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).
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-
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.
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, 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.
Products that fall under a CE marking Directive cannot be imported into the EU unless they show the CE marking, which is simply a manufacturer's self-declaration that the product complies with the relevant European legislation.