Doing business with China
Leaders of the TPP countries. What no China?

Far too many on Facebook and Twitter keep describing the Trans-Pacific Partnership as a “secret” document and then use that as a reason for opposing it. Go ahead and oppose TPP — that’s your right — but it is factually wrong to claim it is a secret document as you can find its full text right here on the Office of the United States Trade Representative’s website.

And if the straight text is not enough for you, or if you are interested in how the TPP (if it passes, which is looking increasingly unlikely) will impact China businesses and foreign companies doing business in China or with China, check out the following:

Negotiating with Chinese CompaniesIn this series of posts I am looking at themes explored by Lucian Pye in his work Chinese Commercial Negotiating Style and how they relate to negotiating with Chinese companies. Pye concludes that most Sino-American negotiations are initiated in a way that helps the Chinese side achieve its preferred strategies and tactics. My first post, Contract Preliminaries and Courtship Rituals, looked at how Chinese companies tend to control the preliminaries during what I have called the “courtship” phase. In this post we will see what Pye has to say about the Chinese tendency to prefer agreements on generalities.

Pye observes that Chinese culture traditionally shuns legal considerations and instead stresses ethical and moralistic principles. By contrast, Westerners are thought to be highly legalistic. The Chinese tend to reject the typical Western notion that agreement is best sought by focusing on specific details and concrete matters while avoiding discussions of generalities or rhetoric. The Chinese prefer to agree on general principles before dealing with details. They can, Pye says, be tenacious in holding to their principles but surprisingly flexible about details. The Chinese focus is on the “spirit” of the deal. Agreement on principles usually takes the form of letters of intent or protocols, the purpose of which often mystifies the Westerner. The Chinese attach great importance to symbols and symbolic matters. Symbols such as the spirit of the agreement have a reality for the Chinese and there is a distinct Chinese bias in favor of the publicity or “face” these symbols can generate.

The Chinese, Pye says, conceive of their business relationships in longer and more continuous terms than Westerners. They expect an agreement to set the stage for a growing relationship in which it will be proper for the Chinese to make increasing demands. A proclivity for seemingly unending negotiations can even make the Chinese insensitive to the possibility that “canceling” contracts may cause trouble in the relationship with the foreign party. From the Chinese perspective, nothing about a contract is ever final. Westerners usually think a contract will provide for a given period of fixed and predictable behavior but the Chinese look for continuous bargaining and regard this bargaining itself as suggesting an enduring relationship. For Westerners there can be a great deal of give and take before agreement is reached, but afterwards the expectation is that neither party should lean on the other to seek further advantages. For the Chinese, the very achievement of a formalized agreement, like the initial agreement on principles, means that the parties now understand one other well enough that each can expect further favors. They will therefore not hesitate to suggest changes immediately on the heels of an agreement. They tend not to treat the signing of a contract as signaling a completed agreement.

Pye advances several explanations for the Chinese tendency to seek early agreement on general principles. First, he says, it is easier to extract concessions when details are to be worked out later on. Second, agreement on principles can easily be turned into agreement on goals. This can in turn support a later insistence that all discussion of concrete issues must support these goals. Finally, Pye says, agreement on general principles can be used later to substantiate tactical claims of bad faith.

More on tactics in the next post in this series.

One final point: Pye never moralizes or suggests there is anything wrong with the Chinese approach. He merely points out how different it is from the typical Western approach, leaving readers to conclude that foreigners ignore or disregard the Chinese negotiating tactics at their own peril. This is certainly consistent with our view that one should not rush to blame the Chinese when things go wrong.

Negotiating with Chinese CompaniesIn the early 1980s the US Air Force commissioned Lucian Pye, an eminent sinologist, to write a report on how Chinese negotiate with foreigners. Published in 1982, it was called Chinese Commercial Negotiating Style.

A friend of mine recommended Pye’s work to me recently, saying he wished he had read it twenty years ago when he first started working in China. Based on extensive interviews with Americans engaged in China trade, Pye’s paper analyzes the negotiating style the Chinese use with American businesspeople. To control for American cultural bias, Japanese traders were also interviewed. Pye’s overall conclusion was that the way most Sino-American negotiations are initiated usually sets in motion a process that helps the Chinese side achieve its preferred strategies and tactics.

