Is bad business practice endemic to China? Or is it just growing pains?
This is my third blog from a mind-altering business trip I took to China this June; it follows on from my experiences in Shenzhen and Shanghai. Saying there is no trust in China, I realize, is a bold statement that will probably attract criticism, but the issue is so central to any real understanding of China that I'm prepared to take some hits.
Looking at the Chinese side for a moment, China could legitimately criticize the United States for an equally unjust political system that defines corporations as people and allows unlimited contributions to political candidates through legal loophole called Super Pacs (Google Sheldon Adelson, for example). But that's politics. Getting back to my larger point about business, I've been reading for years on EETimes.com and EBNonline.com about Chinese violations of intellectual-property (IP) rights and counterfeiting. The truth is, you never really believe anything until you see it or hear it for yourself, and this time, I witnessed it and its poisonous effect on the business environment first hand.
In my very first meeting in China, it became obvious that trust was, and will always be, on the agenda in every meeting whether you raise it or not. Being in media, I found myself addressing trust issues around the circulation numbers of our publications and websites from that first meeting onward. Invariably they wanted to know what the real circulation numbers were for our magazines in China and what the real traffic and click-through levels were, as if I had inflated the numbers. Widely accepted standards for auditing and reporting of media seem to be largely ignored in China, which a customer from NXP Semiconductors verified for me in a subsequent meeting. Trust is a big issue for companies--if you read part 1 of this blog series, you know that even Shenzhen-based manufacturers are sold counterfeit components by their own suppliers.
Over my 10 days in China, I heard and saw many examples of what we in the West at least would call violations of business ethics and in some cases blatant fraud. For examples, check out the photos I took of the knock-off phones in the Shenzhen electronics market in my second blog. I was also told about the regular practice of copying competitors' websites, even down to the spelling mistakes (yes, I know this happened here in the infamous Avanti EDA case).
So, why is the lack of trust so endemic in China and what is the government doing about it? This is a very complex issue and after a single visit to China, I'm clearly no expert. However, some wise friends over there pointed to fundamental differences between both our forms of capitalism that may be where the answer lies. Firstly, it's important to understand that full-blown animal capitalism has been unleashed on a huge country and population in less than 30 years, so the institutional rules and lessons of orderly capitalism the West developed over the last 200 years don't apply. Secondly, it's critical to understand that there is no tradition or even existence of an independent judiciary, so there is nowhere to take any complaint for recourse. This has created in the words of a colleague in China ďan existential crisis of trustĒ that underpins all aspects of Chinese life and which I believe will hold back the country's growth until it's addressed.
So this is the problem I refer to in the title because innovation can only thrive in a business environment where some minimum form of trust can be assured either morally or legally. In my fourth and final blog in this series I will look at what innovation I saw in China and why trust is so fundamental to the future of China.
David Blaza is senior vice president of UBM Electronics (the company that publishes EE Times and EDN). David has over 20 years of sales, marketing, and publishing experience in the technology sector working for companies as diverse as IBM, Motorola, Mars Electronics, CMP and now United Business Media. He is a graduate of the University of Bradford, England (BS, Materials Science) and the University of Stirling, Scotland (MS in Economics & Technology).
@David, this is China's major challenge as it seeks to move away from a mainly low-cost mass-production economy to a high value-added one. I believe the Chinese authorities are fully aware of this but it will take them time and there are many vested interests that will stand in the way. I am afraid the West cannot do much in the meantime as it struggles with its own major socio-political problems.
There are likely some left over trust issues from the old days when people were expected to spy on each other and there are some current issues with the treatment of trade secrets etc. However, I expect these are mainly growing pains. As the industries and brands mature, the value of trust will go up and the trust will emerge.
Was it really any different during the high growth periods in the west?
David: I have been to China many times and have done business there as well. I believe this is more of case of ignorance than trust. Most of them are ignorant of the fact that designing 'alternate' products is not legal. Isn't it an American saying, 'Don't re-invent the wheel'? :-)
But, this is different and I believe it is our responsibility to educate them of the legal aspects of designing such alternate products.
Good article. On the one hand, companies like Seeed Studio and others are innovating and reinvigorating hobby electronics and small-scale WW product development, there are other companies in Cina that steal IP and capitalize on lack of enforcement by local authorities.
