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I arrived in Shanghai the other day and my first meeting was with co-blogger, Steve Dickinson, who pronounced that Skype had been declared illegal. We both commented on how it is illegal, and then we started talking about inflation.
Skype is illegal in China, of that there can be little doubt. The real question arising from this recent pronouncement is what will this actually mean for Skype in China. I am not a techie, but after talking with a number of people who are, I see the following as the possible repercussions:?
1. Nothing. China will not change a thing regarding Skype. I actually see this as the most likely outcome. I predict China will not "shut down" Skype because those who most often use it are those whom the government wants to keep in their corner. Heck, it wouldn't surprise me a bit if those who most often use it are the sons and daughters of government officials who are off studying overseas.
2. China will "shut down" Skype, but most of those who use it in China will find a workaround for it. Right now, one can purchase minutes on Skype using RMB. If Skype gets shut down, that will probably change. But near as I can tell, there is nothing to stop people from using their VPNs to circumvent the G-F-W and use Skype that way.
At this point, I say nobody should panic. I do note however that every single person with whom I have spoken so far in China is talking of how China is "tightening the noose" and of how inflation is raging out of control and may soon present very real problems. Is shutting down Skype related to this? Is the government seeking to stifle communication regarding inflation's impact? What do you think?
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As the bone chilling cold of winter solstice approaches, we have been greeted here in China with a series of reports on shortages in primary energy for the winter season:
? Coastal China provinces have shifted strongly towards natural gas for home heating. For this winter, a shortfall of up to 10 billion cubic meters of natural gas is predicted. This constitutes around 30% of the total demand.
? The shortage in diesel fuel that began in early fall continues unabated. In fact, the shortage has spread to the entire country, causing transportation bottlenecks in many major transport hubs.
? Just today, newspaper reports carried the bad news that a coal shortage will lead to substantial electricity shortages in many provinces throughout this winter. The issue is not lack of electricity generation capacity. The issue is the lack of coal required to fire the existing generators. For example, reports are that electricity generators in Henan and Hubei provinces will operate at 40% of their maximum capacity due to this lack of coal. Coastal cities like Shanghai are less at risk because they can import coal to cover shortages from domestic consumption.
These shortages are likely to become increasingly common in China over the next five years. The issue with respect to electricity is especially acute. China derives 70% of its electricity from thermal coal power plants. This number is not expected to change substantially in the near future. China has more than enough thermal power plant generating capacity. The issue is whether China has sufficient coal to fuel those power plants.
For many years it has been accepted that China could meet its coal needs through domestic production. Recently, there have been reports that during the 12th Five Year Plan (2011 to 2015), China will cap its domestic coal output at 3.6 billion to 3.8 billion metric tons per year. China currently produces 3.4 billion metric tons per year. This cap would thus mean virtually no future increases in domestic coal production. By the most conservative estimates, China needs 5.0 billion metric tons of coal per year to meet its electricity generation demand for the year 2020. That means China will need to make up for the domestic shortage by importing more than 1 billion metric tons of coal per year. No country has ever imported that much coal in a year and it is not clear if China can pull it off. If China can increase imports, these imports will serve to fuel only the coastal regions of China. Interior provinces like Henan, Shanxi and Sichuan will be left to rely on China's domestic coal supply. All of this will be difficult to accomplish, if possible at all.
What does this mean for investors in China? As the expense of operating on China's coastal provinces continues to increase, many foreign manufacturers are shifting their operations to the Central and Western Provinces. The Chinese government supports/encourages these moves. In my work with clients who are considering where to locate their manufacturing facilities in China, I am finding very few who are taking into account the issue of the availability of energy.?
Any company considering manufacturing in China must consider two important issues:
1. What is my energy demand and will the energy be available in the area where I plan to locate. You cannot rely on Chinese government reports. You have to do independent research.
2. It is certainly cheaper to manufacture in the Central and Western regions. However, it is essential that you consider whether those regions will be able to supply energy consistently over the life of the project. The issues can be complex. For example, the Central and Western regions may have increased access to natural gas over the next ten years, since the major planned pipelines will be routed from Central Asia. On the other hand, shortages in coal and diesel will be met by increased imports. These imports will benefit primarily the coastal provinces and not the Center and West. Operations in the Center and West will not actually be cheaper if factories there are forced to close for extended periods due to coal shortages or if transportation is disrupted due to the lack of diesel.
What are you seeing out there?
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The Chinese press has been very excited to report this week on an increase in foreign litigants making use of the Chinese courts. Under the somewhat misleading title of “Commercial disputes with foreign nation [sic] flood Chinese courts,” the reports state that the PRC Supreme People’s Court reports the following statistics:
? Through November of 2010, 13,131 cases involving foreign elements were heard by the Chinese courts. This is a 15% increase over the previous year.
? Companies from the United States were the most numerous litigants, followed by Japan, South Korea, Germany and Britain. This group accounted for 40% of the foreign related cases.
? The vast majority of cases were commercial, with only 4% of the cases concerning criminal matters.
Though 13,000 cases is hardly a “flood” of litigation, this report does show an increase in foreign acceptance and use of the Chinese legal system for resolution of commercial disputes.
Why would any foreign litigant want to make use of the Chinese courts? The most common reason is that there is often no alternative. Take a typical example. A U.S. company has a contract with a Chinese factory to manufacture a product. The Chinese manufacturer has no assets outside China and no contacts with the U.S. other than this one contract. The Chinese manufacturer delivers defective product and delivers late. The U.S. company as a result suffers substantial damage.
What legal recourse is available to the U.S. company? As a practical matter, the only recourse is litigation or arbitration in China. Why is this the case? Because if the U.S. company sues the Chinese company in the U.S. and wins, its judgment will be worthless because Chinese courts will not enforce it. Say the U.S. company thought ahead and provided for arbitration in China. China is a signatory to the New York Convention on the enforcement of arbitral awards. China should therefore enforce an arbitration award in favor of the U.S. company. Right? Not necessarily. China is one of a group of Asian countries (including Indonesia and Thailand) that do not have a very good record of enforcing foreign arbitration awards. In particular, Chinese courts rarely enforce foreign default arbitration awards obtained when the Chinese company fails to show up to contest the arbitration. This means that all the Chinese company has to do is refuse to participate in the U.S. arbitration and it will probably never need to pay on the default award.
All of this means that in the situation I described above, the best and perhaps only recourse will be to pursue legal action in China. Note that concerns about fairness of Chinese courts and arbitration panels are simply irrelevant in this situation. A legal action in China is the only course of action. So the rational foreign business will work to ensure that it makes the best possible use of the Chinese legal system to maximize their prospects of success. Our firm (always working in tandem with licensed Chinese lawyers/litigators have had excellent success pursuing litigation in China when the foreign company we are representing has used a contract that well-prepared it for a China lawsuit. ??
The most common mistake we see by foreign companies is using a contract that is not enforceable in China. By doing this, they ensure the contract is not enforceable anywhere in the world. How does this happen? They do this by writing a contract with these features:
? The contract is governed by U.S. law.
? The exclusive forum for dispute resolution is litigation in a U.S. court.
