National Public Radio’s Marketplace did a great story today on “customer service” in China, which goes a long way towards explaining what foreign companies must do if they are to get good product from their Chinese suppliers. This article nicely highlights some of the major differences one is likely to encounter in sourcing product from China as opposed to from North America or from Western Europe.

The story is entitled, China’s still learning customer service and it is subtitled, “When Marketplace’s Shanghai correspondent Scott Tong arrived in China last January, it didn’t take him long to learn that business is done differently and buyer beware.” The story talks about the building of Marketplaces’ studio in Shanghai, using a contractor named Mr. Han:

It started with Mr. Han, the contractor. He came recommended to us. We liked his work. And so we hammered out a deal over coffee: We’d pay him five grand to outfit our sound booth and our office. Sounded good.

Mr. Han’s men started working, so we gave them some space. My colleague Eric Johnson headed up the project. He’s an audio engineer.

Eric Johnson: I’ve always been kind of a hands off kinda guy. And trusting.

The trusting part did not work:

Hands off and trusting. . . . Big mistake. We noticed the fresh paint looked kind of thin. And when we saw the can, we realized they substituted a cheaper grade of paint. So we made them start over.

James Rice has worked in China for 20 years, he’s with Tyson Foods.

James Rice: The cheaper paint in China is not going to meet the kind of quality regulations you would expect in the U.S. So it’s going to have lead or other poisonous fumes. It’s typical for Chinese to renovate their home and air it out for a month before they move in, to let all those fumes go out.

Substituting dangerous ingredients is at the center of China’s product safety scandal — whether it’s toy trains, or pet food, or toothpaste. Rice says when you deal with suppliers here, you have to do the Ronald Reagan thing: Trust but verify. When he hired contractors to renovate his house . . .

Rice: I bought all the materials. And I was on site every day, to validate what they were doing.

Absolutely typical. As distasteful as it may seem, Westerners must get over the notion that their Chinese suppliers will supply good product because doing so is the right thing.

The show then talked about the need for the contract to be very specific:

As for our construction, we got into a spat with the contractor over shoe moulding. You know, that strip of wood where the wall meets the floor. We’d always assumed it was included in the deal. . . Wrong. Mr. Han noted it wasn’t specifically stipulated in the contract. So we had to pay more to get what we wanted.

Johnson: I was furious.

Again, my colleague Eric Johnson.

Johnson: I thought it was one of the most inane conversations I’ve had in my life. You know, it’s like you wanted a car with tires on it? Why would you have tires on a car? It’s just insane!

The lesson: You can’t assume things work here the way they work back home.

I oftentimes tell the story of a Shanghai expat apartment dweller who was in the process of renegotiating his lease when the apartment’s top of the line office chair broke. The apartment dweller told the landlord he would re-up on the lease if the landlord would replace the chair. The landlord agreed and the deal was signed. Next day, the landlord dropped off a two dollar metal folding chair. Again, typical.

Mr. Han (the Chinese contractor) explains:

Mr. Han [interpreter]: Foreign customers don’t know how to operate now. Their expectations are low and they pay more. So, we like doing business with foreigners. [laughs]

But it is not just China:

Now, it’s tempting to blast China as the one place in the world with dodgy quality and business partners who cut corners.

But Asia business veteran K.Y. Lai [from Malaysia] says not so.

Lai: You buy from Vietnam, India and all that it’s the same. The people who are doing this manufacturing, seize an opportunity to become rich very quickly.

If you are going to source product from China or do any business with China, you must recognize and account for the differences from sourcing product in the United States or in Western Europe.

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Dan Harris

I am a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

I mostly represent companies doing business in emerging market countries. It has taken me many years to build my network and it takes constant communication and travel to maintain it. My work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

I was named as one of only three Washington State Amazing Lawyers in International Law, I am AV rated by Martindale-Hubbell Law Directory (its highest rating), I am rated 10.0 by AVVO.com (its highest rating), and I am a SuperLawyer.

I am a frequent writer and public speaker on doing business in Asia and I constantly travel between the United States and Asia. I most commonly speak on China law issues and I am the lead writer of the award winning China Law Blog (www.chinalawblog.com). Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed me regarding various aspects of my international law practice.

I am licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at my firm, I focus on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.

  • nanheyangrouchuan

    Not surprising at all, whenever you buy a new apartment in a Chinese city, you start out with bare concrete, no plumbing or electrical outlets. You must specify then negotiate the price for every knickknack, then stand over the contractors at all times.

