More Big Problems From Little Ones-The Story Continues

To begin, please know that the examples given here, and in the previous article on this blog entitled "How to Make Big Problems Out of Little Ones," are real events that have taken place very recently.

The story continues-

The trim for a large order in China, made for a huge customer in US, is delivered to factory in China. The players: The company’s Hong Kong office, the Hong Kong-based manufacturer of the trims, and the factory itself. About two weeks later, when packing is started, it is discovered that some portion of the trims are defective. Now, the factory needs to go through all the trims and make sure to cull out the defective ones. It is unknown how many are defective and if there will be enough good ones to complete packing.

How could this have been avoided?

1.     The factory should have checked the trims when received, not when packing is started.

2.     The company’s Hong Kong office, who ordered the trims, should have checked by, say, having a random carton shipped to their office.

3.     The factory that produced the trims should have their own QC to check before shipping.

Three chances to check and none taken. If even one of three was done, the chances of the current problem could have been minimized or even avoided.

Another example is that of printed ties which are found at the final inspection (by the customer) to have some prints out of registration. Think about that…if someone checked the printed fabric carefully, either at the printer or the tie factory when received, the cost of this problem would have been greatly minimized as opposed to discovering it when the ties are manufactured and packed.

So again, a small problem or one for which damage control could have been done earlier, becomes a big problem. Why does this happen and how could it be avoided?

1.     The obvious is that factories and suppliers, while constantly under pressure for delivery, must take the time to do proper quality control, or it will cost them more time later.

2.     Factories must institute a process by process quality control to prevent small problems from becoming big ones later. For example, a socks factory is found to have some items which must be rejected at final inspection, after having been finished and packed, due to knitting problems. Think about how much money is thrown away by spending all the labour cost to put a product which is defective at the first process through the rest of the processes; worse, what will be the cost of replacing the parts and labor of the defective ones?

3.     In the apparel industry, there is a bad paradigm for quality control. It is called AQL. AQL is a US military-originated system which checks final production for pass or fail based on a number sampling scheme. This just doesn’t work anymore. Process control is needed, then final inspection should be a formality.

4.     Factories in China and other countries must change their mentality and their quality standard from doing what they perceive they need to do to get an order shipped to doing the right thing.

Factories are generally very shortsighted-reluctant or unwilling to change anything that might cost them money-even if the change will actually save them money and improve their quality performance. They need their customers to convince them to embrace a new quality paradigm-process by process control. Once they see the result, they will understand.

Oh, and everybody in the supply chain must be compelled to do their job-not just the final producer.

Ethnocentrism Cuts Both Ways

A recent article in the New York Times entitled, “Trump Warns China He Is Willing to Pressure North Korea on His Own,” (July 3, 2017) made reference to the miscalculations both Xi Jinping and President Trump made regarding their discussion of the threat of North Korea when they met at Mar-A-Lago earlier this year:

“Mr. Xi, they said, miscalculated what China needed to do to satisfy Mr. Trump, thinking he could buy him off with a few highly visible measures, like banning coal purchases from the North. Mr. Trump overvalued the personal touch by betting that a few hearty handshakes with Mr. Xi would overcome China’s deep-rooted resistance to pressuring North Korea.”

When I read this, my reaction was, I have heard this story before. In the conduct of business between China and the US, this is a familiar story.  As far back as 1966, James Clavell wrote in Tai-Pan, his masterful novel about the founding of Hong Kong, about the arrogance of the Europeans who became the lords of the island, and the disdain of the Chinese about everything from the visitors’ rude manner to their smell.

This clash of cultures continues today, akin to how Clavell wrote it (except maybe not the smell part). Many American businessmen, like President Trump, think that the fact that they are Americans, Presidents or Vice Presidents (of companies), should afford them some reverence which will result in lower prices, one-sided deals, and obedience to processes (particularly compliance), all of which may be of no benefit to their Chinese counterparts. This arrogance may vary between subtle and very overt; in either case, it is clearly perceived and builds a wall between the parties, preventing the true partnership that is needed for a successful, win-win business relationship.

