Interesting post by Nina Ying Sun on the PN China blog on the inherent difficulties in monitoring your China factory. The post is entitled Hands-on due diligence in China, and it starts out with the following quotes from an interview with Alexandra Haney, author of the book, The China Price: The True Cost of Chinese Competitive Advantage:

  • “More than half of factories in southern China are falsifying payroll documents!”
  • “Many even create Potemkin factories…. Around the corner is a ‘shadow factory’ that produces the same goods under much less wholesome conditions.”
  • “There is even a cottage industry of ‘falsification engineers’ in China–consultants who specialize in doctoring payroll records and coaching workers to create a fiction of compliance with a Western buyer’s code of conduct.”

The post then cites some of Ms. Harney’s suggestions for dealing with your China factory:

  • Acknowledge that understanding what’s happening in the company’s supply chain is not simply a matter of risk management or good corporate citizenship; it is a core business issue and a valuable competitive advantage.
  • Build frank, long-term partnerships with Chinese factories, rather than moving orders quickly from one plant to another.
  • Take a field trip at least once or twice a year.

Ms. Sun finds this bit of Ms. Harney’s advice particularly interesting:

Schedule a visit to one of your suppliers, but arrive quietly the night before your appointment, perhaps with a Chinese colleague. Instead of having dinner at the hotel restaurant, eat near your factory and spend time with the locals. Ask them: What’s the average monthly wage in this area? Are wages going up or down? What time do most people get off work? What is considered the best factory to work for, and why? Have there been any problems in any of the factories recently, fights or disagreements?
Ask motorcycle drivers that work near your supplier about the hours your factory keeps its lights on, and whether they see a lot of traffic between your supplier and others in the neighborhood.

Ms. Sun very adeptly notes a flaw in relying on the motorcyclist:

When you meet the factory manager the next day, ask him the same questions and compare his answers to what you learned the night before.

Sounds like some good advice from a real China expert. However, don’t assume the locals and motorcycle drivers — if there are any — really know the answers to your questions, even if they provide you with information. Be aware that Chinese Culture 101 dictates that, out of politeness, Chinese people won’t tell you no. If the motorcycle driver isn’t sure about the hours of the factory, he will probably give you an answer anyway, just to complete the conversation nicely.

Anyone who has ever asked for directions in China will know whereof Ms Sun speaks. Ms. Sun’s good advice is that “like any due diligence work, talk to multiple sources with different backgrounds and interests.”

I read and enjoyed the China Price and I have been meaning to review it for some time now. The Parent Party Girl Professional and Philosopher Collide Blog (perhaps better known as the PPGPPC Blog?), does a great job summarizing the book in her post, Armchair China:

Alexandra Harney does a good job of documenting the price for Chinese ascendance. In The China Price she offers tons of documented facts, personal stories of Chinese workers and factory managers, and knowledgeable commentary about the cultural context. She manages not to weigh in emotionally, although she does assign responsibility.

Chinese workers, most very young or with impoverished families to support, are killed and maimed due to horrible working conditions. Cancer villages and widow towns dot the Chinese landscape. Chinese pollution shows up on the West coast of the US. Chinese factory managers, whose hours are just as inhumane and whose pay is often just as low-or their personal funds are drained in their hope of staying afloat-use a numbers game and falsified documents to try to appear to be adhering to fair labor standards, because to adhere to fair labor standards would drive the factory out of business, and many officials charged with making sure fair labor and safety standards are in place turn a blind eye. Wal Mart’s inevitable and witless commentary is present as well.

Many Chinese workers and their families have turned to studying the law and combining forces to sue for benefits after injuries. The seeds of something better appear to be planted and sprouting, slowly. But according to Harney, we all pay The China Price.

The China Price does a really good job explaining what goes on in China’s factories and, in particular, the whole system that has been built up in China for avoiding monitoring by Westerners. Ms. Harney’s thesis is that in many cases, Western companies producing goods in China know that the prices they are paying make fair employment and decent environmental standards impossible. I recommend the book to anyone interested in how China has managed to achieve the China price and what the societal and environmental costs of that price has been. I also recommend it to anyone thinking of doing any manufacturing in China (or even doing business in China at all), be it on your own or through outsourcing.

