Pudding and Chopsticks

I get all hyped up when people try to pass one over me and tell me what the problem is. They are wrong. For example: Where I am currently they have purchased a 5,000$ printer and a 2000$ printer. The printer place came in a apparently calibrated the printers so that they would print the correct colors. Well, guess what. The big more expensive one doesn’t print worth junk. The reason could be many. The inks changed, a setting, paper changed, etc. The small printer prints awesome. There are two reasons that I am told. It has 4 more inks (8 instead of 4) and it prints slower. The better more expensive printer prints too fast so the colors are bad.

Really people. I know that everyone has been to college, has printer experience, design experience, etc, but lets use some logic. Big printer is more expensive, which may not mean that it prints better but really, you think a global company is going to manufacture crap price it high and sell it. Having more inks only means that the printer can reproduce harder colors inside the color space that the user is using. Yes it will be better to an extent but it won’t be so much better that it will blow your hair back like you are joy riding in a F1 car without helmet. Heck maybe the printer people calibrated wrong.

So it goes. Much like this in China. The machines are rarely the problem but are always blamed.

Oh and the big printer. They still use it. Doesn’t matter to them whether or not the colors are correct. And besides, the customer hasn’t said it is a problem, so, it isn’t. Yet.

Some notes about Guanxi in China via Silicon Hutong

First, to translate “guaxi” as simply “relationships” is a dangerous oversimplification, particularly when proffered to someone unfamiliar with Chinese culture. First, guanxi are tiered, based on a Confucian hierarchy: familial relationships, long-term friends, classmates, and schoolmates are the nearest ranks, and to those no stranger – Chinese or foreign – will ever have access. At best we are relegated to outer rings like colleague, in-law, business partner, or acquaintance. There are exceptions, like Sidney Rittenberg, but he is the rara avis that proves the rule.

Second, guanxi are personal and non-transferable, they are not enterprise. There is no way to hire someone and have him hand over his guanxi to the company. You want the guanxi, you keep the employee. That’s why China’s princelings, the offspring of senior Party cadres, have sinecure. Consultants who hawk guanxi are simply renting their relationships, they know it, and from such realities are retainers made.

Third, guanxi involve mutual obligation. If you use someone in your company with guanxi to get assistance from an official, there is an implicit quid pro-quo, hence Richard’s concerns about the coziness of guanxi and corruption. Further, few westerners understand that there are complex social obligations involved in such relationships, your average Chinese executive would sooner burn his employer than his close connections.

Fourth, guanxi die. Or get sacked. Or retire. Or get transferred. Or quit and go into business. They are ethereal, fleeting, and in constant need of regeneration, repair, and re-creation. They are not forever.

Fifth is the hammer-nail problem: the people your employee or partner knows may not be the exact right people to get things done, but that’s who they know, so that’s who they use. When that happens, watch the oversold connection drop the ball, or get smacked. I have watched it happen, and it is not pretty.

Or they may just limit you. I know of a western media company with no special unique advantage in the market that is doing well in exactly one province: the place they have guanxi. They’re happy with how they’re doing in that one province, but they have been utterly unable to scale their business: they’ve been hemmed in by their relationships.

Finally, it is worthwhile noting that guanxi today are of declining importance for most businesses. The scope of industries in which it is necessary to cultivate exclusive ties at a high level is declining over time.

Business fundamentals first, second, and third. Special relationships only to the extent necessary.

Yep that’s a pretty good explanation. To read the rest of the post visit the website. Silicon Hutong

I’m here in the States but that doesn’t mean that I’m not keeping abreast on the latest happenings over yonder.

I would like to get an Iphone 4 but it’s ungodly difficult to do. Unless I pay a butt load on the black market. Recently China released the Iphone 4 through China Unicom. It’s a good deal. 2 yrs a nationwide number, and if you stay there the two years basically the phone is free. If you bail early you bought the phone for full price. Which is what you have to do if you don’t have China Unicom for phone service. I see it as phone service for 2 years for free. Anyway they have had so many people want to sign up and do this that they don’t have any phones left. Really? I can’t even get an Iphone through the legal channels.

