China Law Blog

There ought to be a law against quoting Peter Frampton twice in one week.

The other day, I did a post on how to know, in a blink, whether the factory with whom you are contemplating a business relationship is a good one. We received some comments with such excellent additional gut-check type indicators, I felt a second post was warranted. So here goes.

Ted Cruise recommends the following:

-- Check the lunch of the employees. Most businesses provide lunch and small increases in cost give large improvements in food quality. Some businesses feed their employees lunch to the tune of 1 RMB a day. you wouldn't feed that stuff to your dog. At 5-8 RMB a day you get very tasty and nutritious food. For many factory workers this may be the best meal of the day. Ask their food cost.

-- Does the manager know the employee's names?

-- What is the supervisor/worker ratio? A ratio anywhere near 5-1 indicates that the workers are disposable and need to be closely supervised. Likely this means no training. Any ratio over 15-1 indicates better training and a need to retain employees longer. Ask about the training program.

-- Safety and hygiene: are basic safety features in place? Do you see signs of work related injuries? Do you feel sick after spending time on the production floor? Do the employees seem healthy?

I wholeheartedly concur. All of these essentially get at one point: how does the company treat its workers. I remember once visiting a factory in Yantai owned by one of my firm's Chinese clients. I was shocked at how nice the facilities were for the workers. They lived in what appeared to be a very new, very well constructed high end building. The first floors of the building were offices, with living quarters above. During our meeting, the executives bragged about the perks they gave the employees (high quality lunches, a large game room, vans to take them into town when they wanted to go). I asked what they gained by providing all this to their employees and their immediate response was "good employees." I buy it. This is one of the better run companies with whom I have worked, anywhere.

Jared checked in with another one I love:

One other qualifying factor I often use is comparing the owner's car to the investment in technology/quality. If the car is much nicer than his factory investments, I tend to find the factory is not worth my business in the long run.

Again, I completely agree. Even though I am from Michigan (you know Michigan, that's the state where the US used to produce cars) and love cars, there is such a thing as excess and I have been to Chinese factories where the owner's new $150,000 car is parked out front and the factory is filthy and run down. The conclusion to be drawn there is that the owner is not trying to build up a business for the long haul; he is in it for the quick bucks.