Posted on 05/28/2009 5:49:24 AM PDT by kellynla
Is China really a modern country? Can China be a modern country? Paul Midler’s book leaves you wondering.
After studying Chinese at college, Midler lived and worked in mainland China through the 1990s before returning to the U.S.A. to take a business degree. In 2001 he went back to China, setting himself up as a consultant to American importers dealing with Chinese manufacturers. This has given him profound insights into the Chinese way of doing business. In Poorly Made in China he shares those insights. After reading his book, you will find yourself thinking carefully before putting Made in China items into your shopping cart.
Midler identifies the features of China’s production environment that make a joke of all the free-trade slogans. There is, for example, “quality fade.” You cut a deal with a Chinese manufacturer to import beauty lotions in plastic bottles. You give precise specifications for the product and container. The first shipments are fine. Then customers begin to complain that the plastic of the bottles is too thin. You squeeze a bottle, it collapses. It turns out that your manufacturer has quietly adjusted the molds so that less plastic goes into making each bottle. Neither the importer nor his customers has been told of the change.
The reason for this:
Factories did not see an attention to quality as something that would improve their business prospects, but merely as a barrier to increased profitability. Working to achieve higher levels of quality did not make me a friend of the factory, but a pariah.
In this, as in much else, the Chinese are great testers of limits. Just how much “quality fade” can a supplier get away with before the business relationship breaks down? You can be sure they will find out, and stop short a millimeter before the electric fence.
Then there is intellectual-property arbitrage. Under pressure from the advanced nations, the flagrant disregard for intellectual-property rights that was on display in China through the 1980s and 1990s has been brought under some measure of control, but much of it has just gone underground. As Midler writes, “Americans somehow imagined that Chinese factories existed to manufacture merchandise only for the United States, but this was not the view from China at all.”
From the point of view of a Chinese manufacturer, the world is divided into “first” and “second” markets. In the first market — North America, Western Europe, Japan, Australia, and some lesser outposts of legal order — new product designs originate, and the designs are protected by patent, trademark, and copyright laws. By all means go along with that: Get business relationships going with customers in those places. Manufacture according to their designs, observe their laws, give them good deals — even sell to them below cost. Then sell knock-offs of their designs to Latin America and the Middle East, where intellectual-property protection is not so valued. This arbitrage game explains the curious fact that Chinese-made products are often more expensive in the developing world than in the U.S.A. That’s where the profits are made.
The most vexing game to Midler was the one in which Chinese manufacturers relentlessly play off importers against buyers. Everyone is trying to make a profit, of course: the manufacturer from the importer, the importer from the U.S. store chain’s buyers, the store chain from the retail customer. The importer is at the Chinese end of this linkage, negotiating with the Chinese manufacturer, and must bear the brunt of Chinese gamesmanship.
Manufacturers are highly skilled at shifting profit margins from the importers to themselves. If a Chinese factory boss knows any English at all, Midler tells us, it is likely to be the phrase: “Price go up!” Whether the manufacturer’s costs actually have gone up is impossible to ascertain, accounting standards in China being, well, Chinese. Since the importer-buyer deal is fixed under American law, the importer must swallow the manufacturer’s price increases, which happened under Chinese law — which is to say, no law at all.
PAGE But then the importer can switch to another manufacturer, right? Not necessarily:
The health and beauty care industry was one that existed in a tight network. Some manufacturers in the industry were even related to one another. Others shared an educational background. . . . Others shared a kinship that was based in part on membership in the Communist Party. And then some had suppliers in common.
How skillful are Chinese manufacturers at gaming the free-trade system? Think three-card monte. One of Midler’s key import contacts in the U.S.A. is a man he calls Bernie. We learn in Chapter 4 that Bernie belongs to the Syrian-Jewish community, the most capable and exclusive of all the world’s “market-dominant minorities.” (They refer to ordinary Jews like Paul Midler rather dismissively as “jay-dubs,” from the consonants in “Jew.”)
Yet with all his savvy and connections, Bernie is outfoxed time and again by the Chinese. He turns the tables on them just once, in Chapter 21, but his advantage is merely temporary. The worldly and confident Jewish diamond dealer in Chapter 15 fares even worse. This would be a mighty King Kong vs. Godzilla clash of market-dominant minorities, except that the Chinese are on their home turf — actually a majority. Outsiders stand no chance.