? The language of the contract is English.
Foreign companies are frequently quite proud that they have “forced” the Chinese side of the contract to accept these onerous terms. Apparently they think the terms protect the foreign side because it forces the Chinese side to file a lawsuit outside of China and subjects them to foreign law and procedure. However, this is an illusion. How many times does a Chinese manufacturer file a law suit? The party that will normally want to file a law suit is the buyer of the product, not the seller.?
The Chinese side is usually happy to sign a agreement with these dispute resolution terms because it fully understands 1) that if it wants to sue the foreign company, it will need to sue it in their home (foreign) country since very few countries enforce Chinese judgments and 2) it also knows that it will have now ensured that it is nearly free of any risk that an enforceable judgment will be entered against it. In other words, the Chinese company knows that it has just been "forced” by the foreign side to execute an unenforceable contract. Since the terms of the contract cannot be enforced, the Chinese side can then be quite relaxed about the contract terms.
Why does this happen? The reason is that at the start of litigation, a Chinese court will first look at the dispute resolution provisions of the contract. If the contract provides for dispute resolution (litigation or arbitration) outside of China, the court will refuse to hear the case. There are no exceptions to this. With respect to arbitration, as with most countries, Chinese courts will only allow arbitration in China if there is an explicit, exclusive China arbitration provision. A common trap is a contract that provides for an alternative of litigation outside of China or arbitration inside China. In that case, the Chinese courts have traditionally refused to honor a Chinese arbitration award because the arbitration provision is not exclusive.
It is therefore critical for every company that does business in China to ask a fundamental question: if there is a dispute under this agreement, am I most likely to be a plaintiff or a defendant. If your company will be a plaintiff, then you must ensure that your contract is fully enforceable in China. It is a complete disaster to close the door to the Chinese litigation and arbitration by insisting on litigation outside of China. The next step is then to draft your contract to maximize the chance that you will get a good result in China.
Even though this all seems obvious, I find that almost every week I have to give a potential client the bad news that their contract is unenforceable through their own efforts. When I get a call from a client who wants to collect on a debt or resolve a business dispute with a Chinese company, the first thing I ask about is the dispute resolution provisions in their contract. The client then emails me the contract and I discover that the contact is governed by Arizona law with exclusive jurisdiction in the Arizona courts. I then ask: does the potential defendant have any assets in the U.S. The answer to this question is nearly always "no," at which point I then have to tell them that their contract is unenforceable and they will have to consider another method for resolving their dispute. This is usually a conclusion that causes distress for the client, because this kind of provision is often included at the tail end of a long and detailed (and expensive) 50 page contract. Needless to say, it is much better to have a 7 page contract that you can enforce than a 50 page contract that is waste paper.
In a future post I will discuss the most important ways to make a commercial contract enforceable in Chinese courts under Chinese law.
In the meantime, if you wish to read more about pursuing claims against Chinese companies, check out the following:
On another note, we are seeking to win the American Bar Association best law blog award for the fourth straight year in our category and to do that we need your vote. To vote for us, please register here: http://lnkd.in/v_CzG3 and then vote for China Law Blog here: http://lnkd.in/iE4M5E. ?Anyone can register and vote. ?THANKS!
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I hate blog contests. Hate 'em, hate 'em, hate 'em. They are just popularity contests for the well-established blogs, and as such, they inherently favor blogs on more mainstream topics. A China law blog ought to be able to beat a Palau law blog every time, regardless of any quality differential.?
So for years, we have made absolutely no effort to get in on any blog competitions nor once chosen, have we made any effort to prevail. In fact, our standard operating procedure is to ask the blog contests to remove our name. You should either like us or not; our popularity with others should be irrelevant.?
Having said all this, I freely admit to being a hypocrite in that there is one blog competition in which we keep competing and that is the ABA (American Bar Association) Journal competition. I guess my excuse is that it is so prestigious among lawyers that I went along with it the first year and then when we won in our category, it became addictive. We have been in that competition for all three years and we have won in our category all three years.?
I was planning to ignore it this year and with less than two weeks left in the competition, we have made absolutely no mention of it anywhere. But now I just can't take it any more. The thought of anyone else winning this competition is really bugging me and so I have decided to make a late effort to try to win it. Four years would be so nice.
And for that we really really need your help. ?
So if you have enjoyed this blog please go here and register and then go here and vote for China Law Blog. You do NOT need to be a member of the American Bar Association to register, nor do you need to be a lawyer.
Thanks much.
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Had an interesting lunchtime discussion the other day with two very dynamic international entrepreneurs on global prejudices. Both told me of how they "take advantage" of it. These two take advantage of it by hiring women, the disabled, and ethnic minorities in countries where other businesses are either reluctant or refuse to hire these people. And let's face it, these prejudices exist, at least to some degree, in every country.
One guy told me of how his small factory in Russia had hired one physically disabled person and of how that person ended up recommending a whole slew of his disabled friends and of how in fairly short order, 22 of his 40 employees were physically disabled. This guy then bragged of how he was able to cherry pick the cream of the crop from the disabled population of this mid-sized Russian city. He paid his disabled employees the same wages as his non-disabled employees (which he said was about 10% more than the market rate) and that he was constantly looking for more. He said that he became guilty of reverse prejudice, favoring the physically disabled over those without disabilities. He said that his disabled employees missed work "way less often" than his employees without disabilities, they were far more productive when at work, and they never left. On top of this, they had much better attitudes. As he put it, by being one of the only employers in town who actively sought out the physically disabled, I was able to "arbitrage" some pretty incredible employees. ?He even said that by the time he sold this factory, a number of other companies in town had come to realize the benefits of hiring based on real performance, not on perceptions.?
The other guy talked of how he so much favors hiring women in China because they are almost always "20 percent better then men." "Look at the foreign SMEs in China," he said, "I think about 75% of them that are run by local Chinese are run by women. There's a reason for that. Chinese women know that American companies are less likely to engage in sexism than Chinese companies and so they choose to work for us. As long as Chinese companies discriminate against women, I am going to be scooping them up." He then referred me to an Economist article that backed up what he was saying about how foreign companies in China prefer women due to "sexism in China."
The Economist piece on "sexism in China" and it actually is about Korea, but what it says about Korea almost certainly holds true of China as well. The article is entitled, "Profiting from sexism:?If South Korean firms won’t make use of female talent, foreigners will" and it does back up my clients' thesis on how foreign companies are wise to take advantage of other country's prejudices. The article starts out noting how sexism in Korea creates "obvious opportunity" for those who eschew it:
Working women in South Korea earn 63% of what men do. Not all of this is the result of discrimination, but some must be. South Korean women face social pressure to quit when they have children, making it hard to stay on the career fast track. Many large companies have no women at all in senior jobs.
This creates an obvious opportunity. If female talent is undervalued, it should be plentiful and relatively cheap. Firms that hire more women should reap a competitive advantage. And indeed, there is evidence that one type of employer is doing just that.