If you want to buy the phone though one of four Apple stores in China good luck. It seems that scalpers have bought 30-40 at a time and are slinging them outside the store for 10% more than you can buy them in the store. Which wouldn’t work if THE STORE WEREN’T SOLD OUT. The scalpers bought them all and not the only way to get a new one is through them.

Apple has since fixed the problem and now requires ID to purchase one phone. But really, who didn’t see this coming.

Links to the stories.

Gizmodo

MIC Gadget

Capitalism Fail.

I found an interesting article today while I was trying to find the end of the internet. It’s about headphones, earbuds, and manufacturing.

It relates to a few things in China. Skullcandy is making a killing. Yes they are. They are slaying it. Did you ever wonder how they do it? It’s easy, in fact we could do it next week if we had the start up capital. I may make it sound easy, it’s not, but with the cash to start, things get easier.

When you move to China you gain a new perspective on things. Most of the time it has something to do with manufacturing or products. Things that you would never think of. Like Skullcandy, one of the biggest headphone companies. You ever wonder how a new headphone comes about. Easy, they roll to China, go to a bunch of factories, pick the new designs they like, throw a logo on it and done. Yes, I am over simplfiing it. But most of the time I bet this is what happens. To R&D a new headphone or eletronics costs too much. So let the factory come up with designs, pay for the right to use them for 5 years and your done. I believe that the higher end might be designed by Skullcandy themselves. You get big enough, have enough money you can start to throw some at your own designs. But hey, I might be wrong.

This happens in a whole lot of industries. Skateboards, snowboards, phones, etc. Lot’s of factories have to come up with OEM designs. That’s what Western customers want. They don’t want to have to design the product, they want to roll in, pick something and then go to foot massage. Can’t blame them can we?

Check this. You have 10,000$ you want to burn. You contact a trading company or you hommie in China, or a sourcing agent. They find you factories and designs for headphones or whatever product you want. You design a logo, pick a design, send the artwork and 3000$. 30% down. Depends on the contracts. Two months later you have your product. You have 2,000 headphones in 5 colors. 10,000 headphones total. You bought them for a dollar. You mark them up to 19.99$. Your still a two man show or something small. You built your own website, marketing, and Facebook page.

All you have to sell is 500 of them to break even.

This it the hard part.

China can make you anything, but China can’t help you sell it.

You can read the article that spurred this little gem HERE.

I see that someone got their little hand caught in the cookie jar for some kickbacks in exchange for information on Apple.

It appears, front the sites I read, it’s Apple supply manager Paul Shin Devine. I would like to pose a question. Why the hell do we have to know his middle name. I mean really, as soon as someone is trouble with the law, bam, start using his middle name, why, because it’s just something we do.

Anyway, yeah, so homeboy here was caught selling some secrets to people in, dadadadaahh, Asia. Well really no where else make accessories for Apple products so Asia is the only place that would buy these so called secrets.

Well, really none of this surprises me. Really the dude needed to be smarter hiding the money. No I do not condone this behaviour but I can’t stop it and it will keep happening.

This relates to China is a couple of ways. Well I think it does. One, Apple is massive, so if I can start pumping out cases before anyone else does, bam, money in the bank. Like the guy who “found” the new Iphone in a bar, well, he could of done several things with it. He chose the one that didn’t make him much money. Am I saying I would do what he did, no, just saying that I wouldn’t of sold it for 5000$ or whatever it was.. Worth more than that.

It also relates because of this kick back thing. Yeah I’ve written about it before. Factories using suppliers but want a 20% kickback for “still using them” as a supplier. Actually it’s quite brilliant. I don’t think that it’s illegal here. Well, maybe it is. I’m not for sure.

Anyway I just thought that a guy that got caught selling secrets to Asia was interesting. Anyway.

