Chinese Monopoly by China Mobile

Broken Phone
It was a Friday night trip to hotpot that ended with my phone display not functioning. Not wanted to be out of touch, I suggested to my wife that we needed to get another phone on Saturday.
The Deal
She reminded me that we had received a call from our China Mobile Global VIP Customer Service Manager telling us about a special deal for Global VIP customers. The deal was that if you put a deposit down on select phone models and commit to a predetermined minimum amount you would spend over the next two years, you get your deposit back (i.e. get the phone for free). I am a fairly heavy user, or at least have been on and off so that deal was easily under what I would spend in two years of normal usage. Sounds like a good deal, right? We set out to get the new phone.
The Problems
We looked at the available models for the special offer with the help of a customer service person at the store, picked a model and after spending 30 minutes looking were told, “We don’t have the key for that display. It’s the weekend and that person is out.”
After my wife placed a phone call to the manager, magically the keys appeared and the display was unlocked. When we inquired as to if someone had delivered the keys or if they were there the entire time, the service person said, it wasn’t clear who had the keys before but they were in fact there. Chalk that one up to the usual lack of follow through exhibited by customer service personal in a large government backed monopoly. It’s the level of service I have grown to expect so, I let it go despite the wasted time and effort wrangling them to do their jobs.
After 45 minutes in the shop, I can finally see the box that my new phone is occupying. It’s right there on the counter and all I need to do is pay the deposit, and sign the agreement. Simple enough, right? Not really. When the service person asks for my phone number she looks at the account and says, you have participated in a promotion and are not eligible for this one because of the one you already have.
So, I ask, “OK. What promotion is that?”
The long response was basically, there was a deal that if you put 200 RMB on your account; China Mobile would give you 200 RMB free. Still failing to see the problem, I was at a loss as to:
1. Why would the China Mobile Global VIP Service Manger call to promote an offer it I wasn’t eligible?
2. Why, even if I had participated in the buy 200 get 200 free promotions, China Mobile would refuse to take my 3500 RMB deposit on a new phone and a guarantee of 10,000 RMB in business on the account over the next two years?
What followed was the longest completely irrational conversation that I have had in China. For the next hour we talked with store managers, Global VIP Customer Service Mangers and anyone else that would listen, while we sat in disbelief that for 200 RMB a business would pass on 10,000 RMB.
I offered to cancel the previous deal and forgo my 200 RMB worth of free service. That was not possible. I asked for a loner phone until they could sort out the problem. Again, not possible. They did offer that if I gave them 10,000 RMB I could have the phone but then again handing someone 10,000 versus committing to a service agreement for 10,000 over two years is a bit different. The only other solution offered was to get a new phone number, thereby creating two accounts that I would be responsible for. Committing to additional exposure to poor service somehow sounded a bit sadistic to me.
In the end
I realized that short of going to China Unicom and giving up my phone number that I have held for nearly 7 years there was no option because China Mobile is a government monopoly. So, I spent the afternoon playing their game of monopoly only to realize that there was zero incentive for them to offer customer service because in the end they are the only game in town.

Homer’s Odyssey: Part One

This is the story of a guy named Homer. No, not the Greek author nor the dimwitted, dough-nut eating man that brought us the phase, “doh”. Although, I have to admit that Homer’s story is rather long twisted and full of those moments that beg for the word, “doh”.

Homer, as luck would have it was our first employee, at a start-up company that some good friends and me put together to change the world. He was a friend that they met while spending time as consultants for a local company in Suzhou. The local company had hired the team out of Los Angeles, where they started their work but soon found that communication with China from Los Angeles was not yielding the results that they wanted nor that the business owner expected. Both sides agreed that a move to China was the logical solution to the problem, a solution that brought these great friends into my life and facilitates a great lesson on doing business in China.

The team for the US settled in at there new home and started working. One employee at the company stood out among the others. He was friendly, helpful and spoke great English. When ever the team had a problem, Homer was there. Even beyond the job, when one of the team needed medical attention, he stayed buy their side through the hospital visit and quickly became a friend they could turn to.

