Category Archives: China

Buick: Designed, Made, and Sold in China

Here are a couple of eye openers from a New York Times article:

For the first nine months of 2009, for instance, Buick sold 312,798 vehicles in China; in the United States, it sold 72,389.

— and —

The idea of creating a new Buick in a design studio in China, as General Motors has done with the 2010 LaCrosse, is not as loopy as it might sound. Buicks have a certain cachet in China, dating back some eight decades to when the emperor bought one.

So, there are 1.346 billion Chinese. They like Buicks, they design Buicks, and they build them too.

Do you have the feeling US efforts to keep our economy moving are misguided in the long term? Our government messes around protecting manufacturers of steel pipe while the higher value-add, higher technology, higher skilled jobs are slipping away. Anyone for education?

Oh, and the car looks good.

Overcoming Cultural Differences in International Trade with China

Today’s post, which is partially based on materials from Dick Locke’s seminars on International Purchasing, is edited by Dick Locke, Sourcing Innovation contributor and President of Global Procurement Group and Global Supply Training.

This post is going to examine some of the cultural differences that you may encounter (as an American or Canadian Sourcing / Procurement Professional) if you are doing business with China. We start by discussing each of the eight key cultural considerations outlined in our introductory post and then highlight a few other points that you should be aware of.

As per our initial post, this discussion is high-level and general in nature and, as Dick Locke points out in his classic text on Global Supply Management, while it is too easy to stereotype a country, individuals in each country will vary from the stereotype. You need to take time to get to know the people you will be dealing with because their behavior may be nothing like the usual behavior of the country in which they reside and there is always a chance that you might run into people who are trained to act like you … while in your presence.

Before we begin, it’s important to understand that (the Peoples Republic of) China isn’t just another country. With almost 1.3 Billion people, it has the largest population of any country spread out over 9,600,000 square kilometers — the world’s third largest country by area. It’s also home to the world’s largest surviving agricultural society, with a heritage that goes back over 5,000 years when they first started farming along the Yellow River where they were isolated from the rest of the developing world by an ocean to the east, jungles to the south, mountains to the west, and freezing steppes to the north.

As a result, you have one of the most developed cultures in the world, with a long history behind their well established social order, which requires an inequality between people to maintain stability. That’s part of the reason that the Chinese generally believe that all foreigners — who are (traditionally) inferior, corrupt, decadent, disloyal, volatile, barbaric, and devils-in-disguise — are inexperienced in matters of business even if they are technically competent.

  • Power Distance
    The very nature of China’s social order is that there is a power distance between any two individuals. Thus, there is a significant power distance between the boss, whom you must generally address, and his subordinates. However, you will find that power distance higher in the north (where it is comparable to Mexico) than in the south (where it is comparable to Taiwan).
  • Uncertainty Avoidance
    As a rule, the Chinese don’t like uncertainty. This goes double in the north. The south, more like Taiwan, can deal with some uncertainty with its trusted business partners.
  • Individualism
    Traditionally, individualism has been taboo. As a result, individualism is very low. The Chinese way is to reach harmony within the group.
  • Polychronic vs. Monochronic Time
    The Chinese are very punctual — they abhor wasting anyone’s time. As a result, in formal business, they will be very monochronic, especially in the north where they mirror Korea. (The south is more like Taiwan.) The exception to the rule is social gatherings, including dinner entertainment. They will take their time during these engagements, and it’s important that you don’t rush them to build up the relationship and trust that they require to do business with you. (You should also know what Ganbei! means.)
  • Personal / Impersonal
    Despite the relatively high crowding of major cities, the Chinese have a deep respect for privacy. If they can, they will maintain a 1 meter distance from you. And they also have a deep respect for harmony. As a result, while they may ask blunt questions about your personal situation and beliefs (so that they can avoid offending you), they can also be rather impersonal until they get to know you. It’s a duality that will take getting used to.
  • Buyer / Seller Rank
    As in Japan, the buyer always comes first, at least as far as appearances are concerned. (Consider the number of recalls we’ve had with Chinese products. After all, the Chinese also believe in creativity in business, especially where profit is concerned.) So while this means you are conveyed rank by your status of buyer, you have to balance this with the Chinese view of foreigners and their strong aversion to dealing with people who engage in taboo behavior. In China, egotism, loudness, arrogance, lack of consideration (for others), and boasting — the typical American businessman stereotype — is taboo. Thus, you will not benefit from your station if you do not respect their ways.
  • Importance of Harmony
    The importance of harmony in China — which sees itself as the middle kingdom, the center of the universe, and a leader in morality, spirituality, and culture — cannot be underestimated. Relationships are the most important things. Tasks are secondary.
  • Importance of Face
    The importance of face is very high in China. It’s a foundation of their society. Unlike in the US, where you can disgrace yourself in LA and then move to New York, mobility in China is extremely limited. You might be stuck in that job for the next 40 years … so you better not lose face!

A few other points to note are the importance of virtue, the real reason for meetings, and the guanxi mutual relationship.

In China, virtue is the most important thing. Two mutually exclusive answers can both be true if they are both virtuous. Remember this in your dealings.

Meetings exist simply to gather information. Decisions are always made later. Furthermore, many meetings, both formal and informal, will be needed to build the relationship … so plan on many trips during the “negotiation”.