It’s raining and I have to go buy an umbrella.

Ok, let me first say that I am angry. I’m a honest guy. I try to make an honest living. I get pissed when I found out that someone who is less intelligent, doesn’t work hard, starts scamming something and thus gets a house, car, and  a better life than me, the hard working guy.

The system. You want to know what China is like this is what it is like. Here is an example of something that is happening right now somewhere. It’s all true, happens everyday, and everywhere.

Ok so when factories buy things from outside the country, the product has to go through customs. Happens everywhere. It’s normal. Most factories have a girl that handles this. It’s menial work, doesn’t really require a boss to perform.

Lets say that you bought material you need to manufacture you widgets with from America. You buy it and ship it to China. Now, this girl or employee has 1 month from ship date (something like that) to submit the proper paper work to China customs so that the material enters the country and gets shipped to the factory. Everyone is happy. Yah..

There are two ways to do everything in China. The proper legit way, and the throw money at it way. The throw money at it way is guaranteed to work. The proper way can be denied. This works for customs as well. Here is what is happening at a specific factory.

Factory orders product. Supplier ships it. Girl is supposed to submit paper work within a month. One effing month. She doesn’t. Customs holds material. Girl at factory talks to girl at customs. Girl at customs says, well, for X amount I can release it. Girl at factory says ok, doubles the amount, and tells factory boss that its going to be 2X for customs to release material. Boss says ok because he knows that there will be no problem afterward. Legit way possibly denied, shady way always works. So boss doesn’t care. Girl takes 2X and gives girl X thus she makes X money extra. Buys a house, a car, etc.

So. Here is the way things work here. People create problems so that there are problems to solve. Problems sometimes cost money and they just add a cut. The factory knows. I mean really, lets not be naive. They know, but they don’t want to deal with the problem. They throw money at it and if girl makes a few more bucks, then hey so be it.

It bothers me because of this. I work hard. If you pay me for a design, consultation, etc, I give you what you pay for. I work.

It’s like seeing two girls doing a similar job but one works hard and one extorts people and makes twice as much. Don’t you think that the girl who works hard would be angry when she found out the other girl doesn’t work hard but has a house, car, child. Can afford everything she wants. While the girl that works hard can’t afford anything even though she works hard.

Yeah point given.

The create problem thing relates to everyday factory life.

Haha. I just had a problem come up.. Haha. I can’t believe it. Ok. so I just looked at a photo of a widget. A photo that a customer sent. It has a major problem. A problem that no one here has ever seen before. Ok. so this problem is so obvious I don’t understand how the thirty people that touched and made this widget didn’t see it.

Or did they? They get paid whether they make widgets or not. Do they sabotage a sample to not get new customers so that they don’t have to work more? Do they blame it on something so that the boss has to throw money at it. O, well, we need this machine to fix this problem. This machine we have to buy from my friend who will give me a cut after you buy it from him.

Awesome.

I’m just on a rant right now. I suppose I should go to lunch and ponder ways to extort, bribe, and sabotage money out of people. My Audi RS6 isn’t going to buy itself you know.

I was asked a question today. It involves something I had written in Feb.  You can read the initial post here.

First I want to say, no, I wasn’t the one this actually happened to. It was from a blog that I read called Silk Road International. Silk Road International (SRI) is a U.S.-owned and managed international procurement agency based in China. They basically help people who want to make things in China. They find them the right factories, make sure everything goes well, yada, yada.

The question that was asked by one of my thousands of faithful readers was this:

I read on your blog where you helped a factory manufacture a hat or something in a new manner, which was different than the way they  normally do things.
It sounded like you had ‘shown them the light’ and everything had worked out, I am assuming.

BUT in my experience, if you ask a Chinese factory to make something differently than how they normally would, while they MAY be able to do it, they then say that it will cost more, or that it will produce more defects which lead them to say they need to raise the price of the item…blah blah…. and some other BS.