Though some of Pye’s political and economic observations are, quite understandably, now rather dated, I was nonetheless struck by his report’s enduring relevance and, like my friend, I now recommend it to anyone interested in doing business with China. To merely summarize his work would be to do it a disservice so I have attempted to draw out some of his major themes and look at them in a series of posts. A recurring theme is Chinese mastery of contractual preliminaries.

In Pye’s view, foreigners often follow the historical practice of coming as guests seeking permission to do business in China. This naturally casts them in the role of supplicants asking for Chinese beneficence. They are visitors from afar and their hosts call the tune on the procedures and the timing of meetings. Problems associated with visas, invitations and access to officials or business leaders contribute to foreign anxiety about “doing the wrong thing” when doing business in China. So when problems arise, the foreigners are prone to suspect they are somehow at fault. In this way, the Chinese hosts gain the advantages of surprise and uncertainty in agenda arrangements.

According to Pye, the Chinese tend to limit preliminary exchanges to generalities so as to size up the foreign party and to determine its vulnerabilities, especially any lack of patience. At the same time, foreign business leaders tend to jump straight in. The novelty and status associated with visiting China frequently compel foreign CEOs to be the first to engage in talks with the Chinese, without waiting for subordinates to prepare the ground. The graciousness and bountifulness of Chinese hospitality can make the foreign visitor feel awkward about being too businesslike. Consequently, foreign CEOs tend to be very obliging in following the Chinese practice of seeking initial agreement on very general principles, without clarification on the specific details. Much of what occurs at the preliminary stage has a tacit quality and foreigners frequently misjudge their progress. In taking this approach, Pye says, foreigners violate one of the first principles of negotiations and diplomacy — summit meetings should never take place without extensive preliminary spadework by subordinates.

When mid level executives are later sent in to work out the details of a contract they usually discover that the Chinese want to rely on the agreed “principles” that were put in place by the CEO. Such principles were often taken by the foreigners to be no more than ritual statements but the Chinese tend to use them to practical advantage by suggesting the other party has not lived up to their “spirit.” See China LOI and MOU: Don’t Let Them Happen to You. Instant authorities on China, these CEOs returned from their initial visits to report success, saying they found the Chinese to be cooperative and gracious. The mid level executives and others tasked with working out details then come under great pressure. They are constrained to avoid acting in ways that might irritate the Chinese and spoil relationships established by the boss. So, when the big guns are sent in first the foreigners lose the advantage of dispatching their highest people for critical negations at the consummation of the deal. Their second appearances must now be limited to generalities where civilities prevail.

I found Pye’s observations both persuasive and broadly consistent with my own experience. Having said that, he is clearly more concerned with the affairs of government and large corporations than he is with SMEs or creatives who may not have support available from a middle level of management or administration. The pitfalls Pye identifies can be minimized, he says, if foreigners recognize that in the initial stages of negotiations, the Chinese usually only want highly generalized in-principle agreement to the effect that a relationship is possible.

In my next post I will look at what Pye has to say about Chinese attitudes to contract formation.

Owed money by Hanjin Shipping?

We received the book, Conflict of Laws in the People’s Republic of China, a few weeks ago, and our China attorneys have been using it ever since. It is that good. We find ourselves using it both as a “first look” at various aspects of China conflict of laws and also for its 25+ pages of cases and legislation. This is a really good, really serious, really well written, really comprehensive book on China conflict of laws.

It describes itself as follows, 100% accurately:

This timely book is an invaluable resource for academics and practitioners in private international law, conflict of laws, international law, international litigation, Chinese law and international civil and commercial law matters involving China.

You got that right, and I’ll raise it one by noting how we have used it to reinforce for our own clients why we use the particular choice of law (usually China) and choice of jurisdiction (usually China courts or China arbitration) we do.