With his strong background in Chinese history and culture, Midler is able to identify some of the underlying problems. Many of his vexations echo those voiced by foreigners in China for half a millennium or more: a love of excuse and pretense, the elevation of appearance over substance, admiration for unprincipled cleverness, shame a much stronger sanction than guilt. The old stereotype of the Chinese as chronic gamblers has some foundation in the Chinese psyche, too, as Midler notes:
The impression I got at some of the factories that engaged in quality manipulation schemes is that they did so after growing bored with their more conventional successes. . . . There was a great deal of excitement that came with getting a new business off the ground. These manufacturers were thrilled when they signed up their first major customer, and they got another kick from orders that were especially large. When deal flow leveled out, factory owners looked for other ways in which they could capture that hint of thrill.
All these quirks of national character would be harmlessly amusing in a business environment constrained by impartial law and rational politics, as indeed is the case in Hong Kong and Singapore, and increasingly in Taiwan. In mainland China’s barbarously low level of political and legal development, they express as poisonous pathologies — metaphorically poisonous to a healthy capitalist mentality, but sometimes literally poisonous to the unwary consumer, as we have seen in the recent scandals over toys, baby food, and pet food.
None of this will come right until the current odious dictatorship falls and the Chinese have a system of government worthy of their great talents and civilizational glories. Can we do anything to help? We might have, once. Paul Midler:
During the Clinton administration, when Most Favored Nation status for China was debated in Congress, there was a chance for the United States to hold out for political and economic reform in China, but the opportunity was lost. . . . Improved structural conditions made possible then might have more appropriately set the stage for stability going forward. Instead, American politicians and business leaders rushed headlong into greater levels of interdependency with China, a nation whose reliability is questionable.
Poorly Made in China manages to be both instructive and entertaining, with lessons not only for businesspeople looking to China for profits, but also for our politicians seeking to promote honest trade and U.S. national interests. I wish I could believe that the latter, some of them at least, might pay attention. On past experience, though, that is too much to hope for.
We just GOTTA save the TREES!!! doncha know!
I have one of these from Harden. It hides my TV and stereo. They were made in Japan! - refers to electronics. Harden made in NC!
It wasn’t easy throwing the hat in the ring, however I got on the china ping list for a reason.. I want congress to remove the MFN status, I want china to go down the tubes, to no longer play a role in our economy, and to be held liable for poisoning the products we buy. Let’s see who has the backbone to get it done.
I was building houses after Mt St. Helens leveled a few zillion trees. It made building lumber cheap to buy for a while. Fir trees make good studs. But, the unions and enviros went to bat and prevented much of it from being harvested.
There are some on this thread who just like to bash profitable business practices, but have no facts to back their emotions.
NC also used to be conservative!
1010RD wrote: “The point being now that we know about Chinese drywall how likely will you be to purchase any?”
It’s too late if you bought a house with that stuff in it. Those houses are all write-offs.
Just another example where “cheaper” isn’t.
Some enterprising person will find some way to get value out of them, if allowed.
raybbr wrote: “I am really curious. What did the UAW have to do with any car design?”
I was referring to Detroit 3 manufactured cars.
the Chinese Brilliance doesn’t do any better than the crash tests of a Vega, Pinto and Gremlin from almost 40 years ago.
http://www.youtube.com/watch?v=cHW3PCZvlFI&feature=related
http://www.youtube.com/watch?v=mumLDIV2n7w&feature=related
http://www.youtube.com/watch?v=4agoUB_JTEc&feature=related
In fact I’d say the Gremlin is definitely better than the Brilliance.
That's not what I was refuting.
You said: "I’ve never seen a car (even made by the UAW) that had this level of crash test performance."
What does the UAW have to do with the design of a car or any of its safety features?
Blaming the UAW for design flaws or marketing is specious.
If there is one silver lining in the collapse of our economy it is that we may have a cold and sniffles. The Chinese will get mortal pneumonia as will every other sc*mbag we owe money to.
I've been waiting DECADES to see if this would ever happen!
