Conducting Business Blog
October 23, 2008 – We’re importing some expensive construction materials. The shipper’s forwarder doesn’t seem to have much familiarity with exporting to China. In China, you must be a licensed trading company in order to import or export commercial items. The shipper’s Shanghai side agent is not a trading company, nor does it regularly work with any. The Shanghai side agent had assumed that we’re a trading company (which we’re certainly not). Thus, when we found out that the agent is not a trading company, we realized there was a problem.
Unfortunately (but typically), the agent (or a couple of its employees) is using this as an opportunity to try to squeeze money from us. They found a trading company, but (surprise surprise) the quotation for the duties and the import services isn’t broken out. And it’s very high.
I’m 85% certain that the agent found a friendly trading company, and the two are colluding to overcharge us for the services. This is pretty much standard operating procedure here: They see we have a shipment on the water and they go for our throats.
We told the professor we would pay the students RMB 200 (US $30) per day. She found the four students. However, when we met with them today, they told us they were only getting RMB 100 (US $15) per day. The teacher was pocketing the other 50%.
August 8, 2008 - An entrepreneur friend of mine has recently had a number of problems in his office in China. Most of them only came to light when his girlfriend began working in the office, and discovering the myriad scams his employees were running (he doesn’t speak or read Chinese). Among the more serious problems uncovered so far, there were incidents of document theft and diverting clients to employees’ friends (in exchange for kickbacks). Several days ago, my friend banished all of his office workers into the factory where there are no landlines. He noted that the telephone calls to the office immediately dropped off. The significance of that observation is that he’s in startup mode and has few clients. Moreover, he hasn’t been buying from that many suppliers. He wonders what all of the phone calls were really about.
More importantly, he had a helpful conversation with a Chinese supplier yesterday. She’s Chinese, and each time one of her employees sends an email, it comes from a central email account and reads at the bottom that the email was “sent on behalf of [the owner]”. My friend, impressed with her lack of trust in her employees, asked her about this and her other security measures. These are the major security precautions she takes:
- No employee has his / her own email account. All emails go through the central account, meaning that she can view them.
- She prohibits employees from bringing personal computers to the office.
- She does not give laptops to her employees – only desktops.
- She has software monitoring all internet communications through her network – she can therefore track instant messenger traffic.
- Employees may not use mobile phones in the office at all – even for SMS.
- All documents are stored on the server, with all accesses logged.
These measures may strike some as draconian, but personally I think she’s very smart to have these levels of security. I recommend that all businesses consider implementing at least some of the above.
August 6, 2008 - I’m currently renovating a property for another business. When I noticed problems with the renovation, a representative from the renovation company assured me that they would fix the problems “scientifically.” I then knew I was screwed.
“Scientific” (“ke xue” in Chinese) entered the popular lexicon a few years ago as a result of the Chinese Communist Party’s propaganda machine. In Party Chairman / President Hu Jintao’s first term, he coined the phrase “scientific development.” The context is that China must pursue such scientific development. There is a notion of sustainability in that phrase. However, nobody has ever explained how to implement “scientific” measures – or even what they are. Regardless, the phrase was so successful that it was enshrined in the Party’s constitution – generally, it takes a Chinese leader until his second term to achieve such success.
As a result, “scientific” is now an omnipresent buzzword. But I interpret it as generally meaning “I don’t know how the heck to…” What was the result of the scientific repairs? They failed. Time to consider less scientific measures.
August 5, 2008 - In a conversation with a few friends today, I was reminded of how large the challenge of managing internal corruption is for home country-based managers operating in China. I heard two stories that dismayed me. Each involves household name multinational companies in China.
In the first, the story comes from a commercial real estate agent who works for one of the largest real estate firms in the world. He recently leased an enormous space (8,000 m2 / 85,000 ft2) to one of the largest companies in the world. The gross commission on the deal was understandably large. However, the agent only received a small portion of the commission. A series of kickbacks was paid up the line. The largest single kickback went to the China head of the multinational. Again, this is a household name company.
In the situation with the second household name multinational, the China manager appears to have engineered an office move for the sole purpose of lining his pockets. This manager is actually not from Mainland – he’s an overseas Chinese. He proposed a move from one of Shanghai’s best office buildings to a sub-par space elsewhere. His pretext for the move was to “save money.” He then billed his employer RMB 2,000,000 (approx. US$ 300,000) for moving and renovation expenses. The problem is that the expenses really only amounted to RMB 1,000,000. The rest of course went into his pocket. The sad thing is I can imagine his bosses overseas beaming with pride at how cost conscious their China manager is to propose a move to sub-par offices in order to save money.
If you presently have, or plan to have, China operations, it is crucial that you take the lead in all transactions involving large amounts of money. In the examples above, the multinationals should have sent someone senior to China to select the renovation companies, movers, real estate agents, and oversee the property selection processes. If you don’t speak Chinese, bring an interpreter from home to help you.
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