  • I buy stuff from China from time to time, but I know I have to ‘fix’ just about everything I get. Actually, it’s one of my advantages over my competitors that I know how to fix violins — most of my competition just sells the stuff the way it arrives: unplayable. But I occasionally get stuff that’s un-fixable. Like the last order I got a bunch of A440Hz tuning forks, and about half of them were 435Hz, and about 10% of them were 445Hz or sharper. The 435Hz forks, I could ‘tune’ with a grinder, but the sharp ones I had to toss out. Needles to say, the time spent tuning those forks pretty much erased any price advantage I got.
    I’ve had similar disappointments with other musical accessories. The quality seems to be all over the place; sometimes excellent, sometimes awful.
    So, I have pretty much learned not to buy anything I can’t personally adjust or repair. Or is so cheap that I can toss out the defectives and still come out ahead (like violin strings).
    I’ve also learned not to place any really big orders — they are always short. The safest thing to do appears to be placing orders that are only slightly larger than the prior order, with a hint that there is a bigger one coming soon if everything is in order. And any Chinese supplier that shorts me loses my business permanently (without explanation). As long as my orders are not very large, a short doesn’t hurt very bad.

  • Handan

    This entry illustrates how it’s not precisely cheap to get things done in China, if you account for your own TIME spent on negotiating, verifying, buying meterial, in addition to the compromised quality.
    The problem is, these factors are hard to quantify and less eye-catchy than the tempting low price.

  • Reminds me of the classic Ray Charles line when The Blues Brothers were in the market for a used piano–“I’ll even throw in the black keys for free.”

  • comingbacktochina

    haha. Interesting. When I was in college I used to feel quite bad when I heard about my fellow country folks swindling foreigners. But I have matured and gained wisdom. Now the public radio story makes me chuckle. I don’t blame Mr. Han the contractor for trying to maximaze his profit. When I was in grad school on the US east coast, the white trash redneck landlords i rented from were every bit as sneaky and dishonest as the chinese dude with the folding chair in your story. The folks in the hood here (midwest) are more solid. But at the college I teach, when I catch a student plagiarizing, you know what he or she would do? You think he or she would apologize and promise to mend his or her ways? No. They will first try to intimidate and manipulate me. My experience in living and working in the US has been a long session of assertive training. I am glad folks in China like Mr. Han are receiving the same valuable experience from dealing with Westerners like you and your clients. They got to test the water in every possible way. That’s the only way you learn, isnt it? I got anthther thought but cant remember now. Oh here it is. Dear mister, as a lawyer, are you so naive to believe that people do the right thing just because it is right? I certainly do not want to see the Chinese to be tricked into doing the right thing because it is right. I want them to do the right thing because it brings them benefit. But fortunately my advice is undeeded, because 99% of my countryment have way more street smart than me. Holy cow, are you expecting the chinese to do the right thing and be suckers? Dont they learn the lesson from the poor Iraqis? The Iraqis let 100 UN nuclear inspectors into their country but the US invaded them. Now they have made 4 million refugees out of themselves. Little dude Kim Jon Il in North Korea kicked out the last one UN inspector and the US negotiated with him and offered concessions. In this world, you got to be tough n you got to be smart.

  • nanheyangrouchuan

    The answer is simple, stop buying stuff made in China.

  • Handan

    nanheyangrouchuan, your answer is not simple. It’s simplistic.

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  • Tony

    Well, buyer beware is still true, although to a lesser extent, in the US, especially for custom stuff (like renovations).
    If you’re building or renovating a house in the US, you’ll get better quality if you monitor closely. There are US homebuilders who will cut as many corners as the inspectors allow.
    I have a friend in California who just had a nightmare renovation with a supposedly reputable company. But he did end up getting a discount, which probably wouldn’t have happened in China.
    Being specific in contracts is also a good idea everywhere – I’ve seen plenty of problems when a contract was too general.

  • Comment

    I don’t believe the comment about India. It sounds more like wishful thinking. It might could be for some industries that I can’t imagine.
    Maybe for some indusries where a six month lead time is alright. LOL
    Vietnam is a dream at this stage, also. Maybe garments, shoes, they get some biz mostly due to quota related issues.

