When the Toyota “sudden acceleration” issue arose, I was the lone guy in my neighborhood saying that it was not a Toyota problem.  It was bone-headed drivers hitting the wrong pedal, just as the Audi issue back in 1980′s was eventually found to be driver error.

Folks, coming from the automotive industry let me state loudly and clearly, NO CAR IS SOLD WITH BRAKES THAT WON’T OVERPOWER THE ENGINE.

Take a 500+ HP Roush Mustang, pin the accelerator pedal to the floor and get that bad boy up to 100+ MPH and slam on the brakes.  What’s going to happen?  IT WILL STOP.

You can’t sell a car in this country if the brakes won’t overpower the engine.  Period.  Paragraph.  End of story.

All the STOOPIDITY that has gone on the last year has been just that.  Blinkered, politically driven, UAW inflamed stoopidity.

This has been a perfect example of the “China syndrome” where every problem is blamed on the Chinese vendors.  Often they deserve it, but more often than not the client is the one in the wrong.  Not specifying proper materials, critical dimensions, product finishes, etc., is somehow always the vendor’s problem.

Do Chinese suppliers make mistakes?  Sure.  But you should always ask whether it is driver error first.

Ladies and gents, this is a three-alarm fire bell.  You are not dealing with a reputable firm if they won’t stand an independent audit.  They are a trading company or a bad factory, plain and simple.

I came out of the automotive industry, which the best crucible for grown-up business I know.  I can remember auditors from Mack Trucks, Peterbilt, etc.,  showing up unannounced to inspect our facility.  We even had an ISO audit starting when OSHA showed up for a surprise inspection.  I stood two audits in one day on my facility and passed both with flying colors.  So don’t give me your *bleeping* sob story.

A Simple Factory Audit is the cheapest insurance policy you can buy.  If your supplier won’t allow it, run screaming in the other direction.  It is only going to get worse if you stick around.

It got me think about our services.  Despite the copious amounts of verbiage on our website, I spend a good chunk of each day explaining what we do and how we do it – which is one of the drivers behind developing the upcoming video tours, which we hope to post soon.

Some time ago, casting about for a good analogy for our company, my obscene fatness landed upon the concept of an a la carte menu.  You can use our services in the typical order – Sourcing Feasibility Study (sample report here), Vendor Coordination, Assembly-Inspection-Packaging (sample Product Quality Manual here), etc. – or you can start anywhere in the process you like.  Skip the salad and go straight to the main course.  Or eat dessert first.  We are nothing if not flexible, and our only goal is to help the client be successful in China.

And now I want ice cream.  Damn.

If you’ve noticed that blogging has been slow these past weeks, it’s been because a number of trips, client visits, etc., but the main reason has been an ongoing grind of computer trouble.  I have a high-end Windows machine from one of the big American brands.  It was bought a year ago because my prior machine, a super-crappy XP laptop from one of the other big American brands had finally given up.  The new machine purchase was ill-timed as I had to get a Vista machine.

Short version, it sucks.  Vista is, was and will be terrible.  But the machine itself was not much either.  Fit and finish were poor (screen was scratched and scuffed out of the box) and like all Windows machines, the thing was crammed with bloatware.  Despite its specs, it was slow from the start.

Three weeks ago, Windows download a bunch of updates and all hell broke loose.  The Blackberry also updated its software at the same time, which caused another slew of problems.  Worst of all, Outlook, which is the only Microsoft product I prefer to use, stopped working reliably.  I tried Thunderbird but found it a poor substitute (I love Firefox though).  After four (4) different IT folks took a look, after upgrading to Windows 7, after reinstalling Outlook twice, I gave up.  My Macbook Pro arrives today.  After 20+ years as a Windows user, I am switching (back) to Mac.

Note to Steve Ballmer – when your “productivity software” is this unreliable, it is no longer productive for me to use it.

It will be an adjustment, I am sure and there will be plenty of cussing no doubt.  But I had the opportunity to play around with one the IT professional’s Macbook and his iPhone 4G, and both blew me away.  I have bitched before about how little I like my Blackberry Storm 2, how unimpressed I am with my current carrier and now I am plotting my move (back) to AT&T so I can get a phone that was designed from the ground up to interface with my computer.  When the only office you have is two devices you can hold in your hands, you just can’t afford this kind of garbage.

Why do I include this in a blog about doing business in China?  Because both my current laptop and the new Macbook were made by the same company – Foxconn – and yet the fit and finish are night and day.

I have the feeling the company who’s name is on the current Windows laptop just goes to Foxconn and asks what’s new that they can slap their name on and market.  I know that Apple does not do that.

I have said it before and I’ll say it again now – you get the quality in China you are willing to pay for.