Korea (and I believe China is the same) is the ideal place for gender arbitrage by foreign companies because the bulk of the sexism comes in the workplace, not the education system:
Jordan Siegel of Harvard Business School reports that foreign multinationals are recruiting large numbers of educated Korean women. In South Korea, lifting the proportion of a firm’s managers who are female by ten percentage points raises its return on assets by one percentage point, Mr Siegel estimates.
South Korea is the ideal environment for gender arbitrage. The workplace may be sexist, but the education system is extremely meritocratic. Lots of brainy female graduates enter the job market each year. In time their careers are eclipsed by those of men of no greater ability. This makes them poachable. Goldman Sachs, an American investment bank, has more women than men in its office in Seoul.
Only 60% of female South Korean graduates aged between 25 and 64 are in work—making educated South Korean women the most underemployed in OECD countries. That may change, however. Marriage and fertility rates have plunged. There were 10.6 marriages per 1,000 people in 1980, but only 6.2 last year. South Korean women have an average of only 1.15 children, one of the lowest rates anywhere. That has troubling implications for the country, but should help women in the workplace. Firms will have to use all the talent they can find. If they don’t, their rivals will.
I completely buy it.?
I previously wrote on sexism in China in a post entitled, Sexism China Style. Not A Good Thing.?
When I first read this post over at the Josh in China blog (why are there so many Joshs in China, anyway?), I smiled. But then I frowned. Okay, I didn't really frown, but I'm going for literary effect here.?
The post is entitled, "Interesting Cultural Differences" and it astutely (albeit reflexively) notes how the women at Chinese toll booths are uniformly "extremely good looking girls." When Josh discussed this observation of his with a cab driver, the cabbie responded by saying, "Of course! These are the people welcoming you into the city. They have to be beautiful!" Josh then tells us that the pay for these jobs is "three or four times that of a typical retail job." Probably better job security and benefits too.?
Now at first this seems harmless, but it really isn't. Now before anyone calls me a prude or anything, trust me I am not. But I also have two daughters and I would never want them either to be hired or not hired for any job based on their looks. Now I also know full well that nearly all of us have our own prejudices when it comes to looks and there is no way those can be fully excised when hiring, but blatant sexism is a bad thing and that is exactly what we have here. With any sexism on the up side (truly no pun intended) in terms of hiring means there has to be a concomitant sexism on the downside. For every attractive woman hired for this job, there is one less attractive woman who missed out on it.?
If I had to rate China on a sexism scale among the countries I know best, it actually does fairly well. It is not as good as the United States, but it is considerably better than Korea and better than Japan as well. I would say it is about the same as Russia. My sense is that pretty women in China are favored more in employment than in the United States, but that women who do their jobs well (no matter what their looks) are taken seriously. I am basing nearly all this analysis on observations in law firms and on conversations with female lawyers so it is about as far from scientific as one can get.
So what about sexism in China? How does it compare to other countries? Is it confined only to certain industries? Is it getting better? ?I have to say that I have seen virtually none of it in the Chinese law firms with which I have worked, but I hear it is rampant in other industries and, of course, my interactions with Chinese law firms has not been enough for me to really know. ?So really, what is going on with sexism in China?
Please speak up. ?
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A week or so ago, Jason Patent wrote a three part series on incorporating knowledge of Chinese culture to better your business in and with China. I asked Jason to write these posts after having listening to?Jason give the best talk I have ever seen/heard on the cultural differences between China and the United States as those differences relate to business. Jason's first post was entitled (by me), "China Business. It Helps To Know The Culture," his second post was entitled (again by me), "China Business. It Helps To Know The Culture. Part II. Dealing With The Ethical Gray Zone," and his third post was entitled (yes, by me), "China Business. It Helps To Know The Culture. Part III. Stereotypes As Excess Baggage."
All three posts generated a substantial number of excellent comments, both pro and con. Many of the comments raised issues to which I thought it would be helpful for Jason to respond. So I asked Jason to write another post addressing the comments and he graciously agreed to do so and here it is.
Audiences are often polarized by the claims I make about differences between Chinese and Western mindsets. It's been no different here, in the comments left on my three guest posts. Most everyone falls into one of two camps: "This is great," or "This is bunk." The "bunk" camp has roughly four critiques, which I'll address here.?
Critique #1: (a) This abstract mindset stuff can't possibly account for the dirty details of everyday business — (b) which makes it useless.?
On (1a), absolutely. Mindset is one piece of a huge set of puzzles and challenges that have to be addressed in running a successful business anywhere in the world. Three brief blog posts are simply by necessity going to be somewhat abstract and vague. (And woe to the company that hires a consultant to write blog posts and do nothing else!) Any serious consulting engagement has to go way beyond mindset and into the organizational and operational nitty-gritty that real businesspeople face every day.?
As for (1b), for the best chance at success you need both the abstract and the specific. To the extent that the day-to-day work of running a company can be informed by high-level principles like mindset, it is likely to be more effective. Unless one thinks the findings themselves are inaccurate, which is a separate conversation.
Critique #2: (a) Current political and social circumstances can explain all the relevant mindset differences. (b) Societies change over time (a form of evidence for (2a)).
I can't do justice here to the volumes of statistically validated social science research that demonstrate the surprising stability of mindsets over time. For cultural issues generally, I'll refer you to the work of Geert Hofstede and his team. For U.S. and China, pick up any of the 19th-Century works by U.S. missionaries in China (my favorite is Smith's Chinese Characteristics. Or, better yet, read Lin Yutang's 1935 classic My Country and My People, and see how well it's held up over time.
Critique #3: Stereotypes may have some business use.
There's a terminological distinction in the field of intercultural communication between stereotyping and generalizing. Generalizing is the act of making statements about a group of people, realizing that there is variation within any population. Stereotyping is taking a perceived characteristic of an individual and claiming, on the basis of this, that all people "like this person" share this characteristic (and probably other negative characteristics too). I simply don't see the business value in this latter act. Generalizing, yes; stereotyping, no.
Critique #4: Don't be too easy on the Chinese: they could in fact be out to mess you up.
True. No businessperson should act without a duly critical stance toward people with possibly competing interests. What I find disheartening is the certainty with which Westerners often attribute certain behaviors to this or that "Chinese characteristic," which then often leads to broader, more negative generalizations, and ultimately to an unproductive, and ill-deserved, distrust.
There is no one best window through which to view the Chinese, or anyone. But the more possible windows we allow ourselves, the richer our set of cognitive tools for solving complex problems — intercultural and other.
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Twice this week I got calls from companies who were seeking my law firm's assistance in getting their molds back from their former Chinese manufacturers and in both cases I had to tell them I did not think it worth their while to pursue their claims. My firm has been called about a dozen time on such matters and we have declined all but two of these. ?The two we took on we were able to successfully resolve within a week.?
In all of these cases, the U.S. or foreign company has called us because they have ceased to use a particular Chinese manufacturer and now that manufacturer is refusing to turn over the molds or tooling that the U.S. or foreign company had supplied to them. The molding/tooling have typically ranged in value from $20,000 to $100,000.
There is one massive difference between those mold/tooling cases we take and resolve and those that we decline. We take on those where the foreign company has a contract with the Chinese manufacturer that makes clear that the foreign company (not the Chinese manufacturer) owns the molds/tooling and we decline the rest. ?We decline the rest because the value of the molds/tooling usually does not warrant having to sue to try to get them back, particularly when the chances of prevailing are probably less than 50-50. ?
