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.

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 take full responsibility, as I am the only one who proofreads my blog posts.  I have dyslexia, so I always try and proofread everything 2-3 times before I send it or publish it.  After all, I get enough hounding from the clan in China, to say nothing of the Zen Dragon from down under, that I don’t need to make it any easier for them.

That said, my error sets me up for a good blog post today.  This experience underscores what I was saying in the original post – your business documents are far, far more important in China than in your home market.

Make a mistake or an error of omission on a purchase order, and you may very well be hosed.  Do the same on a Product Quality Manual (PQM), and I can guarantee trouble.

Some time ago, such an error of omission rose up and bit one of our customers rather badly.  We had followed the PQM as approved, but we had not been checking a particular dimension.  It had never been in the PQM, whether we didn’t include it when we drafted the document or whether the customer left it off the original drawing was lost in the mists of time, but the error had persisted undetected by all for nearly 4 years.  It was never a problem as long as the vendor providing that component did their job right, but we are all human and that finally didn’t happen.

Our team inspected the product to the PQM.  The error was so subtle, you would never notice it with the naked eye.  The client assumed all was well and shipped the product, which immediately were rejected in the field.  Long story short, everyone was unhappy and we all lost, but there was no warranty claim to be made against PassageMaker.  We’d followed the approved PQM.

Our policy is we will do what you tell us in the PQM, no more, no less.  It has to be this way, as the biggest problems in China are the admirable Chinese tendency to want to help too much or worse, to improvise when a problem arises.

I had a friend who was buying pillow cases in China.  All the samples came in exactly 1″ too big on every dimension.  Panicked, he called the factory and they told him they so appreciated the order (for several hundred thousand units), that they wanted to reward him by providing extra material at no cost!  After he got his heart pumping again, he contacted our friends at China Quality Focus who went on-site and got things back on track quickly.

Doing business in China is Murphy’s Law on steroids, acid and a truckload of uncut Colombian all at once.  Muse’s 1st Law is “Never Assume Anything“.  Make sure if you want it to happen (or not to) that you put it in writing.

I meant it when I wrote that we LOVE getting 17 pages of corrections back from the client.  It is far better than a cursory review and signature.

We have four (4) internal layers of proofreading for a PQM before it is sent to the client for approval.

1. The PQM is drafted by a Quality Technician, with input from the entire team, including the client.
2. It is then reviewed by the Production Engineer.
3. It is then reviewed by the Project Manager.
4. It is then reviewed by a member of senior management (most often by me).

Only then is it sent to the customer.

This is a time consuming process.  But the alternative is terrible to contemplate.  Anything worth doing is worth doing right the first time.

So make sure you proofread before you sign on the line that is dotted.

He began hitting McDonald’s almost daily to give his stomach a foundation to get by on.  Having had my share of food poisoning in China since then, I agree.  When you’ve just spent the last 12 hours on the “China Rapid Weight Loss Program”, you are NOT in the mood for more Chinese food.  A Quarter Pounder with Cheese is the most welcome sight on earth.

He started referring to McDonald’s as his “Get-Out-Of-China-Free-Card”.  What a perfect name.

It has nothing to do with PassageMaker or SafePassage or China Quality Focus – except that if you come visit us and get sick, we will make sure you are well cared for – but it is a reality of China travel that you will miss food you would never eat when you are home.  When I am in the USA, I cook Asian food 3-4 days a week.  When I am in China I crave hamburgers and hot dogs.  The grass is always greener, I guess.

Anyway, here are three crazy articles from ChinaSMACK about McDonald’s and the impact it has on modern China.

Chinese Netizen’s McDonald’s Happy Meal Rotting Experiment

Chinese Grandfather Eats McDonald’s For The First Time

Pretty Chinese Girls Run Into McDonald’s & Begin Dancing

On the last one, you see this kind of stuff regularly in China.  What a place.

Enjoy.

Since my return from China two weeks ago, I have been working like crazy trying to bag all the new business raining down on PassageMaker, SafePassage and China Quality Focus.  The world economy is not out of the woods but we are definitely seeing an explosion of new RFQs, led by Australia.  They are booming exporting the raw materials for China’s industry.  Let’s all raise our glasses to Australia!  More on that later…

I have been picking away at the travel log in my minimal spare time, but here are some interesting articles (some a bit old, but nonetheless).