Finally, guanxi, the linking of two people in a relationship of mutual dependence, is common in Chinese business. If you are given, and accept, an unusually expensive gift, you can be sure it will soon be followed by a request for a huge personal favor. So make sure you have your gift policies well defined before you start (and that you know how to inform your potential business partner of them in a gracious and non-offensive manner).

Finally, as I strongly recommended in my first post, if you plan to start doing business with any new international country, including China, you should do a thorough job on your homework. You can start with:

  • Dick Locke’s course on the Basics of Smart International Procurement (which is offered through Next Level Purchasing and counts towards the SPSM2 certification or ISM Continuing Education Hours), or
  • a customized seminar from Dick Locke’s Global Procurement Group. Dick Locke and his associates each have decades of experience doing business with over two dozen countries, including the fifteen biggest importers and exporters to and from the United States, and China. A single day with an expert like Dick Locke could save you months of headaches.

Again, a big thank you to Dick Locke for serving as editor for this special series of posts and providing some up-to-date materials and information for the purpose of this series.

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Are Economics Going to Push Us Back to China?

Despite the disadvantages, which include

    • limited ability to respond to demand changes,
    • high logistics costs in boom economies, and
    • the potential for large currency-exchange losses

it looks like economics are going to push many multi-nationals back to China.

Consider the following advantages that the global recession has created, as pointed out in a recent article on “Sourcing Successfully in the New China” by Accenture’s Jonathan Wright:

  • Dips in the global economy have left China with lots of excess manufacturing capacity, which exceeds 50% in some industries.
  • Dramatic overcapacity exists in ocean freight, with hundreds of vessels floating fallow in Hong Kong’s harbours.
  • China’s domestic growth is as promising as any economy in the world.
  • Labor rates are still significantly lower than Western countries.
  • Most suppliers have dramatically improved their product/service quality by implementing control mechanisms and systems, renewing manufacturing lines, and increasing their available talent pool. They are also much more open to continuous improvement methodologies.

When you put all this together, those companies with good demand planning systems and dual sourcing strategies (to allow for unexpected demand increases to be handled near-shore) could lock in great deals now on both production and transportation and have a significant advantage during the forthcoming recovery while being in a great position to serve the emerging domestic market in China. While I normally don’t push the outsourcing bandwagon, it looks like those companies that climb aboard early could benefit greatly while those companies who wait until it becomes the “in-thing” will have totally missed the boat (as prices will rise as capacity diminishes).

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Is China Starting to Clean Up its Act?

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

There’s an interesting discussion going on over on Spend Matters about whether or not China is manipulating its currency. Well, I think it’s interesting because I’m participating. I don’t believe pegging a currency to the US dollar meets a normal definition of “currency manipulation.” Your mileage may vary, of course. The discussion can be found in last Friday’s Rant on Spend Matters (Should We Rethink Free Trade).

One of the other participants brought up the issue of China’s poor environmental standards. That’s true, as has been true of all developing countries. Back in the late 60s, Tokyo was one of the more polluted cities on earth. Traffic police wore oxygen masks. Electronic signs in Ueno and other places posted the CO and CO2 levels in the air. By the mid 80s the place was pristine. No outside pressure was brought to bear. The Japanese just got fed up and fixed the problem. It usually takes some degree of economic development before this starts to happen.

I’ve always hoped the same thing would happen in China. It looks like it’s starting to happen. I’m glad, because China is too big for the environment to continue to accept their volume of pollution. Most importantly, it’s happening because of internal Chinese policies, not foreign pressure. Thomas Friedman has a column in today’s New York Times titled “The New Sputnik“. It’s about Red China becoming Green China. (You can read the opinion for yourself.) Friedman is less than totally optimistic, saying pollution is going to continue in parallel with development with solar and wind industries. He also points out that the US seems to be missing this market and most solar cells are coming from China already.

Dick Locke, Global Procurement Group and Global Supply Training.

Uh-oh … Looks like Chinese tire manufacturers are going to take a hit for health reform

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Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

In “U.S. Adds Punitive Tariffs on Chinese Tires” (NY Times), Edmund L. Andrews states that:

The tariff, which will start at 35 percent this month, is a victory for the United Steelworkers union, a crucial ally in President Obama’s health care overhaul.

and that

the decision signals the first time that the United States has invoked a special safeguard provision that was part of its agreement to support China’s entry into the World Trade Organization in 2001. Under that safeguard provision, American companies or workers harmed by imports from China can ask the government for protection simply by demonstrating that American producers have suffered a “market disruption” or a “surge” in imports from China.

It also looks like the Times has an editing problem. It’s not a punishment at all, unless you regard a penalty for mere success as punishment. The tariff isn’t connected to any misdeed by a Chinese company.

And the connection to health reform is rather tenuous. The union would continue to support reform even without this tariff.

At least this step is better thought out than former President Bush’s tariff on Chinese steel. That wasn’t connected to any misdeed either. Because the tariff applied to the steel only, and not to products containing the steel, it made it more efficient to build steel-containing products outside of the US. I don’t think this one will hurt the US car industry like the previous tariff hurt US steel fabricators.

It’s an unfortunate trend though. Rather than take the time to build a case against Chinese tire manufacturers on the normal grounds (dumping, safety violations, pollution) they took the lazy way out. There’s no way for the Chinese companies to defend themselves. The only response can be retaliation.

Dick Locke, Global Procurement Group and Global Supply Training.