BizChina
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Since my using references to Bob Marley songs seems to play so well (see here and here).....
Anyway, just read an excellent and blunt blog post on Chinese brands over at the perpetually insightful Silicon Hutong Blog, entitled, "Brand Reality Check." The post uses a Tom Doctoroff article in AdAge (subscription required) as the starting point for arguing China will "not be producing a bevy of global brands at any time in the near future." I completely agree.
Silicon Hutong convincingly makes the following argument against those those who might list the few fairly well known Chinese companies as proof that China can develop great brands:
Those who disagree with Tom (and manage to eschew ad hominem attacks) point out that Haier has managed to build a global brand entirely without marketing. While that point would be debatable (if you could buy a Siemens fridge for the same price as a Haier fridge, which would YOU buy, and why?), let's not go there.Instead, let us grant for a the sake of argument that Haier is indeed a global Chinese brand. Let's even grant that Lenovo, Tsingtao Beer, and Li-Ning are global brands.
When you look across China's landscape of millions of companies, could it not be said that these companies are at best the exceptions to prove the rule? That China has so few international brands in so few industries that what we are witnessing is not a trend but a statistically irrelevant series of accidents?
Silicon Hutong rightly notes that great brands "are built; they do not happen by executive fiat or by government edict. And the sooner China's companies learn the rules of that game, the better off China will be."
So why are China's companies behind in their branding and what will change this and when?
Why are Chinese companies behind in their worldwide branding? In the last year or so, my law firm has begun to represent a number of very large, very successful, and very well run Chinese companies. Without exception, these companies are doing an amazing job in building their businesses outside China and, for the most part, they are doing an amazing job in figuring out the landscape in places like the United States. But, also without exception, they spend (and I am admittedly making a wild, shot in the dark guess here) about one one hundredth of what their comparable American counterparts on advertising and public relations. And it shows.
I have asked friends of mine in the same or related industries as my Chinese clients if they have heard of my clients and, almost without exception, they have said they have not. Then when I tell them more about my clients and the scope of their operations in the United States and/or their market capitalizations, they look at me like I am totally joshing. They say things like I must be wrong. I must be using a different name in the United States. My client must be lying. In other words, they cannot explain how a company can be doing in the United States what I say my clients are doing without their knowing about it.
Or go ask 100 people at random in Peoria to name two Chinese companies. I'm betting less than a handful (if any) could name two and less than half could even name one. Until Chinese companies start realizing (and by realizing I mean more than just paying lip service) the critical importance of name recognition and reputation, Chinese brands are going to remain mired in relative anonymity. Does anyone think even five people will be able to do it?
What will change this lack of Chinese brand recognition and when will that happen? I do not know but I am certain it will happen eventually (ten years?) and when it does, it will probably come pretty much out of nowhere. I base this prediction on how Japanese (Sony, Honda, Toyota, Nikon) and Korean (Samsung, LG, Hyundai) pretty much all of a sudden went from nowhere (or even disrepute) to reputed.
What do you think?
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Thought provoking post over at TwoFish's Blog, entitled, "Best and the worst – The Sanlu Settlement." The thesis is that China's handling of payments to those injured by the Sanlu dairy food poisonings was handled better than would have been the case had Sanlu been in the United States and been subject to a class action suit.
TwoFish makes some valid points, which points are certainly more sophisticated than some commentators who fly over to China for a week and come back proclaiming that if only China allowed tort claims (it does) just like in the United States, all (or at least nearly all) food safety problems would be solved there.
TwoFish says China handled Sanlu "quite well" and he challenges those who are "critical" to "explain what the Chinese government could have done better:"
As I said above, as far as the actual settlements and consequences, I do think that the Chinese government handled things quite well, and I’d like for people that are critical of the legal aftermath to explain what the Chinese government could have done better. Yes, one could argue that the payouts where low, but as it was, it totally bankrupted the company responsible. If you mandate US-style damage awards, then the whole thing becomes a lottery, in which people that are the first to file or who have particularly good lawyers get the bulk of the money, and everyone else spends years fighting over the scraps that remain. (What happened with asbestos.)Also if you have a long nasty class action lawsuit, then most of the money ends up with the lawyers (there is an entire industry devoted to asbestos lawsuits). In the mean time, honest dairy farmers and dairy workers who weren’t involved in the scandal are hurt because the company gets pounded into dust.
