstacle to a corporate benefit is law. A well-intentioned incentive scheme may create a tangle leading to dissension and even disloyalty. Indeed, such a situation has occurred in China.
Over the past few years, Chinese regulators have devoted some thought to a remedy, recently enacting regulation. Today, we turn to Seung Chong, an attorney with Simmons & Simmons in Hong Kong, for a discussion of this development, which, it is interesting to note, involves the non-tradable shares issue. Seung advises on mergers and acquisitions and foreign investment in China.]
Share options give market a boost
By Seung Chong
Last week’s decision by the China Securities Regulatory Commission (CSRC) to allow listed companies to issue share options to employees is a salutary step to boost the domestic markets.
It gives companies the opportunity to add an important constituency to their shareholder base. It also gives the companies a powerful tool to incentivise and retain employees, in particular, senior management who can be rewarded by reference to share performance.
But, in order to take advantage of the regime, a company must apparently have first converted its non-tradeable shares into tradeable shares.
The overhang of non-tradeable shares has been blamed for the underperforming stock market, so the desire to issue options may be a powerful inducement to management to convert the non-tradeable shares.
Multinational companies seeking to standardise their global employment practices have been among the first to implement share incentive schemes in China. But the existing legal regime was not devised with share option schemes in mind.
Grey areas can be found in the rules on securities offerings and “safe harbours” designed to implement a share option scheme. There are also practical obstacles such as the difficulty of remitting foreign currency to exercise options. One solution is to implement cashless schemes. Under this plan, arrangements are made for the option holders to fund the exercise of options, and they are paid the net proceeds of the equity sale. But the problem with cashless schemes is that they defeat the very aim of encouraging long-term holdings by employees.
Some multinational companies have introduced phantom stock schemes or share appreciation rights. These are essentially cash bonus schemes, where the amount is linked to share price rises. Phantom schemes are often seen as undesirable because the payment has to be taken through the profit and loss account.
In devising a new regime, it is hoped that Chinese regulators will create a seamless and internally consistent regime for domestic companies and multinationals. But this may be a tall order.
Several factors need to be taken into account. First, the regulator is in the process of introducing new legal concepts such as the prohibition on companies to provide financial assistance to purchase its own shares.
Second, new option schemes will have to dovetail with the expected amendments to China’s company law. Third, any new regime will have to be an inter-agency effort as State-owned Assets Supervision and Administration Commission oversees many companies that may want to introduce share schemes.
Finally, share option schemes can only work in an environment where good governance is the norm. China needs, among others, tighter rules and enforcement on insider trading and an improved culture of compliance.
[Contact Seung Chong directly by e-mail. This article first appeared in the Financial Times, and is posted here with permission of the author.]
Posted by Richard at 1:44 PM | Comments (0)March 28, 2005
The Changing Value of "Guanxi"
When Westerners discuss Chinese business, they inevitably fall upon the venerable topic of indispensable “guanxi (关系),” or, in ready-bake parlance, “connections.” With a charming innocence, Westerners ascribe to the term “guanxi” an almost mystical power, as if it were a talisman to be worn about the neck. [The pin-yin method of romanization makes it very difficult for newcomers to the mandarin dialect. “Guanxi” should be pronounced approximately like “gwan shee.”]
Why? One with “guanxi,” it is believed, can get things done in China others simply can not. Many Westerner businessmen will regale the listener with stories of a Chinese colleague who, solely by virtue of his incredible “guanxi,” accomplished some task – helping an application through a government office, overturning a denial on a permit, etc. -- once thought impossible. Sometimes these stories ring true; at other times, I have been more impressed with the Western businessman’s willful ignorance to pierce to the root cause of the success.
A personal connection to a decision-maker, wherever on the globe, is valuable. But, it is presumed, Chinese hold far greater sway with any given connection than other ethnicities. There is more than just a grain of truth to that. Most Americans, according to my experience and observation, will generally not perform favors for even dear friends, unless either the request is logical or there is a direct and immediate benefit to the person who receives the request.
Chinese, on the other hand, are quite willing to perform favors -- without investing a great deal of ratiocination -- merely because a request has been made by a personal contact. Chinese are extraordinarily sensitive to the needs of their personal contacts – a faculty one might wish more Americans might develop.