When the end of the contract come years later, the team decided to start up thier own venture and China was a large part of that strategy. The team was well honed at design, marketing, and sales and had lived in China. Why not design products and bring them to life by manufacturing in China’s low cost labor market? Homer was employee number one and started sourcing suppliers and arranging transportation and logistics the team.

The team left China to return to Los Angeles and begin building the company from there. Months past and I received a phone call that they were ready to get started in earnest and the first product was past the prototype stage. Excited to get started, I met up when the CEO came for a visit with one of the Directors of design. This was when I learned that Homer had been helping out in China while they were in the US getting things ready. He was their eyes and ears here, while they prepared sales literature, made contacts, tweaked the samples etc.

The first and most important mission on this trip was to address some issues with the injection molding tooling that were required. I tagged along on a visit to the tooling supplier. We met at a coffee house which I found strange since we were discussing tooling not management theory. As soon as I cleared the thresh hold of the doorway and before I could even say hello to the tool maker, Homer burst across the room and blurted out to the supplier, “He speaks Chinese, be careful what you say,” in Chinese. That set the stage to what became a rather awkward meeting with a lot of silence and sideways glances. We struggled through the issues and seemed to reach a consensus on the adjustments to be made.

Shortly, after that meeting the CEO announced to Homer that I would be joining the team and that he would be working directly for me. His mouth said great but his eyes didn’t echo that emotion.

Our next meeting was with a potential new supplier that was to provide us with an aluminum extrusion. We loaded into a taxi and set out for our destination. The CEO and I where chatting and I hardly notices we had abandoned the paved road for a narrow dirt road that ran between two fields. It was surely a sign that we were lost. Nope! We turned left into a break in a brick wall. At this point, I asked the taxi to wait around for us as I was not looking to hike back to town.

The “factory” consisted of a small wooded building that housed the office and what can only be described as a tin roof spread over some poles. There was an apex at the center that ran down to a tin wall on either side that formed two rooms one on each side of the open center roof. We went into the office and they sun disappeared, not because there was no windows but because the dirty was cake on so thick as to block the sun. Not wanting to offend, we politely took our seats and sipped from our green tea while samples where presented. We looked at different finished and colors. They gave a price which I knew was ridiculous. (In preparation for this meeting I had a friend check some sources). This supplier was a healthy margin above the market price.

By the look on the CEO’s face, I was pretty sure this trip was through but the factory owner offered us a tour. We followed along behind as he entered the open air center portion of the factory. In the center were the finished goods, stacked on the dirt floor. Either side room, house a cutting or polishing operation but the real treat was still to come. We continued on through the center of the building and out the back side into a courtyard set up that had two pits in the ground. These pits, which were lined with red construction bricks, were the anodizing operation. Two men with sticks put the aluminum in the baths and what look to be less then accurately timed intervals.

Homer received a lecture from the CEO on pre-screening factories after he was asked if he thought this factory would provide acceptable products. It could just be that Homer was incompetent but I had other ideas cropping up in the back of my mind.

Manufacturing Quality debate in China

The rash of recent recalls, articles and mortalities stemming from China’s quality woes deserves a day in the spotlight. Having pumped out over $7M in products over the past couple years, this battle is close to home. I personally introduced 5 new products made at 5 new manufactures to the market in one year. These products where not sourced commodities that I slapped a logo on but custom engineered innovations that required everything from the ground up. From tooling to final inspection, it all had to be created, confirmed, and controlled to deliver a consistent, safe, affordable and desirable product to the customer.

The thing that troubles me about the articles I am reading is the statement of the absolute obvious. Let me give you an example. You should test the products you are having made. No kidding, well thanks for the pearl of wisdom. Anyone that read that article and had an ah-ha moment either works at Mattel or has never produced a product in their life. The world or at least my trusting friends in the US are shocked that the Chinese suppliers would actual cheat the customer and provide inferior products. We are so far removed from reality in our safe little bubble, protected by two oceans that we forget what business is like. These kinds of things have been litigated from our memory in the states. We have moved on long ago to damages caused by hot coffee. We are a nation that is detached from reality.