China did handle Sanlu pretty well, but in large part, that was because that case received so much publicity, China almost had to handle it well. As much as I agree with TwoFish that a class action where the plaintiffs' lawyers get rich and the plaintiffs themselves get a pittance is no solution at all, I do not believe top down remedies can work consistently.
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The Sun Bin blog has a fascinating and thoughtful post analyzing how China handles border disputes and when it uses its military. The post, entitled "China's Policy in Border Disputes," mostly consists of an interview with Professor M. Taylor Fravel of MIT, whose academic focus has been on Chinese territorial disputes and its use of force. This is an interesting and important post and I highly recommend it.
Read more: China's Border Disputes And Use Of Force. A Serious Analysis.
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I am not generally a fan of extrapolating the way a country conducts its politics to the way its enterprises conduct its businesses even in China where so many businesses are government owned. I am not saying it cannot be done, but I generally find it too complicated for too little value. David Dayton, a guy who truly knows the way China conducts its manufacturing, just came out with an analogy laden post, entitled, "Rio Tinto and Urumqi as Corporate Culture Lessons,"linking China's recent handling of its Western region with how its factories treat foreigners. Though I am dubious of the value (beyond entertainment) of making this linkage, I am convinced Dayton is spot on regarding Chinese factories and I am going to focus on that.
Dayton sees China using the following four step process to deal with its problems out West:
1. Round them up.
2. Insist everything is okay.
3. Identify a common enemy.
4. Show them the money.
1. Round them up. Anyone against the factory will be removed. In other words, that factory floor manager with whom you have had a great relationship for the last two years? He will go silent as soon as you have a problem. Dayton advocates handling this by tying payment to the Chinese factory not to its own assessment of quality, but to that of a third party quality assessment company:
This isn’t arrogant or obstinate it’s just a fact—3PQ reports are directly tied to payments and there isn’t really any room for discussion if the product doesn’t pass. Just stick to this and never give in and you’ll be fine. Give in once and every question from there on out will be a major battle. You’ve been warned.
I agree with Dayton on this. When possible, using an unbiased third party service to determine quality/payment benchmarks is a great way to go. The problem is getting both the foreign outsourcer and the Chinese factory to agree on the third party.
2. Insist everything is Okay. Deny any and all problems:
I’ve had people hold product and Pantone color chips and literally tell me that a red color isn’t really red but that my color chips must be old or incorrect or even that the colors match perfectly (even if they are totally the wrong color). My friend Mike tells of story of “red” fire trucks that were actually florescent orange and the factory had no problem with the difference. Remember, if no one admits to the problem then it doesn’t yet exist (at least in the minds of the factory managers). And that’s the goal—to eliminate the idea of a problem rather than solve problems.
I am betting that every single reader out there who has dealt with a Chinese factory knows exactly what Dayton is talking about here and probably every single reader out there who has not dealt with a Chinese factory thinks he is grossly exaggerating. Trust me, he isn't.
When faced with this, Dayton prescribes the following:
What can you do about this attitude? Probably nothing. Just agree with the fact that they do indeed do this for other people. But remember, it doesn’t matter what other clients accept or what the factory “typically” does. If it’s not what you agreed to (in your written contract) then you don’t have to pay for it, regardless of how typical it is.
