China adventure: a first-person report on the art of doing business in China--then and now.From tea served aboard the Orient Express Orient Express Luxury train that ran from Paris to Constantinople (Istanbul) for over 80 years (1883–1977). Developed by the Belgian businessman Georges Nagelmackers, its luxuriously furnished cars became the symbol of glamour for European society. by ladies in Mao jackets to meetings in rooms as cold as Manchuria in winter, doing business in China in the 1970s - when central planning was the ironclad ironclad, mid-19th-century wooden warship protected from gunfire by iron armor. The success of the ironclad when first employed by the French in the Crimean War sparked a naval armor and armaments race between France and Great Britain. rule-was a vastly different experience than it is today. A veteran international commercial attorney examines the startling star·tle v. star·tled, star·tling, star·tles v.tr. 1. To cause to make a quick involuntary movement or start. 2. To alarm, frighten, or surprise suddenly. See Synonyms at frighten. changes that have transformed China in the first of a three-part series for the Detroiter. In 1978, shortly after President Carter formally "recognized" China (China has existed since at least the Shang Dynasty Shang dynasty or Yin dynasty Traditionally, the second of China's dynasties, following the Xia dynasty. Until excavations in the 20th century provided archaeological evidence for the Xia, the Shang was the first verifiable Chinese dynasty. in 1766 BCE BCE abbr. 1. Bachelor of Chemical Engineering 2. Bachelor of Civil Engineering BCE Abbreviation for before the Common Era. ), I took my first trip into China to the Canton Trade Fair from Hong Kong Hong Kong (hŏng kŏng), Mandarin Xianggang, special administrative region of China, formerly a British crown colony (2005 est. pop. 6,899,000), land area 422 sq mi (1,092 sq km), adjacent to Guangdong prov. where I was working as Asian counsel for a large multinational company. Getting there required an hour train ride from Kowloon to the border of the New Territories. Once at the border, because the train tracks were different sizes for security reasons in those days, I had to carry my bags across a small bridge into a Quonset hut Noun 1. Quonset hut - a prefabricated hut of corrugated iron having a semicircular cross section Nissen hut army hut, field hut, hut - temporary military shelter for clearance through Chinese immigration immigration, entrance of a person (an alien) into a new country for the purpose of establishing permanent residence. Motives for immigration, like those for migration generally, are often economic, although religious or political factors may be very important. . After purchasing the mandatory amount of nonconvertible Chinese currency Currency has been used in China since the New Stone Age, in which Chinese also invented paper money in the 9th century. Today Renminbi (Chinese: 人民幣), literally People's currency, abbreviated to RMB, is the currency in mainland of the People's from a lady at a card table, I boarded the train for Canton (now Guangzhou). The train car came from the original Orient Express--walnut paneling and lace curtains, but the tea ladies wore Mao jackets. [ILLUSTRATION OMITTED] Doing business at the Canton Trade Fair in the late '70s was like attending a job fair at the high school gym. Folding tables appeared like mushrooms in a forest field; vendors sold everything from rhinoceros horns to cheap canvas bags to chemicals manufactured without a thought to environmental or safety regulations. The church left over from the days of the English opium traders was now a grain warehouse. There were no "licensed" lawyers other than myself, but plenty of sharp negotiators as the world's oldest traders were being slowly released from the bonds of central planning. As for contracts, the standard was a preprinted form (which only Confucius could change) written in Chinese characters with very rough English translations on one piece of paper about the size of the presentation pads used at seminars. While it met the business criteria for simple one-page agreements, you had to fold it several times to fit into a briefcase. Later, when I was in Beijing (then called Peking) on another trip, I felt like the Connecticut Yankee in King Arthur's Court. In Tiananmen Square, 250 Chinese watched me load film in my camera as though I was a recently hatched alien. Although a city of several million, Beijing was strangely quiet except for a few military trucks and millions of bicycle bells. Except for Mao's photo and the omnipresent om·ni·pres·ent adj. Present everywhere simultaneously. [Medieval Latin omnipres red stars, the city was generally gray and its inhabitants
The game is based loosely on the concepts from SameGame. devoid of much animation. Years later in Changchun, Manchuria--center of the truck industry, Chinese films and home of Madame Mao--there is more activity, but still the infrastructure is simple. There were no glitzy glitz Informal n. Ostentatious showiness; flashiness: "a garish barrage of show-biz glitz" Peter G. Davis. tr.v. hotels so I stayed in the First Auto Works guesthouse guest·house n. 1. A small house or cottage adjacent to a main house, used for lodging guests. 2. A bed-and-breakfast. , where we slept, ate and negotiated the sale of equipment and technology for a large company. Since everything we said was reputedly re·put·ed adj. Generally supposed to be such. See Synonyms at supposed. re·put  ed·ly adv.Adv. 1. recorded, there were frequent walks outside to conduct confidential discussions. Keeping expenses low is a Chinese obsession so even though it was winter in Manchuria, the rooms felt like they were heated by three matches. It is the only time I have worn long underwear under my suit during negotiations. (I might add that I hadn't thought to bring any, but the local markets sold cashmere cashmere Animal-hair fibre forming the downy undercoat of the Kashmir goat. The fibre became known for its use in beautiful shawls and other handmade items produced in Kashmir, India. The fibres have diameters finer than those of the best wools. long underwear for ridiculously cheap prices; they weren't stylish, but they were warm.) From these early experiences to today's China is like going from the moon to Manhattan. You no longer have to carry in spare parts, toner and extra paper for the office copier or cheese and Oreo cookies for the local expatriate, whose home and office were located in one room at the Beijing Hotel. No longer did you wait months for the Chinese government to close down someone else's telephone account so you could have one of the scarce international lines. Instead of people sleeping on the assembly lines at Beijing Jeep, there is a frenetic pace as people are making money