The thing about conflict of laws is that international lawyers have to deal with it far more than most realize. Just yesterday, it came up twice in just my work. The first time involved a case regarding ownership of real property by a dissolved foreign corporation and the question was whether to apply the law of the jurisdiction of the real property or that of the dissolved foreign corporation. Our firm is involved in helping creditors owed money by Hanjin Shipping and shippers concerned about what will happen with their cargo on board Hanjin vessels. This matter has already and will involve simply massive amounts of conflict of law analysis, including for China, where a number of Hanjin vessels are under arrest. So yeah, conflict of laws is highly relevant.

The book is made up of the following fourteen chapters:

  1. Conflict of Laws in China — A Historical Perspective
  2. Concepts and Preliminary Questions
  3. Jurisdictions in Chinese Courts
  4. Declining Jurisdiction in Chinese Courts
  5. Selected Procedural Issues in Foreign-Related Litigation in China
  6. Recognition and Enforcement of Foreign Judgments in Chinese Courts
  7. Recognition and Enforcement of Arbitral Awards in Chinese Courts
  8. Choice of Law in Contract
  9. Choice of Law in Tort
  10. Choice of Law in Unjust Enrichment
  11. Choice of Law in Property
  12. Choice of Law in Intellectual Property
  13. Interregional Conflicts and Cooperation Between Mainland, Hong Kong, Macau and Taiwan
  14. Chinese Conflict of Laws: Past, Present and Future

If you are an English speaking lawyer involved with China, you should get this book, read the most relevant parts for your practice. I read the chapters on Recognition and Enforcement of Foreign Judgments in Chinese Courts, Recognition and Enforcement of Arbitral Awards in Chinese Courts, Choice of Law in Contract Choice of Law in Intellectual Property for this review and I plan to read a few more chapters during my next long airplane flight.

If you are a China lawyer, get this book. And if you are an international lawyer, consider getting this book. There is nothing that even comes close to it in English (though there are a number of tomes in Chinese). You won’t regret it.

Best China Business BooksClub China (KLM Airline’s China focused website) came out today with a list of the four best books on China business. It describes its list as follows:

Are you planning your China business venture? Or have you been in China for years, and find yourself still hungry for knowledge? Our Club China editors have compiled their list of best business books about China. Some have been published fairly recently, others are classic but still immensely popular. Please enjoy our ‘Must-reads about China’.

Its list consists of only four books, all but one of which (the One Hour China Book being the exception) I have read and recommend very highly. I am writing this post on an airplane (heading to New York to speak on China tomorrow at Cardozo Law School and having someone on the ground fill in the links) with marginal internet, but I have a nagging feeling, actually a certainty, that though my list would most emphatically include the three books I have read, it would also most emphatically include some more. So to me this list is not necessarily THE four books you must read or even the best four books for those looking for more information on doing business in China or with China, but rather, four great books for that purpose (I have heard nothing but good things regarding the One Hour China Book).

So without further ado, I give you the KLM list, with my own comments following the quote.

China CEO. By Juan Antonio Fernandez and Laurie Underwood. KLM has this to say about China CEO:

There is nothing like learning about business successes and failures from the very people that experienced them….Twenty top executives and eight experienced consultants based in China offer their first-hand, front-line advice….China CEO is full of such sound advice about subjects like managing Chinese employees, leaderships styles and negotiating with the Chinese Government.

Way back in 2009, in a short article I wrote for Forbes Magazine, entitled Best 10 Books on China, I listed China CEO and had this to say about it: China CEO is a technical collection of interviews with CEOs on how to conduct business in China.

One Billion Customers, by James McGregor, of which KLM has this to say:

The author is a former Wall Street Journal China bureau chief who became a successful corporate executive. One Billion Customers … offers compelling narratives of personalities, business deals, and lessons learned….The book offers a great number of interesting case studies, including a rocky joint venture between Morgan Stanley and a Chinese bank; the rise and fall of a Chinese peasant turned billionaire smuggler; Rupert Murdoch’s travails in bringing a satellite TV network to China; and a muck-raking Chinese financial journalist’s battles with both government censorship and the private media’s cozy relationships with advertisers.

I also listed this book in my Forbes article with this to say about it: “How big business gets done in China.”