To be fair, Americans open their hearts to strangers asking for assistance, while Chinese give strangers short shrift. The idea of “the public good,” if it ever existed as other than a traditional philosophical idea in the collective Chinese psyche, is in practice severely underdeveloped. As one Chinese manager said to me with no little shame as we walked through garbage strewn streets of Shanghai some years ago – “中国人最缺的就是公德心。[Chinese lack an awareness of the importance and value of the public sphere.]” That isn’t atypical of Americans: drive through the streets of Newark, New Jersey, and one can say the same.
But, really, how important is guanxi in China?
Influence works: pull strings whenever possible. However, while one might get some leverage through a personal connection, the value of guanxi is steadily on the decrease.
Just 25 years ago in China, political and economic power was concentrated in the hands of a very few. There were but a handful of decision-makers. One’s connection to that personage of power might arrange a transfer to a desired work unit, a larger apartment, enhanced medical care, etc.
With experience, one learned to take claims of pie-in-the-sky guanxi cum grano salis. [Perhaps I should not mix my metaphors, or, for that matter, sweet with salt.] In the 1980s, every Chinese waxed eloquent about his contacts, knowing full well their importance to the listener, when he very often but blew the proverbial hot air.
Some people were indeed very close to the center of power. And yet even they were difficult to access; they rationed their guanxi; they negotiated for value in return. They did not give it away to any and all takers.
But enough of the past. In short, that world – where a needle decided for a field of haystacks -- has begun to fade from view. With China's tremendous economic development, there are far more decision-makers now than there have ever been in China’s modern past, and their numbers continue to grow. Some people will still be well plugged in far better than others. But no one can possibly know all of the decision-makers, or even, for that matter, a substantial portion of them. A lock on guanxi is a relic.
Yes, one must acknowledge the vestigial value of guanxi. As I stated, pull strings whenever possible. But do not focus on it. Instead, in the China of today, we must look to the development of a far more important business skill -- that of creating relationships of trust with strangers.
More on how this may be done to good effect in upcoming posts.
Posted by Richard at 7:56 PM | Comments (1) | TrackBackMarch 21, 2005
Where Would You Like the Comma Placed, Sir?
Let’s continue our discussion of the manager in the Chinese enterprise, which I began in "Chinese Management -- Beyond Garbage In, Garbage Out."
Western Flights of Fancy
When I counsel western expatriate managers running businesses in China, I find a few predisposed to flights of fancy. They expect P.R.C. Chinese business managers, and other P.R.C. Chinese in positions of authority, to act benevolently towards their staff, as if the constructs of ancient Confucianism were practical management methods in the modern day.
Measure this against the reality and one will find it very far from the truth. In 20 years of involvement with Chinese companies, I have only met three Chinese nationals -- all elderly, whose formative years preceded the Liberation of 1949 -- who practiced a management style one might call benevolent. (And yet I have encountered many Taiwanese who practice a benign, generous and compassionate “fatherly” authority over their staff, with, in all cases, great success.)
One musn’t blame or ridicule these westerners – they have merely picked up on a fantastic thread running through the western imagination, one unfortunately propagated by academics, journalists and travelers who have known as little of every day Chinese life as non-specialists, with sparse exception. It is emblematic of the long and preciously held western consciousness about China that many still consider it exotic, mysterious, exciting.
The Authoritarian Style
P.R.C. Chinese management style is founded upon the premise that all good flows from the manager. Fear of loss – of job, prestige, income, self-respect – demands that staff placate the manager at all times, regardless of the demand.
“You are my salesman. On Saturday (our usual day off), you will wash my car.” Most Chinese staffers would readily agree, albeit grumbling in secret, to such a demand. Imagine the reaction from an American salesman! (Far more outrageous demands have been made, but I hesitate to include them here, for fear that the reader would not believe me.)
Some Hong Kong Chinese and Taiwanese adopt a similar management style, especially while managing in China. Even their demands exceed one’s usual tolerance for outrage.