The practical implications of this are simple. We try to manage a situation in a factory in Changshu from an office in Shanghai or worse Los Angeles. Why? It is comfortable and easy to stay in our office and let the supplier or the trading company handle it. After all, they have your company’s best interests in mind. Well, maybe they do but I say, “Trust but verify”. The only way to do that is to be on the shop floor in Changshu armed with enough knowledge to know if you are getting what you have ordered.

There has been a ping pong match of articles in the media. If you watch US news outlets, then read the Chinese outlets, there is an interesting point, counter point debate going back and forth.

Some articles of interest

http://www.forbes.com/2007/07/26/china-manufacturing-quality-ent-manage-cx_kw_0726whartonchina.html
http://www.businessweek.com/smallbiz/content/aug2007/sb2007089_716295.htm?link_position=link1
http://english.people.com.cn/90001/90776/6246923.html
http://english.people.com.cn/90001/90780/91344/6250684.html
http://english.people.com.cn/90001/90778/6251031.html

For me, I like to stay out of the political wrangling for the most part, save this one statement. I believe completely that protectionism is foolish and ineffective.

Regardless of the politics there are real battles being fought to ensure quality products are being produce but that war has been going one for longer then the recent media blitz. It is really a simple matter in my opinion. Understand the environment you are doing business in and act accordingly. It is incumbent upon US companies to understand were they are manufacturing and to plan according. Stop crying foul after you take advantage of a low cost labor provided but don’t think that you need to be responsible at the onset to put systems in place to monitor quality. That strategy seems adolescent to the point of ridiculousness.

Wake up. Smell the lead in the paint and put systems in place to keep that crap out of your supply chain.

What complex system did I put in place to foil the crafty suppliers from duping me with inferior products?

  • Understand the product and the process better then the supplier. Write the assembly instructions, know the machines involved and even what settings they should be running at. Require written approval for any deviation and spot check.
  • Make QC/Inspection plan. Incoming materials, in process and final inspection points with detailed measurable parameters.
  • Test the pre-production product as a baseline. Follow that up with random in process testing and testing after the product has been boxed up.
  • Hire a QC technician to go where you want, when you want everyday. It cost about $300 a month for one. Probably to much for large corporations like that ones getting pepper in the media right now.

I got a little crazy at the start and had the supplier do 100% final inspection, and then I had my own quality guy do 100% inspection. This seems extreme the surface but it puts the supplier on notice and lets them know how serious you take quality.

There are other things that can be done as well. The most obvious is picking the right supplier. That is probably an entire series of articles that is best left for another time. Another great strategy is randomly showing up at the factory. The look on their face usually tells me how the rest of the visit will go and I will all but guaranty they will not want to get caught twice with the hand in the cookie jar. What not to do is hire a trading company or broker and think they will do the job for you while you’re in Hong Kong or even the US. Showing up is half the battle. The rest is common sense.

The final thought I will leave you with is don’t be too eager to assume that a third party inspection company can solve your problems completely either. On top of what I read in a recent article about submitting multiple samples and only showing the customer the one in ten passing report, I have seen first hand inspections being more a transfer of cash than anything else. More on that another day.

Son of Suzhou

Start Here

This entry was going to be more background information about me in attempt to establish my credibility by revealing my experience and qualifications so that I could feel good about writing information that would be published out there with the experts. But after reading what the experts have to say, I am convinced that there is no need to have any qualification and experience and there is certainly little call to use common sense. Sorry, I needed to rant a bit first.