The Chinese, on the other hand, in addition to being put off or even offended by this arrogance, are put on their guard- another brick in the wall.  The foreigner will be classified and stereotyped as lao wai, or guailo, and their reaction to the manner and attitude of their foreign customers may simply be disdain. China is one of the oldest cultures in the world, and deserves respect for that, but, even more, in today’s China, for the unprecedented accomplishments of economic growth, infrastructure building, and just plain success that has taken place over the last 20 plus years.  Definitely a source of national pride, as it should be. So their cultural and emotional reaction is still-disdain, especially when presented with the above arrogant attitude.

That being said, Chinese are very practical. Regarding openness, they are the cultural opposite of Americans. If we look at openness as an iceberg, for Chinese it is mostly below the water. So, like Xi Jinping, the typical business owner or manager will do just what they need to do, and say what they need to say, to be sure they do not miss a business opportunity. What they won’t do, in almost every case, is something stupid that would cause them to lose money. But they will almost never say, “Look-I don’t trust you and your self-important attitude shows me you are not thinking about my business or my success, only your own.” Even Xi Jinping did not say that to President Trump, but dollars to donuts that is what he was thinking.

Can this wall be broken down? Absolutely. And it is up to we Americans who, as visitors, want to do business in China for our own benefit, to learn what to do and what not to do to build a long-term sustainable relationship or, in some cases, prevent disappointment and disaster in the short term. Embarking on a business relationship without a baseline of mutual trust will, and in many, many cases has, left room for unforeseen events and problems.

There is a lot to learn.  And a lot more than can be said in this article to actually accomplish the goal of trust and partnership. A few hints:

1.     Get over yourself. So you are President/Vice President of a big/small American company. That and $1.95 or thereabouts gets you egg roll. Your position gets you an invitation to China, and a courteous reception including some elaborate dinners, but that is it. When it comes to business success, who you are means nothing- it is what you are and what you do.

2.     Hire an expert and allow them to do their magic. Don’t let your ego convince yourself that you are an expert if you are not. There are those of us who have put years and decades into working with China and learning the business and culture who can get through the wall. How? Simply by capitalizing on our understanding of the conduct of business and business relationships, and, most important,

3.     Building Trust. I don’t care who you are and where you try to do business, without that, you have no foundation. Both sides need to believe that the most important thing is not today’s price, or the lowest price, but a mutual understanding of each partner’s requirements and metrics for success. Once you build trust for yourself as a businessperson, then you can take the next step, of

4.     Humanizing one another. If you are successful in the relationship, you and your counterpart, while not necessarily BFFs, will see each other beyond the title and the benefits you can get from each other. You will see each other as people. A good start on that road is,

5.     Shut Up and Eat the Food. If you visit someone’s home anywhere in the world, they will be very sensitive to whether you accept their food. This goes a long way toward accepting their culture, and them. I have seen too many times senior executives who make it painfully obvious that the food is either strange or disgusting to them. China is a highly food-oriented culture, and mealtimes are more than just eating food-they are a mutual bonding experience. The best way is to change your attitude and get a little food curiosity, but if you are a redneck and just can’t, then just shut up and eat.

6.     Don’t Make Promises You Can’t Keep. I have seen too many grandiose, blue-sky speeches by senior executives which fade away like the fog; in each case, this breaks down trust. Tell them your hopes and dreams, but don’t promise. That being said, understand that

7.     A Business Relationship is Quid Pro Quo- You can’t take and not give. This puts another dagger in the heart of the relationship sooner or later.

8.     Read Beijing Jeep: The Short, Unhappy Romance of American Business in China (Jim Mann, 1989). This is a journalist’s true account of a failed joint venture (you can guess who from the title) by a big company in the early years of China’s opening which still rings true today and should be required reading for anyone who hopes to do business in China, even almost 30 years later.

A constant theme in my articles refers to category experts. It applies here as well; the nature of the word “expert” is that there are not too many who can deserve that title. Whether you are President Trump or Mr. Executive, you may be many great things, but expert on China is probably not one of them. What an expert can deliver is what should be the goal of all international business interactions-trust, perfect understanding and an unambiguous result. 

A Self-Portrait in Venn Diagrams-What Is Yours?

Why I do this...

Who I am and who I hope to work with..