As for whatever business problems that must be resolved during the course of the day, the PRC Chinese manager, with exception, of course, is often a micro-manager, causing surprisingly curious and even stammering reactions in staffers. One asked me, in timorous voice and bowing heartily, where I thought certain punctuation should be placed in a presentation I was to give. Only fear could have given rise to such a queer question, for the staffer was extremely intelligent.
But what is one to do, thinks the ordinary Chinese staffer?
So, What is Going On?
The usual explanation is population. There are far too many Chinese for too few employment slots. One in a position of authority can exploit the situation to his benefit.
But I think there is more going on than simply supply and demand.
The urban intellectuals -- Mao, for example, was briefly a librarian at Peking University; Zhou studied in Japan and France -- who formed the peasant-based Communist movement in the first half of this century consciously instituted a rigid discipline over them. One became subject to the exacting requirements of obedient thought and choreographed action in virtually all aspects of life.
That militarizing mode of behavior has served pervasively as the model over the past 50 years. Chinese decision-makers throughout society have been trained – well-trained -- to emulate the authoritarian command of the politically powerful. Concomitantly, those who serve have been trained to obey, with contempt redounding to their detriment.
A Change Coming?
But, as I wrote,
“…the role of the manager in a Chinese enterprise is in flux. The authoritarian style, while remaining the style of choice, shows fine cracks running up and down its facade.”
How has it changed? There is a new Sino-western combination of management styles: one that, while abjuring authoritarian command, allows one to maintain close supervision over staff.
Importantly, without sacrificing results, this style is a kind of carefully managed freedom that allows staffers to better utilize their skills and knowledge to resolve business problems for the benefit of themselves, the management and the business. I have used it with success.
More on this in a future post.
Posted by Richard at 7:18 PM | Comments (1) | TrackBackMarch 4, 2005
Chinese Management -- Beyond Garbage In, Garbage Out
Chinese educators place a premium on rote learning. Those of a more enlightened consciousness believed that the meaning of what one had memorized as a youth would become apparent at a time of greater maturity.
I witnessed the wondrous benefit of this instructional concept at a luncheon in Taipei many years ago. As we discussed how one went about forging business relationships, a Taiwanese friend suddenly banged on the table, shocking us.
He had evidently experienced a revelation of understanding – of a phrase in The Analects by Confucius that his parents had forced him to memorize as a youth 30 years before. [The Analects in English and in Chinese.] “So that’s what it means!” he said. The value of rote learning is apparent. “Life experience,” as an American might call it, brings the idea held within memory, as a seed awaiting the spring, to life.
However, the literalists are far more numerous, especially in modern mainland China. They demand strict obedience to the letter of the teaching – whatever that teaching may be. The ability to reason and come to conclusions on one's own was and is seen as a danger to the powerful. A dear friend, who is also a brilliant intellectual, told me in 1983 he thought Mao Zedong a great man because he controlled the masses with thought. Shocking as that was to a young American intellectual, as I then was, it is nonetheless instructive of a typically Chinese principle: uniformity of thinking ensures control.
What does all this have to do with business in general and investment in particular?
Having spent my life among Chinese – and having trained many – I have found that the most difficult, and yet most pressingly important, task in a Chinese enterprise is teaching employees to think for themselves. Aside from the occasional micro-manager – whom most westerners would consider as lacking vital self-confidence -- the American manager expects his American reports to have the ability to resolve problems on their own with a minimum of supervision.
Chinese managers represent the opposite pole entirely, surely by education and often out of necessity. That is, complete control of all details at all times. Employees aren't supposed to think for themselves because the manager is to do that for them. But how can one create managers out of employees who never have to think for themselves?
That said, the role of the manager in a Chinese enterprise is in flux. The authoritarian style, while remaining the style of choice, shows fine cracks running up and down its facade.
What are some of those changes and why have they come about? How does the manager augment his staff's individual level of capability and self-sufficiency while retaining strong overall direction of his team? What does an investor look for in the management staff of his target, if he hopes to gauge the potential for success of the business? We will address this topic is greater detail over the next few weeks.
UPDATE: Read the next installment of this post at "Where Would You Like the Comma Placed, Sir?"
Posted by Richard at 3:42 PM | Comments (1) | TrackBack