China’s Super Consumers, by Savio Chan and Michael Zakkour, of which KLM has this to say:

The subtitle of the book Chan and Zakkour wrote says it all: What 1 Billion Customers Want and How to Sell it to Them. It explores the birth of consumerism in China and explains who these super consumers are. The authors explain what’s inside the minds of Chinese consumers, what they buy, where they buy, how they buy, and most importantly why they buy….The authors offer real stories of the kind that entrepreneurs can never get enough of: how was it done, why did it work, where did it fail….The book takes its readers inside the boardrooms of the people who understand Chinese consumers and have had success in the Chinese market.

I reviewed this book when it came out in 2014, and if you will forgive me a bit of bias because it quotes me a couple times on the legal side of doing business in China, I think this book makes for a superb primer on how to do business in China. Back then I described it as “a great book and I highly recommend it for anyone with a product or a service that is being sold or could be sold to China’s consumers. It is also a very good book for any foreign company doing business in China or looking to do so.” I certainly stand by that review now.

The One Hour China Book, by Jonathan Woetzel and Jeffrey Towson, about which KLM has this to say:

If you are more a doer than a reader, this one is for you. In just 132 pages, two Beijing university professors take you on a quick tour of China business life. There are just six stories in this book and they happen to be pretty good. This “quick-read” offers the distilled knowledge of two Beijing university business professors with over 30 years of experience on the ground in China and emerging markets….Each chapter is condensed into a handful of key points/statements which help the reader to understand and remember the underlying mega trend.

That’s it. Those of you on the ground who wish to add additional books to this list, please do so via the comments below. I am still working on a massive “best reading materials on China” list and I continue to welcome suggestions for that as well.

Since we took down our blogroll last year, I feel it is more incumbent upon us than ever to highlight other blogs and other sites and other writings we see as being helpful to our readers. Towards that end I emphatically recommend the US-China Trade War Blog.

Though nominally written by a BigLaw firm, this blog is really is the brainchild and the baby of William Perry (a partner at Dorsey), a leading trade law and customs lawyer. Bill has the nearly unique distinction of having been both an attorney with the Office of General Counsel, U.S. International Trade Commission (“ITC”) and with the Office of Chief Counsel and Office of Antidumping Investigations, U.S. Department of Commerce. I am not aware of a single other attorney in private practice who has been an attorney with both of these key international trade agencies and this dual background/knowledge infuses his practice. Full Disclosure: Bill is based in Seattle and I know and greatly respect him and he is my firm’s go-to lawyer for trade and customs matters.

Anyway, about Bill’s blog, which describes itself as follows:

This blog is the outgrowth of a newsletter that I have created to monitor US trade and other litigation against US and Chinese companies. I am an international trade lawyer. Before representing US and Chinese companies in international trade cases for more than 20 years, I used to work at the US International Trade Commission (“ITC”) and Commerce Department on various trade cases in Washington DC.

Based on my experience, I can categorically state that there is now an ongoing trade war between the United States and China. This Trade War became evident in the recent Solar Cells antidumping and countervailing cases against China, which target approximately $4 billion in US imports of solar cells from China. In retaliation for this trade case, the Chinese government has initiated a countervailing duty and antidumping case against $2 billion of US exports of polysilicon, which go into the solar cells being imported from China.

Upon investigation, this trade war has now expanded into a number of other litigation areas against Chinese companies, including intellectual property/section 337 cases, false claims act/customs fraud, antitrust, securities and products liability litigation.

The best kept secret, however, is that the real targets of these US cases are not Chinese companies, but US companies that import products into the United States. US importers are the companies liable for antidumping and countervailing duties in cases against China. US import companies are also liable in intellectual property/337 cases, False Claims Act/Customs Fraud and Products Liability cases. The primary target of this trade war is the US companies involved in trade with China, not the Chinese companies. This is truly a brave new world.

As you can tell just from the above, Bill does not pull punches and his blog doesn’t either. The blog focuses on the various trade disputes swirling between the United States and China, with a dollop of ominous warnings about how China-US trade disputes just keep on escalating to the detriment of both countries. I had lunch with Bill not that long ago and he was even more ominous in person, pointing out how anti-trade rhetoric in the U.S. presidential election scares other countries around the world and could foretell a new period of beggar thy neighbor policies that will further escalate trade tensions between the United States and China. Bill’s big issue is how US companies that import products are getting hit with massive fines for having imported products from that are subsequently determined to warrant anti-dumping duties. Bill is the person who taught me that the United States is the only country in the world that applies such sanctions against importers retroactively. Did you know that you as a US company can import a product from China and then years later be hit with a massive fine for having imported that product? Based on the phone calls we get from companies to which this has happened, my strong sense is that too few U.S. companies are aware of this.