If you do not take the right steps with your Chinese Original Equipment Manufacturer (OEM)before you ship over your mold or tooling, it is nearly certain you will never get them back. As soon as something goes wrong between you and your Chinese OEM manufacturer, the OEM manufacturer typically will use your mold or tooling for ransom. It is the very rare OEM relationship that lasts forever and if you do not take steps to protect your mold/tooling, it will be the even rarer relationship where your Chinese OEM company does not end up with either your mold/tooling or at least with your having to expend considerable funds securing their return.?
So what are the right steps?
First, get your Chinese OEM manufacturer to agree in writing that the mold or tooling belongs to you. Make this clear and do it in Chinese. Second, if possible, get a deposit for your mold, which deposit you will return when the mold is returned to you. Third, and this becomes particularly important if you do not get a deposit (and you almost certainly will not), put in a liquidated damages provision that applies if your mold is not returned when specified.
Taking these steps will not guarantee that you will see the return of your mold/tooling, but failing to take these steps virtually guarantees that you will not.
If you want to read more on Original Equipment Manufacturing (OEM) Agreements and on what they should be comprised, check out the following:
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This is the third and final part of a three part series of posts by Jason Patent, a China market access consultant with years of on the ground experience and all sorts of degrees from top schools (including a Ph.D from Berkeley) that qualify him to discuss how Chinese culture is likely to impact your doing business with China. Jason's first post is here?and his second is here.
Here is his third:
Human beings stereotype. It's part of our wiring. There's no getting around it.
In China you will be dealing with your own stereotypes of Chinese people. You could either pretend they're not there and have them sink your business, or you can acknowledge them and re-frame them into more positive ways of thinking. It's up to you.
Here are 9 common stereotypes you're likely to have in whole or in part, and ways to re-frame them:
1. The Chinese are out to cheat me.
China has been through a lot of tough history, over thousands of years and even up to very recent times. Chinese people have had to make tough choices in a world of scarcity. This mentality has been passed down through the generations. No Chinese does anything a Westerner wouldn't do if fighting for survival.
The upshot: Cross your T’s and dot your I’s. Be prudent, not paranoid.
2. The Chinese think they're superior.
The Chinese are legitimately proud of their amazing cultural accomplishments. Think of the food, the monuments, the language, and on and on. Chinese give respect where it's due: to Westerners for their advanced technology and social institutions, and to themselves for what they've done.
The upshot: Allow yourself to admire what there is to admire, while keeping your cool.
3. The Chinese lie.?
People from every culture lie. What Westerners call “lying” in China is often just a more subtle form of communication than we're used to. China is what's known as a “high context” culture: information is assumed to be in the background — the context. The more you learn about the assumed context, the better you'll get at seeing the meaning behind the words.
The upshot: Get trained on Chinese communication style. Learn as much as you can about the Chinese mindset, so that you know what background assumptions people bring to the conversation.
4. The Chinese go back on their word.
Shaped for millennia by a fickle, resource-poor environment rife with natural disasters, the Chinese see the world as constantly in flux. Circumstances change, and it's foolish to set a plan in stone now for an imagined future, when it might not be a fit for the actual future. It's best to remain adaptable and flexible.
The upshot: Be ready for your counterparts to ask for changes to contracts. Understand that in China the contract is often seen as the beginning of a relationship, not a fixed definition of reality.
5. The Chinese are always stalling for time.?
Like any business counterpart anywhere in the world, the Chinese have strategies for getting what they want. A common one is to use home court to their advantage. It's easier on the Chinese if things take longer than it is on you.
Upshot: Be ready and set reasonable expectations that things probably aren't going to happen quickly.
6. The Chinese are stingy.?
The Chinese are thrifty. Again, over millennia the Chinese have often had to scrape together meager livings out of a hostile, overcrowded environment. Every resource is precious, and could disappear at a moment's notice if not carefully guarded.
The upshot: Negotiation is not viewed as a win–win proposition. Be thrifty with your resources too, and meet the Chinese on their own zero-sum terms.
7. The Chinese don't care about quality.?
Everyone cares about quality. But when it comes to priorities, sometimes it's more important to the Chinese to save some resources than to make something that fits Westerners' high standards. See above about precious resources.
The upshot: Be fastidious and unrelenting in your QC. Get feet on the street and keep them there.
8. The Chinese don't care about their environment.?
The world of the average Chinese person is relatively small. People are focused — narrowly, from a prosperous Western perspective — on day-to-day concerns like having enough to eat and a roof over their heads. It might be nice to have a cleaner environment, but for many Chinese that's a luxury.
The upshot: Instead of complaining about the awful air, imagine what it would be like if you didn’t get to leave it in a week or two.
9. The Chinese hate Westerners.
In fact Westerners are much admired in China. What Westerners perceive as “hatred” is usually more a vague sense of suspicion. Like everything else, this results from the thought habits of the past, especially the past century and a half, which saw Westerners exploit and mistreat China. All this means is that you have to earn their trust.
The upshot: Behave in a way that is worthy of trust, and trust will come. With time.
Categories can be useful. Reasoned, informed judgment can be useful. Stereotypes have zero business value. Get savvy about your own stereotypes and re-frame them. Not only will you feel better and get along better, but your business will do better.
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We started a China Law Blog Group on Linkedin with the plan of making it a spam-free source for China networking, information and discussion. That group has been active for nearly a year now and I am proud to say we have succeeded. ?
Let's look at the numbers.
We have 2195 members, which is way more than any other China law related group on Linkedin.?
We have had approximately 160 discussions, generated by more than 100 members.?
We have of late been averaging about one new job posting a day. ?
Most importantly, we have had some absolutely terrific discussions both based on the numbers (a number of the discussions have received around 100 comments) and, more importantly, on the quality of the comments. Our discussions have ranged from practical (such as, how do I open a China bank account or what are the best practices for a China Joint Venture) to deep think (such as, what impact does U.S. politicians' demonizing China have on how America views China?).?
But I am most proud of how (at least as far as I know) no spam item has yet lasted on the site for anything approaching 24 hours.?
If you want to learn more about China law or business, if you want to discuss China law or business, or if you want to network with others doing China law or business, I suggest you check out our China Law Blog Group on Linkedin and join up. The more people in our group, the better the discussions.
So what are you waiting for??Click here and join us.
?
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This is the third and final part of a three part series of posts by Jason Patent, a China market access consultant with years of on the ground experience and all sorts of degrees from top schools (including a Ph.D from Berkeley) that qualify him to discuss how Chinese culture is likely to impact your doing business with China. Jason's first post is here?and his second is here.
Here is his third:
Human beings stereotype. It's part of our wiring. There's no getting around it.
In China you will be dealing with your own stereotypes of Chinese people. You could either pretend they're not there and have them sink your business, or you can acknowledge them and re-frame them into more positive ways of thinking. It's up to you.