3. Identify a common enemy. Once you get the factory to admit there really is a problem, you then need to figure out from where it stems and how to fix it. Dayton very accurately describes the different thinking on this:
My experience is that while I’m interested in getting problems fixed (solutions to meet deadlines) the factory is more often concerned with finding someone to blame—usually a sub-supplier. It’s always the sub-suppliers fault.No matter how many times it happens it’s always amazing to me how factories are willing to throw their sub-suppliers under the bus and assume that they have no responsibility for their quality. Of course, they chose the sub-suppliers (often without telling us they were even involved) themselves and they paid them for work—and there in lies the problem. Factories just assume (or hope in vain) that blaming someone else will end the problem. It’s like they expect me to say: “Oh, it’s the sub-supplier’s fault? Well then, we’ll just let it go. Sorry for bringing it up.” Once something has been paid for it doesn’t matter who the buyer is, a foreigner or a local factory, no supplier is going to fix stuff that is “finished” and already paid for and shipped out. Bad quality components most often have to be replaced at the factory’s expense since they can’t get their sub-suppliers to pay for them once they’ve taken delivery.
Dayton's solution to this is to not fight the blame game, but to focus on fixing the problem. I would add one thing to this. Make very clear in your contract with your Chinese manufacturer that the manufacturer will be responsible for all quality problems and make very clear the extent to which subcontracting will be permitted, if at all. For more on how to handle the subcontracting issue, check out "The Six (Not Five) Keys To China Quality."
4. Show them the money. Dayton outlines what happens virtually every time there is a manufacturing problem and it goes like this:
This is what happens next. You find a problem, they deny it, then finally admit it, blame the sub-supplier and offer you a discount for the next order. Notice, fixing the problem, resolving the concern, changing processes, or giving you a discount for the current (incorrect) product are almost never options. The key is to get you to take as much of the current crap for the fixed price as possible and then spend money (future discounts) on other projects to pacify you. If they can get current product moved at the agreed upon price, the next goal is the reorder—if that means promising discounts now, so be it. There is always time to increase the costs late
Dayton does not tell us how we should handle this and that is the problem. My experience is that the foreign company pretty much has only three choices (really two) at this point. It can keep trying to negotiate better compensation from the Chinese factory, but it probably will not get it. It can walk away and never do business with this Chinese manufacturer again. Or, it can threaten to or actually sue the Chinese manufacturer. But if it does not have a very well drafted contract (preferably in Chinese) that outlines very clearly exactly what was expected of the Chinese factory, its chances in court are likely very poor. For what needs to go into your China OEM contract, check out, "China OEM Agreements. Why Ours Are In Chinese. Flat Out."
Read more: China's Big Political Picture Writ Small For Business.
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Stafford Publications is putting on a teleconference on the Foreign Corrupt Practices Act (FCPA) in China.
Before I talk about that though, there is one thing I have to get out of the way. Every time I see a very British name like Stafford, I cannot help but smile and remember a hometown friend of mine who named his business "Tafford." My friend's business has become quite successful on a national level and my friends and I still always effect a very British accent whenever we discuss it. Now here's the funny part, my friend came up with the name from an expression we back then: Take a Flying F--k On a Rolling Donut. That equals TAFFORD. Get it? Sorry.
Anyway, this teleconference will be on September 3 and it features really good people and it will be focusing on the following:
This seminar will examine recent FCPA enforcement focused on business activity in China, discuss the unique FCPA challenges of conducting business in China, and outline strategies for effective FCPA compliance.
The panel will review these and other key questions:* What risk factors increase the exposure of companies conducting business in China to possible FCPA violations?
* How are the U.S. and Chinese governments acting to enforce their respective anti-bribery laws against U.S. companies?
* What are the best practices for companies to utilize in developing anti-corruption compliance programs and due diligence efforts for their China operations?
The faculty consists of Kyle Wombolt of Goodwin Procter, Nathan Bush of O'Melveny, and Amy Sommers of Squire Sanders.
The US has been stepping up its prosecution of FCPA claims and it is critical that all US businesses in China have at least basic knowledge of what it is all about. Click here for more information on the teleconference.
Read more: Foreign Corrupt Practices Act in China. September 3, 2009, Teleconference.
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