What comes to your mind when you conjure up the image of an expert? If you are like most, I am guilty as well, you think of the handsome grey haired polished well spoken businessman who seems to have all the answers as if by divination. Hogwash!!! That may have been true thirty years ago and don’t get me wrong, I have a reverence for that kind of life experience, but things are different know. The rate of change in technology and information is staggering. The days of building your knowledge over the decades and being a sage old man with a kingdom of serfs trying to become the sage old man are over. Today’s expert is the guy that is in the arena with his face bloodied battling it out gladiator style. He hard as a board from getting his ass handed to him on a daily basis and getting back up off the ground to fight some more but he is still there and living to keep on fighting because he find a way to do so. I submit to you that this is an expert and one that is ready to go to work.

Expert or not, I have advice for you that I have given to many a company and friend. If you want to do business in China, then you need to be in China. It’s complex and simple at the same time. Sure you can hire a trading company or you could send one of you high paid executives to China. Both have pluses and minuses. Hiring a trading company or broker is likely put you in a spot you don’t want to be in. Either you will not get what you want or you will not get it at the price you want it. Sending your executive is costly and it means she will not be in the US doing what she usually does to make the company money.

How do you know what is right for your company? The smart move is to do both. Here is why:

  • Always have a representative from the mother ship in China. I mean living in China with his full time responsibly focused on your operation in China. What ever that is at the time he is there.
  • Save money and time by hiring an expert (broker or consultant) to help get things started. The best way to do this is word of mouth referrals.

Always having someone from the mother company ensures that the directives and culture of the company are transferred to China and more importantly it means that someone with a vested interest in the success of the company is watching the company interests. I have personally witness several failed strategies that involve a long term relationship with a broker or the direct hiring of a Chinese national without any supervision in country from the mother company. Yes, they are friendly and helpful at the onset and perhaps even well intentioned but think about this. Would you start a new division in the US by hiring a new employee in another state and leaving them? Probably not. It is more likely you would transplant someone from your HQ to head up the new venture, even if only for a time.

Which brings me to the next issue that companies face. Getting the talent to go to a foreign country. Look I am not advocating a life sentence for anyone. Rotation is the key. There are plenty of examples here of successful strategies that involve rotating of personal on six month or one year tours of China. It’s good for your operation in China and it will help out with raising the level of understanding in the home office. I highly recommend that you follow your mother’s advice and take turns.

Now you are thinking, this is great and all but if I am going to invest in sending someone to China, why would I still what to hire a consultant or broker. Because, unless you have an in-house expert in all things Chinese sending a poor, unarmed innocent into the wild is a bad idea. Think Plymouth Rock. The settlers were ill equipped and without the help of the indians, would have perished the first winter. You are in a very real sense creating a settlement in a foreign country and the one that may die is your business. That would be unfortunate. So save yourself the trouble and hire a local guide to show you have things are done.

In the early stage of you foray into the new world, you will want to send out expeditions to gather information and set the stage for your settlement. You will need to understand how you select the right place in an environment that is alien to you not to mention every trip will cost your company at least 10K. Think that’s a high number. Factor in hotel, airfare, ground transportation, a translator, and the time the executive is not working on things in the US and I bet 10K is a low number to a 1 to 2 week expedition. So, if a consultant runs 10-20K per month and has knowledge of the local lay of the land, it’s a steal of deal. You will save time, trips, and money not only on execution but on avoiding pitfalls that the consultant has seen before.

Son of Suzhou

Son of Suzhou – well almost…

“Is he calling me a girl?”. That was the thought that ran through my head the first time someone in China call me a “son-in-law” of Suzhou. Laugh if you want but I was having dinner with some government officials in the sports division of the government. If you haven’t had the pleasure of being entertained by Chinese officials, you are blissfully unaware that a great part of the tradition is drinking Chinese white wine, but that’s a topic for another day. It relates to this story because, I was, well, being entertained and hence drinking white wine so the fact that I thought he was calling me a girl, is related to my mental state at that moment, at least partly. I probably wouldn’t have thought he was calling me a girl if not for the spirits but I would not have understood what he meant either way. As the Chinese word for “son-n-law” is similar, at least in my mind, with girl or woman, it was an honest mistake.