I can remember when countries around the world NATIONALIZED their industries; much of which were AMERICAN assests that were built in their nations with OUR money!
They just outright STOLE them!
Once again, you misrepresent the truth. I have accounted to you numerous times that I worked for a company that suffered destruction due to pricing pressures from WalMart. I did, in fact, sit in on the management meetings. Their people DICTATED the price that our product.. we were unable to make a profit ourselves.
Retailers deserve all of the hatred I pour upon them.
Elsie, this person is a paid WalMart shill.
...Elsie, this person is a paid WalMart shill.
Still have no argument, huh?
I have been in many NEGOTIATIONS. I know how much I need to make a profit, and don't sell even near that number. WalMart forces nobody!
You have been barking for a couple of days. You are still baying at the moon!
You do have a lot of hatred, though. I guess you've never figured out how to win...
I will give you the benefit of the doubt that you are speaking truthfully from your experience and perspective. I can assure you that I am speaking truthfully from mine. You need to refrain from commenting about people's "emotions" when the accounts relate actual experiences and real facts and figures.
The real truth is, you speak and act like a shill. No "ordinary customer" gives a crap about WallyWorld's reputation so much that they prickle in defense and include photographs of the headquarters building in otherwise mundane posts. If you are defending some capitalist concept in an unbiased manner, where are the photographs of the Sears, Penny's, and Radio Shack's headquarters? But no, the fact is, you are defending WalMarts honor well beyond the call of duty.
Still have no argument, huh?
Excuse me? I have posted actual dollar markup values for Sears. I will not do so for the more recent case because I am fearful of WalMarts' litigating strategies. Divulging any details here would certainly be traceable. Where are your "arguments"? I have invited you to tell me where I have posted erroneous information, yet you have not done so.
You claim facts not in evidence. You stated in an early post to have personal knowledge which defies any actual statistics available.
I know retail inside and out. You are full of crap if you think anybody operates with a 1000% profit margin. In the furniture business we operated at 100-120% (cost $50, sell $100-110). I do know that jewelry has traditionally had the highest markups, and they would love to get 300% on anything. Most of their goods are "keystoned" as well.
I'd bet a thousand bucks that Sears never paid $7 for a tool they sold for $78. I have owned Sears stock over the years, and gotten many of their annual reports. I claim utter and obvious Bull crap to your ridiculous claims. I don't know who you think you are fooling.
I have no interest in WalMart, other than that I shop there and feel you are maligning them for being smart business people. I can pull up pics of anything, but those really tweak you, so I have used them. I was deliberately provoking you to see how serious a problem you have. It's really serious.
You claim that WalMart dictated the price that they would pay to your company. I did that with sub-contractors, as a GC. I built houses knowing that I could better contain my sqft costs. If a contractor did not to work for my price, I found another.
You do not seem to know much about history. Not of retailing, not of industry, not of sweeping the floors (evidently). Your only claim is that the filthy "big box retailers" are to blame for American economic downfall.
Sorry, you need to look elsewhere... and here's some places to start! WalMart is just trying to make a buck. THAT is the AMERICAN WAY!
So are you, only what you spout is just wrong.
You are full of crap if you think anybody operates with a 1000% profit margin. In the furniture business we operated at 100-120%
You've been charging a fair markup. I know for a fact that Sears has a 1000% markup on their power hand tools. I know for a fact that WalMart pays 20 cents for a toy that they sell for $2. If you made that bet about retail markup, you'd lose.
If a contractor did not to work for my price, I found another.
Exactly what WalMart did and continues to do, without regard for survivability of the vendor. They now purchase from China. We were told that "This is our final price. Either cut your costs or we'll go someplace else". My company laid us all off, including engineering and manufacturing, and then finished the build using Mexican labor. Then they sold the company to a European firm and retired happy. Their employees found other work. What would I have to gain by making all of this up? It is WalMarts' predatory behavior that garners my hate. I did not wake up one morning and decide to blame WalMart for the Nation's woes.
You have inside knowledge about some business, but not all of them. I've been in the electronics engineering/manufacturing business for over 40 years, so I do have knowledge regarding many things you don't. I can demonstrate that theory if you like.
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