If you import anything into the United States or you are contemplating doing so (especially if your imports come from China), I recommend you add the US-China Trade War Blog to your reading list. If you are merely interested in international trade, I make the same recommendation. I warn you in advance though that it is not for the faint of heart or of intellect.

A book review I wrote for AmCham just came out. My review is of the book, Unmade in China: The Hidden Truth About China’s Economic Miracle, by Jeremy Haft.

Unmade in China

The below are the highlights. For the full review, go here.

The book sets out to debunk the following three China “myths”:

  • China’s Economy is about to surpass the US
  • Everything is made in China
  • China’s currency manipulation kills jobs

*     *     *     *

Haft uses the breadth of China’s outputs – food, drugs, toys, auto parts, electronics, oil rigs, refineries, bridges, nuclear reactors – to illustrate how goods move through concentric rings of danger as they are transformed from inputs to outputs with each step in the value chain only magnifying the risk that the final outputs will be unsafe.

Take baby formula in China. Please. Why would we think China is capable of developing and building high-end nuclear power plants or airplanes when it cannot even make safe baby formula? Haft sees China’s inability to make good products as an opportunity for US-made products and services to thrive in China and worldwide. Just consider what happened after melamine in Chinese baby formula poisoned over 300,000 infants in 2008: US dairy exports to China quadrupled. Bombarded by almost daily assaults of safety scandals, Chinese prefer American-made products over Chinese-made products and they are willing to pay a premium for products made in America.

I agree and I disagree. All that Haft says about China products is true on a micro level, but at the same time, more and more products both designed and made in China are competing worldwide. Are these top of the line products? Almost never. But they are oftentimes “quite good” products produced and sold at considerably lower prices than their competitors. Chinese brand cell phones are a perfect example of this. What about all the made in China products we buy every day that work just fine?

Unmade in China nicely debunks the notion that China’s economy is a juggernaut surpassing that of any other country. Haft takes apart this notion using cold hard facts. Of course, all one need do is Google “China’s economy” with a last six-month time restriction to see that this notion is in decline these days anyway.

   *    *    *    *

Though Haft does a good job on a micro level explaining how the US benefits from using China for so much of its product manufacturing, like so many “China people” (this blogger included), he too often glides over the bigger picture. Those of us who work with China tend to formulate China’s big picture by adding up the “little” things we experience every day, whereas economists, historians and even journalists are able to have enough distance to better survey the big picture.

*     *    *    *

Examining China on a micro level is important and Unmade in China does a very good job with that. But like so many non-fiction books I have read, it weakens by trying too hard to extend its micro analysis onto a grander, more macro stage. Does sending manufacturing to China really have no negative impact on an America where high school graduates 30 years ago worked at factories making $20 an hour, plus good benefits, but now pack boxes at warehouses for $11 an hour with minimal benefits? Does sending manufacturing to China strengthen our country? Does anyone really believe China is not slowly but surely closing the gap on product quality? What will happen then? Unmade in China does not seriously discuss these big issues.

Again, to read my whole review, go here.

Nothing is written in stone.
            Rule No. 1. Nothing is written in stone.

Not sure why, but we have gotten a rash of questions lately from readers wanting to know our policy on comments. Let me start by saying that we do not really have a formal policy and that much depends on who is monitoring the comments on any particular day. I guess if I had to sum it up, we strive not to be arbitrary and capricious.

But if we were to be forced to analyze our commenting policies in writing, I suspect it would look a lot like the below (in parts borrowed heavily from multiple other sites):

We strongly encourage you to comment on our posts as we very much want to be an open forum for discussion and debate. We do expect you to keep the discussion civil and we generally do enforce the following basic rules.