One case in point is a company that purchases(?) regulatory standards typically sold for 100s of dollars each and then resells the pdf versions for $8 to $20 via their web site. I recently blogged about that in my EMC Blog at Test & Measurement World: http://www.tmworld.com/electronics-blogs/the-emc-blog/4378139/Pirated-Standards--Could-It-Be-True-
"China could legitimately criticize the United States for an equally unjust political system that defines corporations as people and allows unlimited contributions to political candidates "
You believe that communist government (and China is communist country, no mistake about it) should find our system of government EQUALLY unjust as theirs?
What does that suppose to mean - that they agree that they are unjust, but so are we, just as much? Or do you think that SuperPacs are equal to communism?
Do you think that its OK to allow unions to have unlimited contributions to political candidates but not OK for corporations?
Do you think it's wrong for Sheldon Adelson to give money for political causes but it's OK for Soros?
Do you think it's OK to boycott and punish a corporation for their officer's views, but not OK if they pay for political ad? Is it OK to tax them but not OK for them to have voice?
Do you think that freedom of speech is a bad idea, just like Chinese do?
And most importantly, why would you start technical article with such inflammatory political statement? Are you a journalist or an agitator?
"And most importantly, why would you start technical article with such inflammatory political statement? Are you a journalist or an agitator?"
That's called putting the other side's point of view across, and it's proper journalism. The alternative is propaganda!
I would suggest that they [the Chinese government] might find western governments to be EQUALLY different and possible unjust to their sensibilities. I do think it is OK to tax a corporation but allow it no voice since it is not a person and therefore not a citizen. Commercial enterprises exist at the pleasure of the citizen and his/her government. That is why we regulate their operation [for safety and honesty] so that they serve the citizenry well.
Nice article. I was from South Africa, and now in Oz, so my view will take into account the African banking scams that were all too common. In China, you get to see the fish swimming in a tank before you choose to eat it, and the duck comes with the feet on so you can see it is not pork. They have been diddling people for centuries which is why even food choices have to prove their authenticity, and when I get an invitation of free shipping via Avnet Express Asia with Chinese letters, I simply delete the email. All my purchases online are from the US as I have never experienced any problems over almost thirty years. Even if the product is made in China, I will order from either the USA or Europe as I am not interested in credit card problems with no recourse a couple of months down the tracks. I had Chinese students in South Africa who had Xilinx development software even before the academic releases came out, and I could not impress on them that they did not need to copy the stuff because we had a license. That was the new generation, and they are the ones you will be dealing with for for IP protection. Good luck.
Well folks I've never been to any of the asian countries, Europe and the America's but not Asia.
When I pick up an article for sale and read the inscription "Made in China", I instantly put it back thinking about all the bad press China's industries have generated. But then I remember the 1960's had "Made in Japan". And EVERYBODY knew that stuff was just cheap junk.
Isn't China going through their "capitalism learning curve" or maybe more appropriately "learning how to play nice with the rest of the world".
I think both started out their technology endeavors taking the cheap n' dirty route.
Made in Japan doesn't ring any horror bells for me any more.
'Rights' seem to me to be a Western invention. Even though I'm a Westener 'rights' seem to me rather like a religion - you either believe or you don't. I'm agnostic on 'rights'. On 'IP rights' I'm an atheist. Not believing in 'rights' is not the same as lack of trust.
There is a book called "Trust" by Frances Fukuyama discussing these issues across cultures. China doesn't seem to use the Social Contract idea but uses something like social networking instead. The safest way to meet a new person in any context is by introduction by a third party known to both who would lose face if someone misbehaved. People start out in the family or university and work outwards. Businesses years ago could only grow to the size a family could control - of course that's no longer true. Being a reliable part of someone's network there can benefit both sides. That may be true anywhere, but not as true as in China.
When China became Capitalist in its way, there was little business law as one would expect in a Communist country. So they started adopting/writing business law apparently starting with the regulations from Hong Kong which were based on British law. As time goes by people in business will expect to operate in an orderly, predictable, legal environment. Maybe that will sneak the Social Contract idea in the back door and cause basic cultural change. Ironically the Social contract is deteriorating here, of course. It's harder and harder to be a tech when the internal culture of US companies becomes just warfare like China.
There is also the matter that the economy in China is so bitterly competitive and so many people want to be a dealmaker. The networking principle means that outside people's real agenda is unknowable. In some places corruption at the top has deteriorated the conduct of everyone. Things rot top down, just as they do here when that happens. Our Pay-To-Play political financing system is rotting us out too. But otherwise government here usually isn't corrupt, especially locally.
Another book is "42 Rules for Sourcing and Manufacturing in China: ", R. Coates though it's 2009.