as fast as they can while the window is still open. No one would have guessed in 1978 that a Chinese company, Lenovo Group Ltd., would be buying IBM (International Business Machines Corporation, Armonk, NY, www.ibm.com) The world's largest computer company. IBM's product lines include the S/390 mainframes (zSeries), AS/400 midrange business systems (iSeries), RS/6000 workstations and servers (pSeries), Intel-based servers (xSeries) personal computers--not the products, but the business--or that Caltex, the largest oil producer in Asia, would be the target of a Chinese takeover. While there has been tremendous change in the outward appearance in China, the basics of Chinese culture and the ways of doing business remain constant. Strategic considerations The trade statistics speak for themselves: According to the U.S. Department of Commerce, the United States had a projected trade deficit with China in 2005 of more than $209 billion - the largest single deficit with any one country in history. The biggest attraction is the low cost of manual labor and overheads, such as the lack of expensive environmental and OSHA OSHA n. Occupational Safety and Health Administration, a branch of the US Department of Labor responsible for establishing and enforcing safety and health standards in the workplace. compliance. Yet, there are always hidden costs and risks in sourcing from abroad, which are magnified with China. These need to be carefully weighed before sourcing from China: * China offers great cost savings where a product or service involves a high percentage of manual labor, but the savings are less attractive where production involves highly automated work. * China's distance, time zone differences and language increase communication costs, management inefficiency and the time and effort required to conclude a matter or fix a problem; travel to and from China is a minimum of four days travel; jet lag jet lag Period of adjustment of biological rhythm after moving from one time zone to another, experienced as fatigue and lowered efficiency. It reflects a delay in the synchronization of changes in the level of blood cortisol, the major steroid produced by the adrenal cortex is very real and Chinese visas have to be secured in advance. * A supplier on the other side of the globe means increased freight costs and potential delays; if a "safety stock" of inventory is required as backup in case of delay or defective merchandise, there is a cost in carrying this extra inventory; shipment of replacement products by air is very costly. These factors also limit the flexibility to change product mix as the market changes. * China has to import much of its oil and other raw materials. If any key raw materials have to be imported, will they be available on a timely basis and at what cost? * Otherhiddencostsinclude the higher cost of electricity, duties payable on both raw material imported into China and finished goods imported into the United States, and probable revaluation Revaluation A calculated adjustment to a country's official exchange rate relative to a chosen baseline. The baseline can be anything from wage rates to the price of gold to a foreign currency. In a fixed exchange rate regime, only a decision by a country's government (i.e. of Chinese currency to true level and/or increase in minimum wage to ward off U.S. protectionism. [ILLUSTRATION OMITTED] * If business is taken away from a U.S. vendor and given to a Chinese supplier, the U.S. vendor may close its plant; then a nearby backup supply may no longer be available. [ILLUSTRATION OMITTED] * The net result of outsourcing may be putting a low-cost competitor in business with your technology. * China has a problematic legal system and business culture, which fails to adequately protect technology, particularly know-how. * Potential political instability, including such issues as government succession, Taiwan reunification re·u·ni·fy tr.v. re·u·ni·fied, re·u·ni·fy·ing, re·u·ni·fies To cause (a group, party, state, or sect) to become unified again after being divided. and U.S. trade deficit ramifications ramifications npl → Auswirkungen pl . * Additional requirements to police Chinese vendors as more U.S. companies adopt codes of conduct for their vendors proscribing the use of child or prison labor and requiring compliance with environmental and worker safety standards. These considerations are not meant to discourage Chinese sourcing, but should be taken into account in making a prudent decision. Once a company has made the decision to source from China, how should they proceed? While every business transaction has its own unique parameters and there is no magic formula, I've found the following steps very helpful: * Know the business culture. * Know the supplier. * Negotiate contracts with the cynicism of a pawnbroker pawnbroker, one who makes loans on personal effects that are left as security. The practice of pawnbroking is ancient, as is recognition of the danger it involves of oppressing the poor. . * Never assume or take anything for granted--follow up. [ILLUSTRATION OMITTED] Manufacturing CENTRAL This special section was brought to you by the Detroit Regional Chamber's Manufacturing Central, the fundamental source for supplier health and growth of the region's manufacturing base. RELATED ARTICLE: Coming up: Know the business culture All cultures are unique and complex, but few Americans have taken the time or trouble to learn about China or become fluent in Chinese. In the second installment of his three-part series, Howard Hill offers some practical tips on doing business in China. Coming in April in the Detroiter's Second Quarter 2006 Complete Business Resource Guide. Visit the Detroiter Online at www.detroitchamber.com/detroiter to read the entire series (click archives and go to August 2005). About the author: Howard Hill, Esq., has practiced international commercial law for 35 years in New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of , London and Hong Kong prior to being recruited as assistant general counsel for International and M & A with Chrysler and later partner in a major firm. He began handling China deals while working in Hong Kong in 1978 when U.S. businesses were first allowed into China and has continued to work on both higher-level joint ventures such as Beijing Jeep--the first American joint venture--and First Auto Works as well as sourcing contracts. He was chair of the International Law Section and awarded "Exporter of the Year" by the Detroit Regional Chamber, the only lawyer so honored. The author expresses his appreciation to Greg Wittrock of Masco Corp. and Dean Peterson of the U.S. Department of Commerce for their thoughts on this article. [c] Copyright 2005 by Howard B. Hill. All Rights Reserved. |
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