  1. No hate speech.
  2. No selling anything.
  3. No spam. 99 times out of 100, if you give a “selling link” we will delete it even if we keep the rest of your comment.
  4. No slamming anyone by name unless for something someone said. In other words, if you say that so and so owes you $50,000 and is a deadbeat, we delete it. If you say that such and such Chinese company gave you bad product, we delete that. We just don’t think it fair to allow one side in a dispute to provide their facts on our blog.
  5. There are a few people we find so terminally obnoxious or dishonest that we have banned them permanently for this reason and when they post comments under fake names (yes we can usually tell) we delete those also, oftentimes just because we feel like it.
  6. We sometimes (and trust us when we say we hate this) will “modify” or even delete a comment if we believe it could lead us being taken down in a particular country (one guess) that does that from time to time with websites it does not like. This is very rarely done, but sadly, it is every once in a while necessary. Our view is that it is more important to keep that channel open than to have it be closed and we have heard from a large number of people, especially Chinese lawyers who have expressed this same opinion about our blog to us.

We never delete a comment just because we disagree with it or do not like it. Dissenting opinions are not only welcome, they are very much appreciated as they enliven the discussion. It pains us at times to post comments when we know the advice given in them is wrong, but we post those as well, both here and on our China Law Blog Linkedin Group (please consider joining as it’s great!). We long ago decided that our readers are adults capable of making their own decisions.

As you have no doubt noticed, we utilize Disqus for our commenting system and we do this for the following reasons:

  1. It just works. It makes discussions easy to follow and to share.
  2. It puts Disqus in charge of maintaining user information.
  3. Disqus has a good spam filter.

We hold ALL comments for moderation and so there is no need for you to post your comments twice (or eight times either) and unless it has been longer than 24 hours since you posted your comment, there is also no need for you to write us accusing us of having censored your comment. We review all comments before they go live and we generally do this only 1-3 times per day. the comments two or three times per day. What this means is your comment might sit for a couple hours before I can review it. Your patience is appreciated.

We seldom comment ourselves or respond to individual comments simply because we don’t have the time. We also think it best to let our readers control the discussion.

Above all else, please always feel free to contact us with any concerns or suggestions.

“Paranoia is just having the right information.”
― William S. Burroughs

The lawyer’s job is to discern risk and help their clients to avoid them. Put another way, we are both trained and paid to be paranoid.

When traveling to China, you must protect your data.
When traveling to China, you must protect your data.

Years ago, when I was in Tokyo on a particularly sensitive matter, I left my hotel room as I had done pretty much every day for the last 7-8 days and starting walking to my subway stop. Then for some reason I got a strange feeling about having left my laptop computer in my hotel room and I decided to return. When I did, there were two very well dressed men wearing black suits and ties looking at my turned on laptop. I immediately asked them (in English) what the ____ they were doing in my room and one of them responded in shockingly good English that they were with the hotel and just checking on my internet. To this day, I have little doubt that they were with Japan’s Secret Service.

I just read a lawyer-written article, Privacy Tip #15 – Protecting your privacy during holiday travel, that provides some good tips for maintaining your privacy when you travel. The article lists out the following, with my comments in italics:

  • Don’t leave your laptop, tablet. USB drive, other removable media or mobile phone in your car trunk. I never ever ever put anything in the trunk of a taxi or other car. I take it all with me and put it on the seat.
  • Don’t leave your laptop, tablet or mobile phone unattended on a plane or train. Agreed. In addition to this, you should make sure to constantly remove sensitive data from your devices and store it elsewhere
  • Use complex passwords on all devices so if you forget them or they are stolen, your data is not immediately vulnerable and accessible. This should go without saying.
  • Be careful not to store or leave your devices in the seat pockets of airplanes or trains. This is indeed a good thing to guard against. 
  • Destroy your travel documents (including boarding passes) when you are finished with them by shredding them. I rip mine up in the airplane and give half to the flight attendant and dump the other half in the first garbage can I see upon disembarking.
  • Lock your laptop and other mobile devices in your hotel safe. Hotel safes are not as safe as widely believed. Which is why stripping your devices of confidential information and using complex passwords is always critical.
  • Wipe your laptop before and after you travel to high risk areas such as China, Russia, the Ukraine, Iran or Iraq. Agreed. Just not sure there are any low risk areas. 
  • Use your VPN connection any time you are accessing your company information and not free wifi. Agreed. When I am out of the country, there are certain websites I will not check under any circumstances. I instead request that other lawyers or staff go to those sites for me and report back or I ask them to send me what I need. 
  • Frequently update your virus and firewall protections.  Good idea.