So I was wondering if you encounter this quite often, like every chance they get, they will try to raise the price.
Its just quote frustrating to me, and I need to learn how to negotiate better with them. Any insight?

To answer this, first, I wasn’t the one who manufactured the hat. No worries because I can still answer this a couple of different way.

Insight. Yes. The first lesson you learn is this:

The white man lesson. Which boils down to a few things. One: The white guy has the money. Two: From an Asian’s perspective It’s ok to swindle that money out of said white man. Three: Business.

Ok before I get bombarded with emails about this let me explain.

One: China has only been really involved with the global economy for the last 30 yrs. Shenzhen this year is celebrating their 30th anniversary. Shenzhen is massive, I mean massive. So many factories, apartments, etc. Just thirty years ago there was nothing. I mean nothing but mostly farms. So the Chinese didn’t really have money till now. So the white man, westerners that came to China for the cheap labor and places to manufacture had money. Hell even a teacher here that teaches English make more than 6 times the minimum wage. So the white man (foreigner has money).

Two: It’s ok to take that money. Let me explain this the best I can with what I understand. No I am not an East Asian Culture Major nor have I spent thirty years here, but I’ve read a good amount on China and this topic. I understand it as this. And it also comes from “The Art of War” by Sun Tzu. You can read about it here. If you are a dumb person, I can then take your money by what means I can. In the Western world I may be called a cheater but in Asia I would be a smart businessmen. So, for the dumb foreigner that rolls in to try to make money and China then gets shafted, well, you’ve been Shanghai’d son. I’ve read stories about people coming to invest in a business, actually see an office, people working, etc, and then leave, send a bunch of money and bam, not hear anything back. Because it was all a scam. All actors hired to work for a day in an office space. Pays to be smart I guess.

Three: Good business. The yuan is rising, labor is rising, everything is rising. The factories have money now. They can afford to hold out for a better price. They have more power then ever.

So how does all this relate to the question. Well, since most likely the person asking the question is a white guy, you have money, control the money or something like that. A factory is going to try to squeeze as much as they can out of you with whatever tactic they can. You change a process or the way they do something. It may or may not actually matter but, it give the factory a reason to ask for more money. You can A: stand your ground and tell them that you still have a specific NG amount and it’s not your problem if they do it a different way. B: You an give and give them more money. C: You can meet them half way. Give them face by giving a little. They want power and money, you want good products. Raise the NG rate. If there is a no good rate of say 2-3%, then maybe raise it a bit to allot for the change in processes. It would depend of what you can deal with. But giving them more money. I don’t see how that would help or compensate for the new process. But raising the NG rate would probably soften the factories fear about you rejecting a bunch of products because they just started a new way of doing something. I would for sure QC in the beginning of the production cycle to see what the NG rate is. Just to get an overall picture. If you need to make a million things and out of 10,000 there are 100 bad ones, your looking at a estimated NG rate of 1%. That’s not bad. Well, really it depends on the industry and what not. If the change in process gets you a rate of 2%, but saves you time and money to offset burning twice as much bad product, then hey, that’s awesome. Just have to ease the factories fears. They don’t want to lose money by you rejecting product. You don’t want to pay them more money up front. Raise the NG rate to something realistic, come to an agreement and then QC. Or something like that.

The second part of the question or implied part. Factories are having to raise costs. Labor is going up, materials are going up, the yuan is raising. Foxconn is going to almost double the wage it pays. That’s going to have to for sure come from somewhere. Mainly the clients. Apple, Sony, etc. There are a million reasons that a factory would want to raise it’s prices. Millions. Hell, it got hotter, I have to use ac, how to I find money to run it, well, the next customer get a bump in price of 3 cents to offset my air usage. You think that’s funny. Ha, I hear stories like that. No one here, NO one here wants to pay for anything. At all. Period. They will use any method to get their money back. For example. Factory A gets some material in, accept it and then find out that it had some slight defects. They cannot return it back to the vendor, they have accepted it. So what do they do, well, Factory B need some material. They sell it to factory b and package it really good. Factory B looks at it, good stuff. They accept it but didn’t notice that the material has a slight defect. However they have accepted it. They cannot return it to factory a. They got shafted and or cheated depending on your perspective. Or, factory a was daft, skillful and clever with their tactic. Yes this is a true story. So Factory b has to pawn it off again, or eat the cost. But they won’t eat the cost. The customers at the factory will get a slightly damaged product or a price increase. One way or another factory b will make they money back to offset the cost of that bad material, believe me.

