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Cause What Happens In China Doesn’t Stay In China.

Posted in China Business

More than seven years ago (that has to be the blogosphere equivalent of an eternity, right?), in a post entitled, Is China Going Green? we wrote admiringly about a big company that had one high environmental standard for the entire world:

We are aware of a large Fortune 500 retail company that is opening units in China that meet or exceed the toughest United States environmental laws.  I estimate this company’s environmental sensitivity will cost them at least an additional $25,000 per retail unit, yet I am firmly convinced this company is doing the right thing.  This company’s actions make sense because the odds are good that China’s environmental laws and enforcement will get tougher over time, and building environmentally sound units now will almost certainly cost less than having to retrofit existing units a few years from now.  On top of this, people often get very emotional about the environment and I can see Chinese citizens getting very angry with a foreign company whose units in China are less environmentally sound than their units in the United States or elsewhere.  This is obviously even more likely to be the case if there were to be some sort of environmental disaster.

Whenever I talk about ways to protect Intellectual Property from China, I always mention the option of providing “last year’s model” to China but in the last few years, I have stared adding how this is getting much more difficult as Chinese buyers are now very much aware of what is and is not a current model and they are more and more demanding the latest.

Today’s Financial Times has an article on how Samsung is suffering on the PR front and being sued in France for the way its China subcontractors treat (or mistreat) their employees.  The article is entitled, “Samsung code of conduct put to test” and it does a really good job discussing how companies whose pitches to the public/investors differ from reality are setting themselves up for potential PR and legal problems.  The money quote is definitely the following:

The case highlights intensifying international scrutiny of working conditions in China, as well as growing concerns about multinational groups’ control over their complex supply chains. If successful, the lawsuit could open a new legal risk for companies whose suppliers breach labour laws.

When I was a legal pup, I handled the international litigation/arbitration for a multinational truck manufacturer (long ago sold off to any even bigger multinational truck manufacturer).  My client’s literature described its trucks as “ultra heavy duty” and also as “the best built truck in the world.”  I actually think both of these things were pretty much true, but after arbitrating against a top-flight lawyer who whenever I would talk about how you have to expect some initial problems with any massive truck (as opposed to a luxury car) would point out how that might be true for some trucks, but his client really expected more from an “ultra heavy duty truck” that is “the best built in the world.”  Though the client did shockingly well at the arbitration, I was able to prevail upon them to change their marketing to better suit legal realities.

I am NOT saying that is what Samsung should do here because I have no more knowledge of Samsung’s marketing or its employee handling than is contained in this one FT article, but I am saying that every company doing business in China to start realizing that what happens in China doesn’t stay in China.  This means recognizing that your China supply chain is your supply chain, no ifs ands or buts.

Not anymore.

What do you think?

  • Paul Erickson

    I could only hope that workers in China are being treated fairly and that work conditions will continue to improve in the months and years to come. Great post!

  • disqus_NQS1nAT291

    As long as there is a need for the items, and the bottom line is “at the cheapest cost feasible,” this will continue.