When going to China and to many other countries as well, I assume my hotel room and my phones (including my own cell phone) is bugged and my internet is monitored. I assume the worst and I take every measure I can to be careful. I have plenty of stories to tell involving people who were not careful about their data.

1. Many years ago, I was staying on the business floor of the Hotel Lotte in Pusan, Korea. Back then this floor had a couple of computers for its guests. I got on one of those computers (to read the news) and the first thing that popped up was a letter written by a Seattle company revealing information I know they would not have wanted me (or anyone else) to see. Someone from this company had written this letter on the computer (in Word format) and simply left it there. Not smart.

2. Many times I have gotten on the internet at an airport computer and been let right into someone’s webmail account. Not smart.

3. I once found a memory stick in the desk drawer of my hotel in Shanghai that contained an incredible amount of information on a European plastics company. Another time, on the floor of my hotel room in Los Angeles, I found a USB stick from a leading fashion company, listing out who at the company should be kept and who should be laid off. Not smart.

3. A stockbroker I know was sent an email by a rival stockbroker, urging my stockbroker friend to oppose some proposed law that would strike hard at those with massive net worth. The stockbroker who sent out this email cc’ed it to a half dozen or so of his clients and my friend figured these were people with the requisite massive net worth and he cold-called them for their business. He ended up getting a great client with this tactic. Not smart.

4. Many years ago, a client of ours discovered one of its employees was running a rival business within my client’s business. My client then arranged for this employee to bring his two company laptops to the office and then when the employee went out to lunch, my client locked him out. You would not even believe the stuff we found on those laptops. I am talking both business and personal. Very, very personal. Naked photos with mistress personal. Not smart.

5. Many years ago, I was going to a particular city in a former Communist country and my client and I agreed that, above all else, I should completely avoid meeting with or even talking to “Oleg” [made up name here]. I had to go to this city, but I was going to be there for only two days. I fly in, walk into my hotel lobby and, before I can even check in, two people come up to me and say that Oleg will be coming by to take me to dinner at 7:00 pm. I felt I had to go at that point and when I asked Oleg how he knew of my arrival, he said that he gets emailed the list of all foreigners as soon as they arrive. Oleg runs a very successful private business. The moral of this story is that you should never assume that you can go into a country completely unnoticed.

The New York Times did an article a few years ago, Traveling Light in a Time of Digital Thievery, detailing the steps Kenneth Lieberthal takes before going to China:

He leaves his cellphone and laptop at home and instead brings “loaner” devices, which he erases before he leaves the United States and wipes clean the minute he returns. In China, he disables Bluetooth and Wi-Fi, never lets his phone out of his sight and, in meetings, not only turns off his phone but also removes the battery, for fear his microphone could be turned on remotely. He connects to the Internet only through an encrypted, password-protected channel, and copies and pastes his password from a USB thumb drive. He never types in a password directly, because, he said, “the Chinese are very good at installing key-logging software on your laptop.”

What do you do to protect your data and your privacy when you travel?

 

Tell Mark Rothko that color shades don't matter.
Mark Rothko knew that color shades matter.

Yesterday’s post, China’s New NGO Law and Calculating China Business Risks, talked of how really good micro posts on what at first appear to be small topics can when done well serve as a great platform for understanding how to do business in China overall. Today’s post has the same theme.

The micro post is by Jacob Yount, who helps foreign companies source their promotional products from China. That alone is micro but the post is more micro still in that it talks about how to avoid color confusion. That’s right, the post, appropriately entitled Color Confusion in China Manufacturing is about how to make sure that your China manufacturer gets your color right? Now before you stop reading believing that this post has nothing to do with you, let me tell you that it most certainly does.