There is no real way to combat this but to know your industry inside and out. Know all the prices for everything. Say you are making a snowboard binding. You have to know the material costs, plastic, eva, mold costs, hardware costs, everything. Know everything. Then when you get a price increase that’s not reasonable. Price increases are going to happen, it’s just a matter of controlling them. You can cite facts that the materials haven’t gone up, etc. You don’t want to embarrass you Chinese counterpart. Hell, maybe they just want to show power over you and raise the cost to see what you will do. Give them some face, some power, but only with what’s acceptable to you bottom line.

I was just thinking about this also. They may give you a higher price because they haven’t worked with you before. They are taking a risk taking you in. You could be over demanding, etc, etc. They want to make sure they you mean business, and so on. Maybe counter this be giving then more money, but wirte the contract so that it’s rear end loaded. They want an extra 5,000, fine, but they get that 5,000 after the products ship. They get the money, and you get peace of mind that they just don’t want an extra 5,000 of easy money out of you. If it’s in the rear end they have to actually produce to get it.

I’m no export in this. I just call it like I see and read it. You have to do your research, know you industry, and negotiate the best you can. Hell, you may even save them money by making the product line move faster. Will they tell you that, no. Just be smart. Read all that you can.

Some good blogs that are most defianently better they this one are:

http://silkroadintl.net/blog

http://www.chinalawblog.com/

http://www.allroadsleadtochina.com/

Do you homework, due diligence, etc. Don’t be dumb. I know that’s easy to say but be ready to walk away, don’t put all your manufacturing in one place, have back up plans, and don’t be naive. Someone before you was, and they probably think you are too.

Hope that answers your question. I’m not an expert. I don’t pretend to be. I just like to make things, design, write, photograph, and eat Oreo cookies when I can.

Peace.

Ok so here a story about quality here in China.

Factory A gets contacted to make a new product that they have never made, but basically it’s just a small version of what they have been making for years. Their quality is not good. They have been getting better but it’s still not even close to American quality or the top-level factories making the same product. They have fixed certain issues with tolerances and materials. Improving everyday.

New client sends a sample from another factory, factory B. This factory is worse than factory A. So Factory A sees the sample product and now gets it in their head that actually they are a really good manufacturer because they are better than factory B. But what they don’t realize is that they both suck and factory B just sucks more. The sample contains the same issues that factory A has been fixing. Now factory A starts to question why they have been fixing these issues, why they have been working harder, and striving to do better, when factory B doesn’t have to. They also start to think that they are the best manufacturer ever because their product is superior to factory B.

This all leads to a feeling of content and laziness. The quality starts to go down hill because they think that they have finally made it and don’t have to fix any more issues because there are people who are worse off then they are. They don’t feel the need to innovate and now buckle in for a period of doing nothing and coasting along. Quality goes back down, eventually is just as bad or worse as factory B and the cycle starts again. Factory B becomes A and A becomes B.

The above happens too with product samples from the best factories. Products that are the best come into a factory and get torn apart. Why do we have to fix this issue and spend so much time on it if the best company in the world sells products that have the same problems or worse. Well, think of it like this. Ford gets an Audi to check out, they buy it and bring it into their factory. Ford’s engineers take it apart. They start to question why they have been putting so much time into specific aspects of design or manufacturing. Why do we have to make the car quieter inside? The boss (Ford) wants a db level of 70 but the Audi has a measurement of 80. Audi is more expensive than Ford, and supposed to be a better car. Why then are their cars louder and more specifically why do I have to work harder to achieve 70 when the Audi is 80. That’s the thinking.