After the initial shock and some direction from my, then wife to be, I was quite happy with the handle because it gave me a kind of respect that before that moment had never been offered to me in any setting in China. Before that moment, I was always a “lao wai”, a foreigner. Anyone not Chinese is classified this way. Basically, it means you are not of the “middle kingdom”, China, center of all things in the universe for the natives. (Not that New Yorkers don’t have a similar view of things). So, I was dubbed a “son-in-law of Suzhou” or “Suzhou Son-in-law” depending on how you look at things grammatically speaking.

For those outsides of China, there may not be much significance to this statement but for me and others who have lived here from many years it marks an enormous change. I, mid-west farm boy, was just admitted into the ranks citizens of China. Or at least, tolerated as a kind of honorary member, as I could never be truly Chinese. It’s more than a country you live in, it’s fairly homogeneous culture that happens to live mostly in one spot called China. So, I can never be part of the club so to speak. I am honored at my married title although I am still trying to decipher what benefits or responsibilities the title carries. After six years here, it looks like it may take a lifetime to determine where my benefits and responsibilities lie.

One thing is for sure, it puts a smile on people’s faces and relaxes negotiations immediately, so, I will wear the badge proudly and diligently discharge the duties of this station as well as I understand them to the best of my ability.

If it sounds like I am hedging on my duties, it because of other lessons that have been learned here. Things are rarely what they seem, everything is a negotiation, anger wears the same smile as happiness, and it’s hard to find someone to take responsibility or to lead. This blog will explore these and other topics as they apply to my personal experience.

Until next post, this is InAsia and I am Son of Suzhou.

She loves me, She loves me not

Will the Chinese economy be a bright spot in the global economy?

Watching articles and blogs around the world leaves one to wonder if the emerging giant will be a port in the storm or just another ship lost at sea with all the other ships. I’m no economist but the economic data doesn’t look favorable to me.

Economic Data-

There is a data packed article that talks through several indicators at AsiaInt.com stating that “The slow down hits China” . It walks through the PMI data for China’s manufacturing sector which has fallen below 50% and continued to drop in October indicating a “contraction of activity”. More troubling is the fact that the article then goes on to indicate that the slow down in the manufacturing sector, indicating slowed exports, is coupled with slowing domestic demand as the Chinese Consumer Confidence Index (CCI) is dropping as well, according to the National Bureau of Statistics. The article continues with news from the Canton Fair, Hong Kong SAR, Shanghai, China Petroleum and Chemical Industry Association (CPCIA), Ministry of Finance (on SEOs) and Bao Steel. All describing a marked slow down in there respective areas and ends with these words of encouragement:

“During the week, China Chengxin International Credit Rating Co. (a joint venture in which Moody’s Corporation is a partner) said that it expects that China’s economic growth this year will slow to 9.4% for 2008 as a whole. The latest developments suggest that even this forecast may be over-optimistic.”

It’s been a tough week folks but don’t worry just when it seems all is lost the government comes out with a stimulus package that sent the world markets to fluttering.

Stimulus Package

When the Chinese government goes, apparently they go big or so it would seem if you base your judgement on the size of the stimulus package that Beijing announce earlier this week. According to an article by the Associate Press, Investors Cheer China Stimulus Package, the $586 Billion will be spent on infrastructure projects, and lending for rural areas and small companies among other things. From what I have read in other articles a portion of the money will come from the central government but a larger part will come out of the banks and state owned companies that are flush with cash after the last decade of growth. The money is there. They just need to spend it on the the right things.

So will China be the growth engine that continues right on through the turmoil? It’s really hard to say from my perspective. I think the best chance of any place on the planet would be China ,however, I’ll leave the predictions to the analysts and economists. In the mean time, as it was before the economic meltdown, my advice to companies world wide is to invest in capturing China’s domestic market. It’s still growing and that is better then shrinking…even if it is growing slower than last month.