Here are 9 common stereotypes you're likely to have in whole or in part, and ways to re-frame them:
1. The Chinese are out to cheat me.
China has been through a lot of tough history, over thousands of years and even up to very recent times. Chinese people have had to make tough choices in a world of scarcity. This mentality has been passed down through the generations. No Chinese does anything a Westerner wouldn't do if fighting for survival.
The upshot: Cross your T’s and dot your I’s. Be prudent, not paranoid.
2. The Chinese think they're superior.
The Chinese are legitimately proud of their amazing cultural accomplishments. Think of the food, the monuments, the language, and on and on. Chinese give respect where it's due: to Westerners for their advanced technology and social institutions, and to themselves for what they've done.
The upshot: Allow yourself to admire what there is to admire, while keeping your cool.
3. The Chinese lie.?
People from every culture lie. What Westerners call “lying” in China is often just a more subtle form of communication than we're used to. China is what's known as a “high context” culture: information is assumed to be in the background — the context. The more you learn about the assumed context, the better you'll get at seeing the meaning behind the words.
The upshot: Get trained on Chinese communication style. Learn as much as you can about the Chinese mindset, so that you know what background assumptions people bring to the conversation.
4. The Chinese go back on their word.
Shaped for millennia by a fickle, resource-poor environment rife with natural disasters, the Chinese see the world as constantly in flux. Circumstances change, and it's foolish to set a plan in stone now for an imagined future, when it might not be a fit for the actual future. It's best to remain adaptable and flexible.
The upshot: Be ready for your counterparts to ask for changes to contracts. Understand that in China the contract is often seen as the beginning of a relationship, not a fixed definition of reality.
5. The Chinese are always stalling for time.?
Like any business counterpart anywhere in the world, the Chinese have strategies for getting what they want. A common one is to use home court to their advantage. It's easier on the Chinese if things take longer than it is on you.
Upshot: Be ready and set reasonable expectations that things probably aren't going to happen quickly.
6. The Chinese are stingy.?
The Chinese are thrifty. Again, over millennia the Chinese have often had to scrape together meager livings out of a hostile, overcrowded environment. Every resource is precious, and could disappear at a moment's notice if not carefully guarded.
The upshot: Negotiation is not viewed as a win–win proposition. Be thrifty with your resources too, and meet the Chinese on their own zero-sum terms.
7. The Chinese don't care about quality.?
Everyone cares about quality. But when it comes to priorities, sometimes it's more important to the Chinese to save some resources than to make something that fits Westerners' high standards. See above about precious resources.
The upshot: Be fastidious and unrelenting in your QC. Get feet on the street and keep them there.
8. The Chinese don't care about their environment.?
The world of the average Chinese person is relatively small. People are focused — narrowly, from a prosperous Western perspective — on day-to-day concerns like having enough to eat and a roof over their heads. It might be nice to have a cleaner environment, but for many Chinese that's a luxury.
The upshot: Instead of complaining about the awful air, imagine what it would be like if you didn’t get to leave it in a week or two.
9. The Chinese hate Westerners.
In fact Westerners are much admired in China. What Westerners perceive as “hatred” is usually more a vague sense of suspicion. Like everything else, this results from the thought habits of the past, especially the past century and a half, which saw Westerners exploit and mistreat China. All this means is that you have to earn their trust.
The upshot: Behave in a way that is worthy of trust, and trust will come. With time.
Categories can be useful. Reasoned, informed judgment can be useful. Stereotypes have zero business value. Get savvy about your own stereotypes and re-frame them. Not only will you feel better and get along better, but your business will do better.
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We started a China Law Blog Group on Linkedin with the plan of making it a spam-free source for China networking, information and discussion. That group has been active for nearly a year now and I am proud to say we have succeeded. ?
Let's look at the numbers.
We have 2162 members, which is way more than any other China law related group on Linkedin.?
We have had approximately 160 discussions, generated by more than 100 members.?
We have of late been averaging about one new job posting a day. ?
Most importantly, we have had some absolutely terrific discussions both based on the numbers (a number of the discussions have received around 100 comments) and, more importantly, on the quality of the comments. Our discussions have ranged from practical (such as, how do I open a China bank account or what are the best practices for a China Joint Venture) to deep think (such as, what impact does U.S. politicians' demonizing China have on how America views China?).?
But I am most proud of how (at least as far as I know) no spam item has yet lasted on the site for anything approaching 24 hours.?
If you want to learn more about China law or business, if you want to discuss China law or business, or if you want to network with others doing China law or business, I suggest you check out our China Law Blog Group on Linkedin and join up. The more people in our group, the better the discussions.
So what are you waiting for??Click here and join us.
?
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A few months ago I spoke at a seminar out East at which?Jason Patent also spoke. Jason gave the single best talk I have ever seen/heard on the cultural differences between China and the United States as those differences relate to business. Based on that, I asked him to write some guest posts on China's business culture and this is the first in what will be a three part series.
Jason is currently Vice President, Communications & Marketing for Orchestrall, Inc., a China- focused market access firm with its U.S. offices in Philadelphia and offices throughout China (Hong Kong, Beijing, Shanghai, Suzhou, Dalian, and Xi'an to be exact). Jason has over two decades of experience with China, including over seven years living in China and he is fluent in Chinese. Much of what Jason does today for Orchestrall involves helping foreign companies in China improve their China marketing and communications. Jason has a Ph.D in Linguistics from Berkeley, an M.A. in East Asian Studies from Stanford, and an A.B. in East Asian Studies from Harvard.?Bottom line though is that he really really knows his stuff. ?
So without further ado, here is Jason's first post:
Imagine for a moment that you’re going to set up a lemonade stand in Midtown Manhattan one hot Saturday afternoon. You know it’s going to be a tough sell, because New Yorkers are tough customers, and you have a lot of competition. So you want to take every step you can to ensure success.?
Question: Would you neglect to bring, say, cups? Or a table? Or a pitcher? Of course not.
Why, then, do so many Western companies send their people to China without proper training in the Chinese mindset? Business is unpredictable wherever you go. Companies spend countless dollars on ROI studies and risk management, just for a vague sense of certainty. Yet one enormous risk factor, and threat to ROI, is staring them in the face: the possibility of investing precious dollars and hours in sending people to China unprepared to deal with the day-to-day muck of living and working in China.
In a recent report on failed expat assignments in China, executive coach Ed Britton wrote: “Western culture notices things if they are easy to see and measure. The effects of culture don’t translate easily to accounting records. But, start counting the number of expatriates who don’t complete their stay, and that number will go straight to the bottom line.”
One such example came to me through some colleagues with years of experience in China. They once came across an American executive whose entire, carefully planned, hard-fought-for China venture came crashing down for lack of mindset preparation.
The executive was an American businessman trying to hawk his wares in Southwest China. It was a major venture, and he felt prepared. After all, his firm had grabbed major contracts throughout the U.S. and Europe, and he was no neophyte when it came to doing the research, wrangling local support, and doing what he had to in order to succeed.
Investing significant resources in connecting with the right people, he managed to secure a personal meeting with the Governor and Vice Governor of one of the provinces in the region — no small feat. But he blew it. Despite all his business savvy and preparation, in one meeting — one meeting — he sent his China prospects down the tubes.