One of my standby speeches is on How to Succeed in Sourcing Product from China and one of my favorite stories in that speech involves — you guessed it — color confusion. The story goes something like this:

Many many years ago, a U.S. company out of North Carolina called me wanting my firm’s China lawyers to pursue litigation against a Chinese company that had provided the U.S. company with “bad” shirts. What was bad about the shirts was the color. This U.S. company had sent a sample shirt to a Chinese manufacturer and the Chinese manufacturer in turn had made its own sample shirt (or maybe it had just bought a sample shirt elsewhere, something that is not terribly uncommon) and sent that to the U.S. company. The U.S. company liked the sample shirt and then ordered another million dollars or so more of them.

Well when the shirts arrived the U.S. company had a major problem. You see we are talking North Carolina here and as every college basketball fan knows, the University of North Carolina has its own specific shade of blue, with its own name. It’s called Carolina blue and my just mentioning it here immediately conjures up images of Indiana University’s Dan Dakich holding Michael Jordan to 13 points. But that color obviously holds a different but equally visceral meaning for the people who would buy a blue University of North Carolina jersey. And let me tell you, those people are not going to buy a North Carolina jersey that is not the exact color of Carolina blue.

And that was the problem with the million dollars of shirts this U.S. company had bought and paid for. They were blue all right, but they were not Carolina blue. That meant that instead of this U.S. company being able to sell them for maybe $30, he would maybe be able to get $3 a shirt. The U.S. company had obviously suffered major damages.

But my firm turned down the case because we did not want it on a contingency fee basis and we also did not want to charge our hourly rates on a case we did not think could be won? Why would it be so difficult to win? Because generally if you are in front of a Chinese court and something is not specifically in your OEM contract (in Chinese) with your Chinese manufacturer, it essentially does not exist. What you want if you are going to be suing a Chinese manufacturer in a Chinese court is a written contract, in Chinese, sealed/chopped by your Chinese manufacturer (see China Contract Signing Formalities: You are not in Kansas anymore) that describes in excruciating detail exactly what the product you are having manufactured should be. In other words, you need a China contract that works. This poor guy in North Carolina had only some emails written in English saying that he wanted his shirts to be like “the samples.” What samples?

Note that this North Carolina company could have sued its Chinese manufacturer in a U.S. court and won. However, because China does not enforce U.S. judgments, and because this Chinese shirt manufacturer did not have any assets in the United States, the U.S. judgment would have been worth less than the paper on which it was printed. Yes, the NC company was stuck, out nearly a million dollars over a few shades of blue.

I tell the above story to emphasize how China and its laws are so different from the United States and Europe and how Western companies so often lose big money by just assuming that they can do things with Chinese companies just as they do things with American or European companies. I use this micro story to writ large on how to operate when doing business with China.

Jacob Yount writes about sourcing promotional products from China to instruct on how to source promotional products from China, but he so knows his stuff and explains it so clearly that what he writes often goes well beyond that, and his color post is a great example of that. Yount starts his post describing what both he and the China attorneys at my firm so often hear and then recognizing that his post likely will apply well beyond promotional products:

“But I gave the factory the Pantone number!”

In the trials and tribulations of China manufacturing when a buyer finds out the color of their sample, or, even worse their production is “off”, this is a common exclamation.

Perhaps not completely wrong, but not completely right.

The result is a color that is deemed different from the official Pantone. Why is this?

Is it the typical that “factories don’t care”. Or, “they didn’t pay attention”.

Or is there more to it?As always, most of my posts are geared towards the Promotional Product Industry, but undoubtedly this will ring true across the board where color matching is critical.

Going in to my 15th year of working and manufacturing from China, here are some of the basic points and lessons I’ve learned on color mixing and matching.

Yount then explains in painstaking (but necessary) detail how you can minimize your risk of getting the wrong color product from your China supplier. To summarize, Yount emphasizes the need to use multiple strategies to make sure that your Chinese factory knows exactly what you want and the importance to you that you get it.

To which I would only add that once you have done all that Yount mandates, you appropriately memorialize it in a China-centric contract. Do all that and you will greatly minimize the likelihood of your seeing some variation of red the next time you have your product manufactured in China.