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.
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."
And just as we are funding the War on Terror on BOTH ENDS every time we fill up at the gas pumps...we borrow money from the Chicoms so that we can continue to buy their products...how dumb are we?
How do you say “SUCKERS” in Chinese?
I would rather buy cheap Chinese junk than expensive union made junk..
Great post.
I would prefer to continue having the choice to buy either.
The California DOT has found this out the hard way. A lot of the iron and steel work for the new San Francisco Bay Bridge is being made in China, and CALTRANS has had one hell of a time monitoring quality of welds for this job.
That is precisely why our economy is now it the present condition.
“a love of excuse and pretense, the elevation of appearance over substance, admiration for unprincipled cleverness, shame a much stronger sanction than guilt”
Sounds like liberals.
That is precisely why our economy is now it the present condition.
No, not precisely. Unions bear a large responsibility for this as well and we've already seen that Smoot-Hawley type of legislation creates far too much misery to make it feasible. However, blaming the guy who wants to save a buck instead of spending it on union benefits is not the answer either.
ping
“I would rather buy cheap Chinese junk than expensive union made junk..”
-
Translation:
“AMERICA LAST”.
Get a clue.
That was my first thought -
the Chinese are less destructive to our way of life than unions are.
It’s not a matter of ‘Chicoms’ as you state. As long as China has had arbitrary authority, this behavior has been going on. It was like that well before the Communists took over.
The reason other countries with ethnic Chinese have progressed is the development of and adherence to contract law.
Too many Americans show outrage about Chinese products but do very little. I was in a bar three years ago when a fellow stopped by. After a few minutes, he started railing against China. When I bet him that his leather jacket was made in China, he took the bet because his brother bought the jacket and he would never buy anything from China. We examined the jacket together and I found the “Made in China” label. Unfortunately, he left immediately and I never got my Balvenie.
China is the world’s biggest labor union! Why are “free traders” so blind?
And why in the world is the GOP supporting this foolishness?
GOP free trade campaign slogan:
“You’re all fired. Vote for us”.
Great. We can all work for the Communist Chinese making crap.
Think that one through!
Our manufacturing base left this country because of WalMart and that model. I used to work for a company that supplied goods to WalMart. They would dictate our selling price until it became impractical to make the product. All the while, WalMart's margin for the product in their store was 1000%. I can assure you, "buy cheap" killed us.
I think I will go get Midler’s book. But the short blurb above does not surprise me. Read Tuchman’s “Stilwell and the American Experience in China.” What Midler deals with in international business today is exactly what Stilwell went through in dealing with the Kuomintang. This short blurb does not mention something Tuchman spent some time discussing: The Chinese are racists. They have always detested “the foreigner.” Chaing Kai Shek insisted on opening all the windows after meeting with Stilwell to “rid the room of the odor of the foreigner.” One of their favorite phrases is “we can always fool the foreigner.” I doubt any of this has changed.
Face it; the Chinese detest us, and when dealing with foreign companies they are double-dealing lying sacks of poop unwilling to honor any contract they sign. Anyone who does business with them is a fool, begging to get ripped off.
“China is the world’s biggest labor union!”
BINGO!
We have a winner!
And why in the world is the GOP supporting this foolishness?
Pinging John McCain, Pinging John McCain, Question for you at post 14.
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