Here’s what happened. A take-charge guy, this American businessman knew what he wanted and never hesitated to share his thoughts with subordinates and colleagues. His direct style had been a major factor in his success. But in China it was disastrous. He began the meeting with the Governor and Vice Governor as if he were running it. After all, he had set it up; it was his show. They were there to hear what he had to say. Right? Wrong. Strike one.
Not long into the meeting, the businessman expressed some concerns about some problems he had encountered working with the provincial government. The Governor sought to reassure him, using a common Chinese term, fàngxīn, which in this context translates best as “don’t be worried.” Unfortunately, the interpreter used a different translation, appropriate to other contexts, but not to this one: “Take it easy.” Which might as well have been, “Relax, buddy, there’s no problem here.” One small misunderstanding led to another; tension increased. Strike two.
Feeling threatened and unsure of the situation, the businessman did what came naturally to him as an American: he dug in his heels. He restated his concerns with more vigor, laying the blame at his counterparts’ doorstep. The Governor, in turn, handled a clearly upset person the only way he knew how. Laughing nervously and trying to reassure the man, he used the same phrase he’d used before: “Don’t be worried.” But the American didn’t get it. Strike three.
The result? Inevitable, and predictable. A year’s worth of investment, preparation and research down the drain. His venture went nowhere.
This businessman was no Pollyanna. He was savvy enough to know the value of meeting with well-placed government officials, and to make the meeting happen. That’s already further along than 99 in 100 Western businesspeople in China. Yet it wasn’t enough.
What makes this story even more painful is how predictable the entire affair was to anyone with on-the-ground experience in China. It would have taken a minimal investment of time and money for this executive to be properly prepared.
Sadder still, stories like this play out every day in China. So very many opportunities are missed, and so very much time and money are wasted — and all for something completely predictable and avoidable.
Business is not just business, despite our American insistence to the contrary. The only way to succeed in China is with the curiosity to examine our own beliefs and practices, and the humility to see other ways of doing things as equally valid. And the good sense to spend a bit of time and money now to save, and make, much more down the line.
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As China wages and costs continue to rise, many of my firm's clients in low-skill industries are beginning to talk about moving out, either entirely or partially. The big discussion is to where.
When asked for my opinion (as I was by an Israeli textile company today), I virtually always suggest Viet Nam. I let them know that I have a bias towards Viet Nam because my firm has done considerable business with that country and it is one of my favorite places to visit in the world. But then I tell them that the same reasons I like going there are good reasons to have a factory there. In multiple surveys, Vietnam comes in first on business optimism and I just plain like a country where the overwhelming majority of its citizens believe tomorrow will be better than today.
I contrast that with many of the countries with which Vietnam is seen to compete and I say that if I were to be building a factory right now, I would be focusing more on where the country is going to be in 3-5 years than on where I can save $50 per worker per month. I also think it good to locate in a country where you can bring in your regular managers without having to pay extra for combat duty.?
Global Sources just did an article saying pretty much the same thing:
Beset by rising costs, the labor shortage and policies discouraging low-value industries, China's export manufacturers are setting up production lines in Southeast Asia. But relocation has its disadvantages.
An increasing number of China companies are constructing factories overseas, mostly in Vietnam and Indonesia, to take advantage of lower costs and more favorable trade policies there. Although the exact number of factories that have established offshore factories is not available, many enterprises manufacturing household appliances, automobiles, TV sets, footwear, textiles and apparel have made the move in recent years.
According to the article, monthly salaries in Vietnam are about "three-fifths of those in China" and "an assembly-line worker in Vietnam earns roughly $101 per month, 53 percent lower than in China." Electricity costs in Vietnam are also "40 percent lower than in China."
The article then quotes me on how China's less than welcoming attitude of late towards low-skill/high pollution industry is also causing foreign companies to give Vietnam a really close look:?
The push to relocate does not only come from the pressure to keep costs low and avoid trade sanctions, but also from Beijing itself. The national government is encouraging suppliers to expand their business overseas, particularly those engaged in low-value manufacture, and highly polluting and energy-consuming industries.
"China's government has been very clear on this," said Dan Harris, lawyer and writer of the China Law Blog. "It wants to see China moving up from low-end, high-pollution products and it has instituted policy after policy to help bring this about. And slowly but surely it is working. It is definitely much tougher now than it was five years ago to get approval to go into China with a low-end, high-pollution factory. It is also considerably more expensive to have such a factory in China today than it was five years ago. The tax subsidies are gone. Wages are up. Many of these sorts of companies are looking elsewhere."
I am going to be making yet another trip to Vietnam (both Saigon and Hanoi this time) before the end of this year and if anyone would like to meet me there, please press the contact tab above and let me know and I will do my utmost to schedule it.?
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Like every lawyer in the Western World, I love reading Above the Law for its salacious gossip. My favorite item was many years ago when they posted on the (completely untrue) rumor that my law firm was in merger talks with Baker & McKenzie. It is not the site on which one expects to see a really top-notch article on international litigation.
But there it was,?"Inside Straight, Overseeing International Litigation, by Mark Herrmann, an in-house lawyer with AON and author of?The Curmudgeon's Guide to Practicing Law. ?Hermann has learned international litigation by virtue of being "ultimately responsible for all litigation filed against my company anywhere in the world." Hermann gives an excellent primer on the questions to pose to "outside counsel overseas:"?
These are all good questions and here are a few more that I typically ask when I am overseeing international litigation:
Any more?
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Nearly every time I write on this topic, I get at least one email from someone accusing me of fear mongering. I used to dispute that accusation, now I heartily embrace it. I embrace it because the overwhelming majority of foreign companies doing business in China make no allowance even for the possibility of one of their people going to jail or being held hostage.?
For previous posts on this subject, please check out the following:
Ignoring this possibility is a mistake.
I know this because my small law firm has been involved in at least a half a dozen incidents where someone held on "bizarre" charges. We have also been called countless additional times when people have been arrested for less bizarre things like fraud, theft, etc. ?
Two things have converged to make me want to write on this topic today. The first was that I am in the midst of taking Typhoid pills for upcoming foreign travel. I need to take four of them every other day, at proscribed times, and they need to be kept refrigerated. This has not been that easy because I have been travelling like a mad man of late and I don't feel like carrying a refrigerator with me. So I keep thinking about stopping the regimen, but I haven't and I am sure I won't. It just makes sense for me to plan in advance to protect my health on my trip.
I have been going to the same travel medicine physician for years and every time I go, she engages in the same routine. She pulls out a map and we discuss every single place I will be going and we talk about what sorts of things I will be doing while there. She now knows I am a pretty low risk guy because my travel life basically consists of my staying in nice hotels and eating good food and engaging in business meetings and very very little else. Yet, every time I try to bag off on some shot or some horrible pill, she will tell me about how someone she knew got in a car accident requiring a blood transfusion.... Invariably, I end up taking every shot and pill on offer. Does she know too much and I too little?
I guess I am the lawyer to her being the doctor.?