• Nixon wasn’t so bad after all – USSR planned nuclear attack on China in 1969 – and Tricky Dick stopped World War III.  This is the kind of stuff you do as President that you can’t talk about, you have to hope historians get it right.
• From Instapundit, a link to great blog about Japan, Ampontan.  Today’s post is called Lame and Shameless, about ridiculous Western reporting on Japan.  I am reminded of Andrea Martins, our representative in Brazil, who was actually born and raised in Beijing, the first and only Caucasian I’ve met who truly speaks native-level Mandarin.  She told me once that if you visit China for a week, you can write a book.  Stay for a month, you can write an article.  Live there for 25 years, you have nothing to say.
• Every once in a while you need to remind yourself how utterly insignificant you really are – Jupiter loses one of its stripes and scientists are stumped as to why.
• Every once in a while you need to remind yourself how great your life really is – N.Korean women up for sale in China: activist.  Tragic and terrible.  I hope China steps up.
• Interesting article from Mother Jones.  Yes, really.  The Last Taboo.
• The New York Times finally realizes that many jobs aren’t ever coming back – The New Poor: In Job Market Shift, Some Workers Are Left Behind.
• Speaking of vomiting…U.S. posts 19th straight monthly budget deficit.  (hat tip to Dave Learn)
• Dear God, let’s hope so – N.J. gov. sets tone for US – I have heard Christie speak, and it is QUITE refreshing.  He sounds like a no-nonsense CEO sent in to save a company on the ropes.  Math doesn’t lie.  There is no money tree.  You  have to cut spending.  However, if you could just raise taxes on The Real Housewives of New Jersey and leave the rest of the state alone, I think you could sell that.  My God, what tacky people.  The rise of China should be seen as largely a good thing, and maybe the Chinese economy will grow larger than the USA’s, but that was never a foregone conclusion.  Our current political leadership across the board seems hellbent on making sure it happens ASAP though.  As someone who has business interests in both USA and PRC, I just wish the USA would quit shooting itself in the foot.  We businessmen would be just fine if we knew from one day to the next what was coming out of Washington.
• Globish – I love it.  What a great word.  And the author nails it; I have had similar experiences many, many times in the Chinese-speaking world.
• And finally, I can’t resist – Dog on the menu for Chinese astronauts.  Actually, dog is pretty tasty, though I’ve only had it prepared in Korean restaurants in China, so I haven’t tried the Chinese version.  Have to put that on the to-do list.

Many young souls seem to want to be bankers or lawyers, as though these are highly lucrative careers that guarantee a sweet life in the Hamptons.  Certainly they can, but most bankers and lawyers slog along without ever making the big bucks.  Moreover, they are careers without a real product that you can point to and say “I made this”.  I tried explaining there are no safe corporate career paths anymore, and believe me when the cost cutting starts, they start in middle management.

I remember reading an article written by a British MP maybe 20 years ago that has formed part of my philosophy ever since.  At the time he was writing about the challenge posed by Japan to the British manufacturing base, what was left of it anyway.  I am going from memory and as the article predated the internet, I have had no luck finding it.  But the quote went something like this,

British Leyland did not go out of business because of the Japanese.  It failed because it made dreadful cars.  Our economy today is almost entirely based on people in London trading bits of paper.

Real economies make things.

Did this make anyone substitute “Chrysler”, “Chinese” and “Lehman Brothers” in their heads?

The issue has been much debated of late about whether China’s economy is a bubble, perhaps the greatest bubble of all (see here, here, here, here, here and here).  Certainly the yuan is undervalued.  Certainly much of what you see in the Chinese cities is pastiche – empty buildings abound in any major city.  There is vast overcapacity in many industries, driven by cheap loans from government banks to drive development and keep unemployment manageable, similar to the government role in the Japanese and Korean economies during their early growth periods.

But my mind and my gut keep coming back to that quote from the Brit – “real economies make things“.  There is real manufacturing know-how in China and it grows stronger daily as they gain more experience.  The infrastructure and man-power are real.  These are not paper assets that vanish in the blink of the eye like the billions lost in the last two years in the USA.

Does the Chinese economy need to make adjustments.  Yes, indeed it does.  So does the USA.  And as with all things, we will all be forced to one way or the other.  But the knowledge gained in this Chinese industrial revolution will persist and remain a real asset even if the bubble does burst.  Japan is still the #2 economy despite 20 years of stagnation.  They have not fallen back to the misery of late 1940′s.  I am confident China will survive as well, even with their monumental challenges.  They have come so far in 30 years, I just don’t see them giving up, and when the world economy does recovery, they will still be the largest source of low-cost manufacturing capability on the planet.

And future bankers of America need to remember it is a whole lot easier to move a financial center than the infrastructure required for manufacturing.

PS – If you have never watched Top Gear, I highly recommend it.  The 30 minute episode on British Leyland is well worth your time, if only to remind yourself of how awful cars used to be.