  • Tony

    Chris,
    I think your scenario is quite likely – for one, I think the world economy is going to be stressed in the next couple of years. The world was been flooded with cheap money (the US Federal Reserve being one, but not the only factor), but it’s definitely starting to dry up in the US. The US subprime crises is just the start.
    And what is going to happen to US consumer spending (and buying big ticket luxury items like large screen TV’s from Asia) when you just can’t refinance your home when you feel like it ?

  • CbtC,
    Not to be picky, but using the phrase “the white trash redneck landlords” needs to be strongly reconsidered. Even though you teach in the United States, you have much to learn about US culture. Such terms are historical derogatory appellations disparaging poor people from the south, Appalachia, and the northern mountainous regions of New England. Coming from somebody not of that background, they are as offensive as calling a Chinese person C——-n, or using the “n” word when referring to black people.
    As someone who grew up in a small town in New Hampshire, I don’t appreciate having those terms thrown around by a laowai (in the United States, YOU are the foreigner) so casually.
    I see that your fancy American education has merely taught you that it’s funny to insult poor people. How noble of you. Were you to refer to someone in one of your classes this way as a teacher in any department of which I have been a member, you would likely be disciplined. At the very least, you have shown yourself to be an extraordinarily poor role model for your students.
    Jeff Foxworthy and Larry the Cable Guy can get away with it, barely. You cannot.
    Sorry for the digression, back to the subject at hand.

  • Andy

    Do the Chinese have some sort of licensing board for contractors? Which isn’t a guarantee that you won’t get cheated (as it is here), but at least it’s a starting point..

  • Comment

    Andy – Are you kidding?

  • nanheyangrouchuan

    “I see that your fancy American education has merely taught you that it’s funny to insult poor people.”
    Jeremiah; If you are in China, you already know, but if not, the nightly news uses the word “tu3 ren2” dozens of times in a single 30 minute broadcast and it means “dirt person”. “Tu3 dou4”, ie potato, is also used to describe rural folk in China. CHinese love looking down on others and that is why they are so sensitive to anything but praise from the west.
    Andy: even if there is a licensing board for chinese contractors, it is much more like a mob and less like a BBB.

  • The stories and quotes from those involved do not surprise me at all. No–you cannot leave it up to trust. If you’re buying goods from China, they should be inspected by a 3rd party quality control provider before every shipment. You should thoroughly investigate the partner you are working with beforehand. And yes, your contract should be specific on the points that you may believe could become issues. You cannot always see every possible mistake–but you learn as you go and you “trust and verify” every step of the way to mitigate your risk as much as possible. China, along with a number of other countries in Asia, are great places to do business so long as you apply a rigorous methodology for getting what you need to happen. Don’t stoop over dollars to pick up pennies.

  • comingbacktochina

    Jeremiah,
    If I have offended you or any Laowai’s sensibility with the words like red neck and white trash I apologize. I learnt these words from Jay Leno, Jimmy Kimble and Conan O’Brien, as well as the folks in Saturday Night Live and Mad TV. Are you telling me that these folks are outside mainstream America? Are you saying that these terms have the same level of potency of as the n word? Or are these terms just too explicit for this particular blog? I am indeed Laowai in America. I have great respect for my colleagues and students, as well as the vast majority of the American people. However, some people have dealt with here (including my former landlords, RCN cable company) and saw on TV leave me searching for words to describe them. The terms you have a problem with are the most accurate description of their true color and my feelings about them. This is the freaking internet, and I am not giving a lecture here. It’s a forum for real communication. I encourage you or anyone to call the Chinese Chink, if that’s the way you feel about us at the bottom of your heart. Let’s get real, and have a total contact with each other. That’s the only way Americans and Chinese can understand each other. Maybe this place is too civilized for that. But this blog and the ones listed in the links really fascinate me. I am reading my little brain out. I am setting up my own blog. I warn you I am using the word bitching and laowai. Reader discretion advised. It has just one posting I am going to pick up after vacation.
    http://bianxiangbianqiao.blogspot.com/
    By the way. I have never used the n word no matter in how private a setting and I will never use it.

  • As someone who was raised and lives part time in the US deep south, let me point out that among the people I know, “white trash” is derogatory but “redneck” is considered a term of pride.

  • nanheyangrouchuan

    Chris D-E:
    A question in my area, when or is India getting its infrastructure act together? Anything you see water-wise?