  • Law Office of Todd L. Platek

    The China Price is dictated by us in the West and Japan, the consuming source of demand. Western and Japanese corporations are clear about the price they compel China to accept. There are no Pollyannas sitting on corporate boards of directors, and certainly none among the thousands of corporate buyers who attend China’s myriad trading companies and exhibitions, and more than occasionally venture out to factories. The question that must be answered is how, if at all, Chinese factories can manage and produce in accordance with standards we try to set, at the prices negotiated by Western and Japanese importers. China has paid a terrible price so that we in the West and Japan can enjoy newly clean environments and plentiful, low-priced consumables. We owe a huge debt to the Chinese people for what they forsook in order for us to gain what we have now. They have paid a huge price in order to improve, allegedly, their own lifestyles. It’s a symbiotic relationship which isn’t without difficulties, but both sides need each other, now and in the future. When people in the West and Japan snicker at “Made in China”, they need to remember that they are a large factor in making China what it is today.

  • Steven Blayney

    I highly recommend Harney’s book “The China Price”. Ms. Harney provides an excellent depiction of the phenomenon of the back-door factory. There’s the good-behavior factory that is shown to inspectors, and there’s the China-price factory were they do most of the production—2 factories; 2 sets of books.
    According to Harney, there’s even a Chinese software company that has created a very popular dual-books accounting/employment records software. This software apparently will automatically generate 2 sets of accounting and employment records—an accurate set, and a set to show the inspectors.
    I’m now reading Zimbargo’s “The Lucifer Effect” about his famous prison experiment conducted at Stanford University. Basically, he selected a group of “normal” students to be “prisoners” and “guards” in a mock prison experiment in the basement of a building a Stanford University. Zimbargo had to abort the 2-week experiment after 1 week because the “normal” student rapidly degenerated into bizarre, cruel, sadistic behavior. It shows the powerful effect of how situations determine behavior. You see it also in the situational enviroments of Chinese factories and the competing situational pressures that buyers, suppliers, managers and workers are under.

  • Law Office of Todd L. Platek

    Steven: What do you think happens in US and other nations’ factories and government offices when their work environments permit deviations from “the ideal”? Production for satisfying statistics/profits, not performance. Shoddy police work, shoddy industrial production, the bottom line is the same: get it done, make managers look good, and cover your tracks. It’s time the American public stopped acting surprised about China. Without China, we’d be spending 75% of our disposable incomes just to buy 35% of what we now consume, if it were all made in the US and American workers were being paid at American wages. In addition, the quality would likely be similar, given American management’s predilection for “planned obsolescence.”

  • Rick111

    I appreciate the article and will pass it along to my colleagues.

  • Charming Charlie

    Posted May 29th eh?
    How do I get back to May 24th? I have an appointment to make.

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  • ENGINEER

    DEAR FRIENDS,
    I AM IN THE INDUSTRY IN INDIA SINCE 40 YEARS. INDIA AND CHINA ARE IN THE SAME
    BOAT. INDIA IS A BIG SWINDLE OF CAPITAL AND LABOUR. OUT OF 35,000 CORPORATE
    COMPANIES ONLY 3000 COMPANIES ARE GIVING REGULAR DIVIDENT TO SHARE HOLDERS.
    OTHERS SHOW LOSSES BUT OWNERS ARE BECOMING RICHER AND RICHER.
    IN ONE STATE ALONE 1, 50 ,00O FACTORIES BECAME SICK AND FINALY CLOSED
    DOWN DURING THE PAST DECADE. In MUMBAI ALONE THERE ARE MORE THAN
    80, 000 SLUM FACTORIES WHCH DO NOT HAVE EVEN CLEAN TOILETS. BUT THE
    OWNER S CHILDREN ARE STUDYING IN U.S.A. THE OWNER GOES EVERY YEAR JOLLY TRIP AROUND THE WORLD. I AM SHOCKED TO KNOW CHINA IS SAME TYPE. BOTH ARE
    BOOMING.