What the factories and factory workers haven’t the slightest clue about is that, better product attracts better clients, attracts more clients, and more money. The top-level companies can sell defect products or slightly sub par products because they are the leader. They can get away with it. But when you are the underdog. You have to work twice as hard to climb the ladder and know one in China understands that. If they do, then they are the top-level companies. Because that’s what it takes.

I’ve read a lot of news lately about China trying to innovate. It’s going to be really hard. Really hard. The above problem compiled with a thousand others that are culturally specific are going to hinder them. Don’t misunderstand me, America is not the best, China is not the best. But one can hardly argue about the difference in education and it’s relationship with innovation and technology.

But one of the biggest problems is employee attitudes here. Boss in America, make it 70, employee, yes sir. You pay me I work. Boss in China, make it 70, employee, can’t do it, too hard, why, you don’t pay me enough, can’t be done, etc etc etc, argue, argue, yell, yell, dinner drinking, ok I’ll make it 70.

Awesome.

There is a Chinese saying or phrase, 差不多， which means pretty much the same. Almost, nearly, more or less. I hear this phrase all the time. Here is an example.

Making widgets. A customer wanted a widget a specific thickness. The thickness of the widget is supposed to be 1.2mm. We first sample the widget. Build one make sure it’s good then send to customer. Today we go to look at the sampled widget and find out that the thickness is 2mm. .8mm too thick. This is a real problem. It’s almost 100% too big. The department that makes the innards of the widget has the drawings, the people that design it have the drawings. So my question is this. If we are making a widget and the thickness has to be 1.2mm and I have a part that is 2mm, what makes me think that 2mm is ok when the drawing says 1.2mm. Well, it’s almost, nearly, more or less the same. It’s why I hear that phrase all the time. Because to a Chinese person pretty close is good enough.

I mean everything. You think, oh well, everyone says that, but your mistaken. Everything in China comes down to money. In fact I would suffice to say everything in the entire world comes down to money. What has sparks this little blog today. Well, a week of being subpar and a grand lighter. Let me tell you how things work here.

To come to China you need a visa. No big deal. Tourist, business, student, marriage, and um, Z. What I have done for the last year or 8 months is get a business visa. To get a legit or proper-channeled business you have to have a company say your coming here to do blah blah. To counter this you just go to Hong Kong and get one super easy and a little shady. The catch, you must leave every thirty days. So 6 months you have to leave five times. Now you can live where ever but remember you must leave every thirty days. In the past month I have moved to a new city. Which is a two hour flight from HK. So what used to take me a half-day and say, 30 USD would now take me, 200 USD with the flight. Well, that’s not good. So I had to get a new business visa that would allow me to stay for a long period of time. Here comes the kicker, I still don’t have a company here to invite me per say. So I got to do it the shady route again.

I ship the passport off to a company in Shanghai who then somehow gets me a visa and ships it back to the tune of 1000USD.

When it comes to money, Chinese are the smartest in the world. Let me elaborate. The cost of the visa from Hong Kong: 300 USD. Every month to leave and come back, 33 x 6 = 198. x2 = 996USD. To get a year long visa where you don’t have to leave: 1000USD. Hrmm. Seems a little interesting.

I just deposited the cash in the specified account. I hope to god they send me my passport back. Don’t think that it will be a problem. They seem the least shady of what I’ve been told. At least I didn’t have a random dude roll in and pick up my passport and magically have it back a week later. You laugh but I’ve heard stories.

Well, back to whatever I was doing.

Peace.

*Edit: I forgot to mention that I needed my passport to deposit money in someone’s account. Of course to get my passport I needed to deposit it. Interesting. Well, I told them what was going on and they said, well, you don’t have your passport then you have to give us your name and passport number, and pay us 50 yuan…. Like I said, everything comes down to money and with money you can do anything.