Had a discussion the other day with two super knowledgeable China people. Both of these people are businesspeople. Both are fluent in Chinese. Both have been living in China for at least a decade. One is a marketing person. The conversation started with my bemoaning how my favorite restaurant in Qingdao so rapidly deteriorated, in every respect. These two people said that virtually always happens and then they proceeded to give me the chronology of what happens to so many good restaurants in China:

1. Restaurant opens with nice space, really good chef, plenty of staff, and no skimping on ingredients.

2.  Restaurant gets really popular and then chef asks for more money and when that is refused, he or she leaves. New, cheaper chef comes in and food quality starts to decline.

3.  Decline in quality from #2 above leads to a small decline in customers.

4.  Seeking to make up for the decline in customers, the restaurant owner starts skimping on the ingredients. Maybe they go from top quality fresh spices to cheaper dried spices.

5.  Decline in the quality of ingredients leads to a decline in the number of customers.

6.  Seeking to make up for the decline in customers, the restaurant owner lays off some staff and starts skimping on overall upkeep of the restaurant.

7.  Decline in customers accelerates and restaurant eventually shuts down.

8.  Owner blames new restaurant down the street for the problems.

We then started talking about how we had seen the same sort of thing with some Chinese products and Chinese suppliers of product to foreign buyers. We talked of how this sort of decline is nearly inevitable if you believe price is what drives your customers.

There is a whole lot of the above going on with Chinese companies and this sort of business is not going to endear one to Western buyers. But we three also talked about Chinese companies we knew that had very consciously broken the above mold and by having done so were thriving in both China and overseas.

Is the above what is holding back Chinese companies from better competing in the West? Is this changing? I say “yes,” to both though I think it will all take a long time.

Sadly, we see “vendor fade” too often.  Clients come to PassageMaker and China Quality Focus because after many good shipments, all of a sudden everything is garbage.  Shipments late, containers of defects, warranty claims out the wazoo.   The value a supplier provides – especially smaller suppliers – is often dependent on a plant manager, production engineer, quality manager, etc., that the Western buyer probably never even met.  That person leaves and the whole place goes off the rails.

Part of our job is to dig into the supplier and try and identify where these potential fault zones are, though there’s often little we can do other than catch the fade when it starts and take corrective action.  We can’t run the supplier’s company for him.

One of the reasons we perform Sourcing Feasibility Studies is to have a bench to go to if the first team fades.  For most customers, we recommend having parallel supply chains – at least two vendors making the components.  I often recommend that one of those suppliers be in the client’s home market.  Little counter-intuitive for a company based in China, but our ultimate goal is the customer’s success.

• MSNBC – Clinton says world must respond to N. Korea
• Financial Times – US warns over Beijing’s ‘assertiveness’
• DER SPIEGEL  – Interview with Economist Nouriel Roubini: ‘We Will Have Even More Crises in the Future’ (hat tip Matt)
• Real Clear Politics – Depression 2010? (whether you agree with him or not, this future is not clear or bright – there is much excitement yet to come I fear)
• Reuters – Factbox: Sources of tension between China and the U.S.
• Reuters – China and U.S. look to close world’s biggest trade gap
• Reuters (again) – Clinton avoids China disputes, hands out teddy bears (avoid confrontation and carry a teddy bear – not exactly what the Teddy for whom the bear is named advised, but then he never had to deal with being in debt to your competitors)
• CNBC – US Plays Down European Crisis but China Worried (as they should be)
• USA TODAY – Private pay shrinks to historic lows as gov’t payouts rise (that’ll work)
• Reuters (yet again) – How Greek debt crisis could save America (God, I hope so)

Maybe get to some travel blogging tomorrow.  Or not.  You’ll have to check back to see.

Too many American industries rely on illegal labor to remain cost competitive, thus the constant drama on the border issue.

The China nearly every Westerner sees is the coastal veneer.  The majority of China still dwells in the poor, mostly agrarian interior.  Their source of cheap labor in internal.

And as this article in Slate by Brett Edkins points out, in a sense, many of those Chinese migrant workers are “illegal” anyway.  Key paragraphs:

The United States could begin by conceding one of China’s principal arguments: Human rights are not just about individual liberty, but also economic opportunity. The Chinese “economic miracle,” which lifted 500 million people out of poverty in just one generation, is itself an unprecedented human rights achievement. Yet it gave rise to other pressing human rights concerns, including an issue that threatens to destabilize China’s Communist regime—growing discrimination against the roughly 200 million Chinese citizens who left their rural homes to find jobs in China’s booming cities.

In many ways, these rural migrants resemble undocumented immigrants in the United States. In China, they provide indispensible labor for vast urban construction projects and work in menial jobs as guards, waiters, cooks, or barbers. They are often mistreated by employers, generally live in poor conditions, and receive few social benefits and limited protection from the police. And their children are regularly denied public education.

Chinese newspapers, “Netizens,” and even Communist officials are calling for reforms. Their main target is China’s 50-year-old household registration, or hukou, system. Began as part of China’s state-run economy, the hukou system labels individuals as “rural” or “urban,” indicating their proper place of residence and binding laborers to the land. Today, rural residents are permitted to travel to the cities, but they can still be fined or forcibly returned home if they are caught working or living outside their designated hukou. Obtaining a temporary urban-residency permit from the police is beyond the means of most migrants, requiring a fee and employment documentation. Permanently changing one’s hukou by attending university or joining the military or the Communist Party is similarly out of reach.