The other thing is the recent arrest of yet another Chinese-Australian on criminal charges. Now before I go any further in talking about this particular case, let me stress two things. One, I know absolutely nothing about this case other than what I have read about it on the internet. Two, I have no idea whether the person involved is guilty or not and I have no idea whether he was arrested based on legitimate evidence of guilt or if he is being railroaded for business reasons, as his people are claiming. I do know, however, that these sort of cases go on all the time (usually on a much lower level and with much less publicity) and they scare the hell out of me.
The cases my firm has handled typically involve a foreign company owing money or a foreign company getting into the cross-hairs of someone. Then, the police start holding someone from the foreign company. We typically handle these situations by negotiating the amount of the debt and/or the fine and advising our client to get the arrested person out of China post-haste and, in many cases, to think long and hard about the company remaining on in China as well.
The second thing causing me to write on this topic today is an article John Garnaut (someone who has consistently done a good job of covering China) article in Australia's Business Day, entitled "China's Straight Shooters." ?This article posits that the threat of criminal prosecution is always there for those doing business in China and things are only getting worse:
Law, politics and corruption are tangled so tightly together in China that it is impossible to invest faith in any given legal outcome. Criminal proceedings are commonly used as leverage in commercial disputes.
This is a growing problem for foreign businesses and especially their ethnic Chinese executives, such as Australian Matthew Ng, who has been arrested for ‘‘embezzlement’’ in Guangzhou in the context of a dispute with a locally powerful state-owned firm. If he is convicted, then that fact alone will not be enough to convince many observers that he is guilty.
The Chinese legal system can be a tool of unexpected tragedy to foreign business people, but it is an everyday migraine for home-grown entrepreneurs. There are so many laws and regulations in China it is almost impossible to avoid bending some of them.
These rules are designed to be sufficiently ambiguous to place huge administrative discretion in the hands of officials.
They can be bent at a price or avoided at some risk. And that’s where entrepreneurs are expected to discreetly bribe their way to opportunities and insurance in case things go wrong.
And you think I am a fear monger? ?Yet, I find myself agreeing with Garnaut on how it is hugely difficult for even the most law abiding company to remain in full compliance and, worst of all, the penalties for non-compliance are all over the map. ?Just this morning, a company asked me whether it should reveal to investors what it has already done in China when there is a chance that what it has already done in China should not have been done without first forming a Chinese WFOE. My response was essentially that the risk of China ever finding out is probably very low and the risk of China doing anything if it did find out is probably very low too, but that if China should find out it might do anything ranging from imposing some taxes and penalties to never letting that company and its people do anything in China again. It is just this sort of range of punishments that can be so effective at keeping everyone constantly on their toes and forever beholden to the powers that be.
Is criminal prosecution always lurking in China? Have things only gotten worse? I answer a weak "no" to both those questions, but I do hope my even asking them has scared at least a few of you. Oh, and for those who think you have nothing to worry about because you never do anything wrong, let me tell you that I have seen enough legal car accidents to know that you are wrong to think that way. ?
What do you think?
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Last month, a young teacher in Anhui Province lost an AIDS discrimination case stemming from being rejected for a teaching position after testing HIV-positive. Though this case drew wide condemnation from human rights groups, as ?lawyer, I have been taking more of a wait-and-see attitude.?
Stan Abrams of China Hearsay, in a post entitled, "About that HIV Discrimination Case, Let’s Be Patient," beautifully explains why patience is in order on this case:
A lot of folks, including me, are very disappointed by this ruling. However, let’s keep a couple things in mind.?
First, the case involved a conflict between two different laws. One is a set of health standards for public servants. The other is a national law that addresses discrimination of individuals with certain diseases.
So we had a disagreement between two different laws. The judge in this action went with the public service standard instead of the discrimination rules.
This is going to be bumped up to the next level. The court of first instance was a district court (the lowest level in China’s judicial system), so getting some clarification from higher up is probably just as well anyway.
Second, remember that just getting this case heard was a huge step. This was the point I made earlier this year:
This is positive news in most respects. The standard operating procedure for Chinese courts up until now is to dismiss these discrimination cases, including HIV. We’ve seen some very positive trends with sexual harassment over the past few years, and now perhaps HIV cases will begin to be accepted by judges. The Central Government has, via legal reform in 2006, made their intentions clear that such cases should be taken seriously.
By hearing the case, the issue was indeed taken seriously. Now we’ll see what we get out of an appellate hearing. The law in question only dates back to 2006, and this has been touted as the first case of its kind. Even if the appellate court affirms the district court’s ruling, progress is being made here.
I am going to add a third reason for patience: Anhui Province is not Shanghai or Beijing, or even Qingdao or Tianjin.?
China Real Time Report, in a post out today entitled, "Report Bolsters China Action on HIV/AIDS," noting a just released report from the "Chinese Center for Disease Control and Prevention on the need for China to tackle HIV/AIDS-related job discrimination." The report calls for ending mandatory HIV employment related testing:?
According to a summary from Xinhua (the full report has yet to be released), the CCDC collected multiple examples of institutionalized discrimination against people living with HIV/AIDS in places ranging from government offices to bars and beauty parlor, ultimately concluding that mandatory HIV testing of workers in the country should stop.
The Chinese government has taken steps to improve treatment and prevention of HIV/AIDS patients in recent years, including offering free antiretroviral drugs for those who are HIV positive, but the stigma of HIV/AIDS remains a deeply entrenched problem.?
The post goes on to note how the teacher's case is on appeal and how just his bringing it constitutes progress:
If the appeal court rules against Xiao Wu, HIV-positive individuals in China run the risk of seeing more employment discrimination in the future, Mr. Li said, but the case also “proves that people are conscious of their rights and know how to use legal weapons to protect them.”“A few years ago they (HIV-positive individuals) might think they didn’t have a right to a job,” Mr. Li said. “Now they think they have a right. This is a change in China.
I predict we will see China's courts/government making clear fairly soon that AIDS discrimination in employment is prohibited.?
The earlier (way earlier) posts in this series are as follows:
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Stan Abrams over at China Hearsay just did an excellent how-to post entitled, "Pirates Beware! Gearing Up for the China IP Enforcement Lecture." The post does a great job explaining how to handle a China IP problem, though the steps it sets out would pretty much work fine for just about any legal issue needing resolution. As Stan puts it, a China IP problem is, at least from a lawyer's perspective, "just another problem to solve, and not unlike a typical foreign investment case, or a trade dispute, or a commercial transaction." ?
Stan advocates the following seven step method for dealing with a China IP problems:?
I completely agree with every item on this list and would like to expound a bit more on some of them.
What I find interesting about this list is how well Stan has broken down the various elements. Had I written it, I might very well have conflated 1-5 by describing them as figuring out what is going on, figuring out what you want to accomplish, and figuring out what you can do to achieve what you want to accomplish. Do you have a strong case and one that is worth pursuing??
The "know your enemy" step is of far greater importance than I think many people realize as that can have a tremendous impact on how you choose to proceed. When companies have learned of IP infringement, their initial reaction is usually "let's make them stop and sue the bastards for millions of dollars for what they have already done and let's let the world know that we are not a company to be messed with." And they usually say this as though these goals all fit together perfectly and can be achieved in a few months time. They don't and they can't.