  • There is a pattern I’ve seen:
    1) foreigner comes to new location
    2) foreigner is very easily made a target because they are new people with no idea who to trust and no social resources to use
    3) foreigner gets cheated by local people that see foreigner (correctly) as easy prey
    4) foreigner assumes that local people are inherently less honest since they constantly get cheated by local people whereas no one at home cheats them
    Personally, my experience is that no large group of people is inherently more or less honest than any other large group of people. It’s just that if you are new to a location, you are a magnet for sharks. This is especially the case since the honest people are doing their own stuff and won’t make a special effort to come to you, whereas the sharks will.

  • nanheyangrouchuan

    “But at least it’ll give the Chinese a breather from being the only boys in town to get a kicking from the US Congress over trade imbalances”
    Not that I’m an expert but I don’t think India needs to fix its currency to compete on the world stage. Isn’t their currency fully convertible and floating already?

  • Comment

    Incentives in India are not everything.
    If a restaurant offers a 50% discount but takes an hour-and-a-half to deliver your lunch, are you going back?
    The point on infrastructure is accurate. India is a dreadful place to do business.
    The reason why foreign businss persons are paying attention to India has to do with fear about change in China. “Oh, not, what shall we ever do?” Taking an option on India seems like the logical thing to do, but so many businesses operating in China, India is a non-issue.
    They obviously have business, but of the hundreds of people I have had dealings with related to China, I can think of only one who wanted to go to India, and it’s because the board of one major customer was forcing them to hedge their bets. If that’s the case, might as well hedge bets with any number of other economies.

  • nanheyangrouchuan

    Chris D-E:
    I think alot of outsourcers are betting that this new tax won’t be enforced or they can “go around, over, under or through” it. And there is probably alot of behind the scenes lobbying/bribing. This new tax’s purpose is to prop up Beijing with real cash instead of US gov’t bonds and to keep China’s banks less insolvent then they are now.

  • astrid

    It comes down to the value placed on reputations. In China, as in the Wild West, there’s a great deal of general instability and unscrupulous individuals do no appear to suffer from their unethical behavior. Once the process starts, everybody sinks to the lowest common denominator. It would be nice if the Chinese had a verifiable way to put up bonding costs and not self sabatoge…but until then, the outsider will have to be the one to do due diligence.
    In addition, as survivors of the Communist regime (where there was a lot of sneaky manuveuring for very small increments of material gain), many Chinese do seem inordinately fond of playing xiaochongming (trivial cleverness). They get real satisfaction out of spending 10 minutes wrangling an extra yuan from the vegetable peddler or pulling the wool over some laowai renter, even if they would be better off with 10 extra minutes or a happy laowai renter.
    There’s a lot of this type of negative sum value destruction in China. It’s a very selfish and messed up culture. Hopefully, the society will mature and improve in time.

  • Comment

    Where can we get more information on the additional 20% to repatriate funds?

  • [q]It would be nice if the Chinese had a verifiable way to put up bonding costs and not self sabatoge…[/q]
    There are in the form of trust networks. I trust my relatives, and that gets me into his networks and his into mine. The difficulty is for an outsider to find the first person to trust. This also isn’t just a Chinese versus Westerner problem. When my relatives go outside their local area, they run into the same sorts of problems.
    Trust networks aren’t peculiar to Chinese. They also exist in academia, finance, and venture capital. The world looks very different once you are in a trust network, since the sharks wouldn’t go after you because they know that you won’t deal with them and that they will get into huge amounts of trouble if they do.
    Personally, I’ve found “cultural” explanations for economic behavior to be useless since they are tauntological and they lead to all sorts of inaccurate generalizations that don’t hold up. Explanations based on concepts like “information asymmetry” tend to make more sense, and make more useful generalizations.
    For example, let’s ask the question what *is* the time value of money of that extra ten minutes of arguing with the vegetable vendor? What *is* the economic value of a happy renter? My experience has been that once you assign numbers to these things, economic behavior becomes startingly rational.

  • me

    It may be politically correct to say that you fine these problems everywhere. But in fact people in poorer countries are much more dishonest. For example Chinese businesspeople are much more dishonest than in the USA, India is worse than China…It has to do with the environment you grow up in, the poorer the country the more of a “dog eat dog” attitude you tend to develop. People are just a product of the society they grow up in and it’s helpful to know this when doing business, if you’re too naive you’ll get burned.

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  • FrankieMorton

    This is exactly how things are in China and exactly how you have to be to deal with it. Thanks for such an informative article.