Life for a city dweller with a rural hukou is difficult. Their hukou denies them urban welfare and access to public housing. It also excludes them from publicly funded health-insurance schemes. Since fewer than 3 percent can afford health insurance, most avoid medical care altogether. City judges often impose harsher sentences on rural migrants, and employers frequently withhold wages, knowing undocumented workers cannot complain to police without risking exposure.

I will admit I not a fan of the author’s wording, “undocumented migrants”.  If you illegally cross a national border anywhere else in the world (including Mexico), you’ve broken the law.  Only in the modern American journalist and politician world does that deserve an obscurant euphemism.

However, the point of the article is that despite the rapid advances, parts of the Chinese state are stuck in the Maoist past.  One good thing about dealing with PassageMaker, you know our employees are treated well and legal.  As a foreign owned firm, the government would come down on us like a ton of bricks were it otherwise.

Regardless, I am happy to see people in China, including members of the Communist Party, start to address the problem.

He commented on my recent post, “Sheer Import Genius“.  This led me to read two excellent posts on the the good and bad trading companies in China.

His points are spot on.  One of the reasons PassageMaker formulated the Sourcing Feasibility Study (SFS) was to identify and eliminate piss-ant trading companies that don’t add value.

Li & Fung is a tremendous company, and we have sought to emulate them in many ways.  PassageMaker focuses on SMEs – Small to Medium Enterprises, not Li & Fung’s market.  Many of our customers are Tier 1 suppliers to Fortune 500 companies, but they themselves fall into the SME category.  In my mind, this is a fine market to serve.

PassageMaker is not a middleman.  We are not a traditional trading company.  We add tangible value with our SFS, Vendor Coordination, Assembly-Inspection-Packaging and Factory Formation services.  Most importantly, the entire process will be transparent.  We don’t exist by keeping our clients in the dark.

Let us know how we can be of assistance.  If you are not 100% sure about every step of your supply chain, you need our help.  Trust me, you do.

The importance of contracts and compartmentalizing your supply chain cannot be overstated.  You have invested too much to build the business.  Don’t give it away because you are too lazy or too cheap to do the work to protect that investment.

Money ‘graph:

The other day, a really savvy client of ours stopped by the office. This company has been doing business in China for a long long time and it has non-disclosure/non compete/non circumvention agreements with all of its Chinese suppliers and US Buyers I mentioned the above conversation (no names or other identifiers, of course) and we talked about the benefits of the contracts his company has both in China and in the U.S. He then reminded me that this was also one of the reasons his company had set up its own trading companies in China. This company gets its product from about a dozen different Chinese factories, but the records in both China and the United States all point to the U.S. company’s own trading company as the exporter. This company has never had a problem with its customers going around it.

PassageMaker can help you secure your China supply chain.  Our “Black Box” Assembly Center is a far less expensive option than setting up your own trading company.  If you still want your own presence in China, we can help you with our Factory Formation service.  Give us a call, and when you need a lawyer in China, you could do far worse than Mr. Harris.

I’ll step up and admit I didn’t.

What’s worse, now that Import Genius is out there, finding your competition’s suppliers is as easy as using a search engine.  Anything imported into the USA is a matter of public record, including the exporter (i.e., your supplier), the type of goods and your receiving address.

Import Genius is an amazing program and I will be using it for sure, but it also highlights another advantage PassageMaker‘s “Black Box” offers our clients.  When you hire us to perform our Assembly-Inspection-Packaging service, that is really a catch-all term for any sort of contract assembly, product inspection, contract packaging, kitting, order fulfillment, pull-pack-ship, freight consolidation, private labeling or branding, etc.  We do everything from kit mobile phone accessories to assemble vacuum cleaners.

Aside from the advantages we provide to help you control your costs, ensure your quality and protect your intellectual property, we also act as a “firewall” to protect your real supply chain.  When a competitor searches for you on Import Genius now, they’ll get the name of your Chinese supplier.  Think about that for a moment.  You invested thousands upon thousands of dollars to establish that relationship, to tool your product and get the production going.  If you are like a typical “mature” PassageMaker client, before you hired us, you were paying for at least a half-dozen trips to China a year.  With business class seats, rooms at the Shangri-La, private cars, etc., that’s $20k per trip.

How confident are you that your supplier wouldn’t sell a knock-off of your product to a competitor?

If they search when you are working with PassageMaker, all they will see is our address as the exporter.  So in addition to saving you on travel expenses, we protect the investment you made in your suppliers.  Our motto is “Trust & Transparency”, and you can trust us to protect that supply chain.  We wouldn’t stay in business 5 minutes if that weren’t true.  In the PassageMaker system, you will always know who your suppliers are, who has your tooling, who has your designs, who has your money and who has your products.  The transparency part only applies to you!