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Musings in Amazon World

I am probably the last one to write after Amazon’s blockbuster takeover of Whole Foods. I have no bold predictions, just a lot of thoughts and what ifs. So please forgive me if the below is not my usual tightly spun and clear logicJ

It’s not just Whole Foods making the news. Consider Walmart’s buyout of Bonobos-strange bedfellows, so what’s the logic?

And I just read that Nike has agreed to sell its shoes through Amazon. How’s that for putting more nails in the brick and mortar traditional retail coffin?

So here are my thoughts and questions:

What does Amazon really want with Whole Foods? It seems pretty sure that Whole Paycheck as we knew it is going to disappear. Will it be a showcase for Amazon products other than food? Will it be a $14billion testing ground for Amazon Go, the automated supermarket service system which has yet to be perfected? I think, no matter what Amazon does, people will still want to squeeze the melons-which will have to be bought and delivered fresh and are highly unlikely to be bought on line. AND require a different kind of category expertise.

And what happens to the traditional supermarkets? According to one writer, their fatal flaw is that they need and want to make profit, while Amazon doesn’t. If that is the case, they are going in the wrong direction, especially if you look at the hundreds of items on the weekly circular, all competing with each other for the same brand, same product, and surely losing money just to bring customers into their store to compete with other traditional supermarkets who are trying just as hard to lose money.

But voila! And nobody has really talked about this- in come some category specialists like Trader Joe’s (Aldi) that have developed their own brands to such a degree that they are trusted at higher (but fair) prices. What is more, they compete (usually well) on a product by product basis while not needing to compete brand by brand. Just like Zara and Uniqlo in the apparel world, their stores are interesting and fun (Trader Joe’s treats us to a California surfer atmosphere even down to the Hawaiian shirts) and clearly well merchandised to sell what they sell- which is not everything and is category focused. Easy to shop and easy to like. And customers trust them. How will Amazon compete with this? Or maybe no need to compete, just buy it.

Amazon is also developing private label in non-foods, and has been very successful so far. Will these items find their way into Whole Foods (or whatever it will be called in the future-ie, Amazon Market)? I am not sure even Jeff Bezos knows-it will be fun to watch. What I do know and I am sure Mr. Bezos does as well- the return on selling other people’s goods, like the Nike deal, is sure and sure to grow as more brands decide if you can’t beat ‘em, join ‘em. Which funds these bold experiments.

Let’s jump to Walmart. What could Walmart want with Bonobos? $70ish custom made shirts has as much relationship to Walmart’s business as penny candy has to Tiffany, it would seem. I believe this acquisition has nothing to do with the product-it is the unique system of integrating apparel retail with brick and mortar which is more interesting. As with other technology companies recently purchased by Walmart, this is about an integrated vision of online and offline so Walmart doesn’t lose a sale. The product or products are collateral damage.

So that is what Amazon and Walmart have in common-they are paying what they need to pay in hopes of finding the Magic Kingdom of future retail, and they can afford it.

But if I were to be offered a bet on the future, or buy stock, I would place my money on the category experts-like Uniqlo, Inditex/Zara, Trader Joe’s. They have captured the attention of customers in the best way-with exciting, unique and proprietary product. And, by the way, they all have web sites so you can order online as well. But their stores are too much fun to miss. Maybe that’s the ticket-fun..

Another question that comes to mind is, I wonder if Amazon or Walmart has the category experts in house for all the diverse private label categories they are adding. Recently, I looked at Amazon’s offering in their dress shirt brand, Buttoned Down. Admitting that to make any conclusion I really need to see the products up close and personal-which I didn’t-my viewing as a potential customer and a category expert showed up some clearly visible points of concern for a $39-49 shirt (expensive for Amazon). Maybe I am wrong about the shirts, but it gave me legitimate grounds for wonder about the management of category expertise in new areas in which Amazon seems to expand daily.

It would take some serious mathematical models, guesswork and clairvoyance to make concrete predictions for the future, of Whole Foods and the bigger world to come. Too many variables. The final vote will be cast by the consumer. As said, I bet even Jeff Bezos is not sure-nor should he be. My bet is that there is still a lot of room for brick and mortar-but not the way it used to be. The world has changed and keeps changing daily.

What is sure is this: It’s Amazon’s world, and we are just living in it.