If the company that "stole" your IP is a "fly by night operator" there usually is simply no point in suing that company for millions of dollars that it does not have. There oftentimes is simply no point in suing the legitimate company either, particularly where your case is marginal. If you sue the legitimate company on a marginal case, it may decide it needs to fight you really hard to show the public that it was not violating any IP laws and to show that it too is "not a company to be messed with." I have actually had shockingly good success by writing a quasi- cease and desist letter, pointing out what we believe to be the errors of the legitimate company's ways, giving them a "chance to explain," and seeking to convince them that they would be better off changing things so there can be no questions regarding their conduct. Most of the time, they write back saying that they didn't know of our company's IP, that they do not think they have engaged in any IP violation, but that they will do such and such to make sure there are no future issues.?
How do you handle such your China IP infringement matters?
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The other day we did an extremely long post on the legal issues of outsourcing. ?That post was based on an hour long speech I had just given at an International Association of Outsourcing Professionals meeting, so it was very, very long.?
Since not everyone is going to read such a long post, I figure it a good idea to put out the basics and for that, I am pulling from an old article written by co-blogger Steve Dickinson, entitled, "Outsourcing in China: Five Basics for Reducing Risk." ?Here is that article:
Many small and medium sized companies that engage in outsourcing to China fail to take the steps necessary to?protect themselves. When problems arise, they can do little or nothing to?protect themselves because they have no legal basis for protection. The fact is that in most instances outsourcing disputes must be resolved in China, under the Chinese legal system. The Chinese legal system has improved greatly over the past ten years and taking?a few basic legal steps can greatly reduce your risk. The cost of such?protection is modest compared to the protection it will provide.
The following five basic steps will greatly reduce your problems with the Chinese company you are using for your outsourcing (be that a company a manufacturer or a software coder or whatever), while improving your chances of recovering damages should any?problems arise.
1. Create and properly register your intellectual property rights in?the United States. Before you go to?China, be sure your intellectual property is protected under U.S. law.?Protect your brand identity by creating and registering your trademark,?slogan or logo with the U.S. Patent and Trademark Office. Register your?important copyrights with the U.S. Copyright Office. Carefully identify and?protect your trade secrets, proprietary information and know how. Consider filing for any appropriate patents.
2. Register your trademarks in China. Registration can protect your?future access to the Chinese market, prevent the export of counterfeit goods?from China, and prevent a competitor from registering your mark in China,?which would prohibit you from exporting your own product from China. Consider filing for any appropriate copyrights and/or patents. For more on the necessity of registering your trademarks in China, check out "China Trademarks -- Do You Feel Lucky? Do You?"
3. Use a written agreement to protect your know how and trade secrets?in China. Small and medium companies usually do not have an extensive?portfolio of patents. Their most valuable intangible assets typically are?their know-how and trade secrets, which cannot be protected by formal?registration. Chinese law, however, permits companies to contractually?protect their know how and trade secrets by contract. Such agreements may also address issues such as non-competition and confidentiality. For more on this, check out "Why Non Disclosures (NDAs) Alone Are Not Enough For China" and "Why Non Disclosures (NDAs) Alone Are Not Enough For China, Part II. At Least Make It Enforceable.'
4. Product Quality and Payment Terms. The rule here is simple. If possible, do not?make final payment to your Chinese manufacturer until you are confident you?will be getting an on time shipment of the correct items and quantities at?the quality standards you require. This usually means you must incur?inspection costs in China and provide for a clear procedure?for dealing with these problems as they arise. You must take the lead on?this. You cannot depend on the OEM manufacturer to do this for you. If you are going to pay anything upfront, you need an agreement protecting you.?
5. Use comprehensive OEM Agreements with each manufacturer. Small and?medium sized businesses often enter into OEM manufacturing transactions with?a simple purchase order. This is a mistake. The purchase order will protect?the Chinese manufacturer, not you. Your protection depends on your securing?a written OEM manufacturing agreement with each Chinese manufacturer with?which you deal. The ideal OEM agreement will address all of the issues?discussed above, while also addressing other basic legal issues such as?jurisdiction and dispute resolution. This agreement should be in both Chinese?and English, since the Chinese language version will control in China. For more on this, check out "China OEM Agreements. Ten Things To Consider," "China OEM Agreements. You Are Naked Without A Good Bill Of Materials," "China OEM Agreements. Yet Another Reason To Have One," and "OEM Agreements in China: Why Ours Are In Chinese."
What do you think?
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Apologies for the Billy Joel.
Just read an interesting, disquieting, yet not terribly surprising article on China's life expectancy. The article is entitled, "In China, Uneven Progress on Health Front," and its focus is on how?since 1990, China has had less of an increase in life expectancy than just about "every other big developing country" and even less than Bangladesh, Pakistan, South Korea and Sudan: ?
From 1990 to 2008, life expectancy in China rose 5.1 years, to 73.1, according to a World Bank compilation of United Nations data. Nearly every other big developing country, be it Brazil, Egypt, Ethiopia, India, Indonesia or Iran, had a bigger increase over that span, despite much slower economic growth. Since 2000, most of Western Europe, Australia and Israel, all of which started with higher life expectancy, have also outpaced China.
Though China has grown wealthier over the last thirty years, it has not grown healthier;?
China can sometimes look like the economy of the future, having grown stunningly fast for almost 30 years now, lifting hundreds of millions of people out of poverty. But it, too, has real problems. Above all, its growth has been uneven. The coast has benefited much more than the interior. Almost everywhere, some aspects of life have improved much more than others.
Whether China can switch to a more balanced form of growth, as its leaders have vowed, will obviously have a big effect on the rest of the global economy. Yet it’s worth remembering that the biggest impact will be on the one-sixth of the world’s population who live in China. And arguably the best example is the fact that the country has grown vastly wealthier but only modestly healthier.
Though "many more people in China today "have acquired indoor plumbing, heating, air-conditioning or other basics. Other aspects of the boom, however, have pushed in the opposite direction":?
As in the Industrial Revolution, many people have left the countryside and poured into crowded cities. Accidents have become common, like the Shanghai fire last week or a series of workplace tragedies in recent months. Obesity is rising. Pollution is terrible.
I recently spent some time in China, and despite everything I’d heard in advance about the pollution, I was still taken aback. The tops of skyscrapers in Beijing can be hard to see from the street. Breathing the smog can feel like having a permanent low-grade sinus infection. For the Chinese, cancer has displaced strokes as the leading cause of death, partly because of pollution, notes Yang Lu of the Keck School of Medicine at the University of Southern California.
Every month or so I speak with someone who lived in China for many years and loved it, but left when their kid was born because they worried about the impact pollution would have on their kid's health. I also not infrequently speak with clients whose top people in China are insisting they be transferred back to the United States or to Europe because they are suffering health problems from the pollution.
According to the United Nations, life expectancy in China is behind that of Sri Lanka, Tunisia, and Uruguay, among others, and it is currently five years behind that of the United States. Will China ever catch up with the United States on this? ?What do you think??
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