The 3 No’s of China
Speaker: Joseph V Fabian
Case Study of the
“Failure to Understand the 2 Culture Business mindset”
Crummer School of Business
There are 3 areas in China that account for most of the
country's output; Guangdong, Shanghai & Beijing.
• Major cities are Dong Guan, Guangzhou and
• Same size at Missouri, with 15 times the population -
36 Million, most of them from Western Provinces.
• Produces 11%+ of China’s GDP
• All areas within a 4-hour drive of each other.
• Hong Kong is the busiest harbor in the world.
The primary motivation for the majority of the people of
China is survival. Unemployment is running at 4.3% -
20% depending on the area, officially 19M but reality
may be closer to 35M.
Factory workers are facing forced retirement at 50.
The Chinese can no longer depend on government
owned factories with guaranteed jobs.
Unemployment insurance for the lucky few in the ‘rich’
areas (Shanghai) is around $34 / month.
They have no guaranteed social security, welfare or
They are on their own.
The result ?
As a nation, the people are focused on survival and
money they equate it to success in whatever they do.
They had to quickly adopt an entrepreneurial spirit to
Production workers in the factories are focused on
making the best products. There are no personal
discussions during the work hours.
When there are problems, production is stopped, the
problems are resolve and documented.
• Production in the USA
always plans for
failure, shrinkage and
• Build 1,005 to meet the
order for 1,000.
• Track the failures (no
• Documentation is
haphazard due to time
• Production in China
plans for success
• Build what was
• Failure is personal,
perfection is rewarded
• Detailed documents
• The company is a 24 /
7 operation since the
employees live there.
ma yo wen ti (No Problem)
In the rush for the Chinese to please the customer and
build their business, almost any request is responded
to with ‘ma yo wen ti’ (no problem).
This plays in to the American companies’ expectations
of a ‘Can Do‘ attitude.
• Corporation needs cost benefits now - stock market
• Mandate a move of production to China
• Start production after 3 months
• Approve and start shipping after 6 months
• Chinese companies say ‘ma yo wen ti’
ma guang si (No Matter / Mind)
Once the contract was signed and started, problems
• Approved parts only available in USA
• Substitute parts are not tested or approved
• Procurement times exceeded the delivery date
• First time build at the factory, new documentation
• Purchased parts did not match drawings
• Reluctance of American middle managers to the
move operations to China slows the process.
• Ultimately the Chinese believe that all the problems
lie with them, it is their responsibility ‘ma guang si ‘
ma bann fa (No Way !)
After enormous effort by the Chinese to understand
and fix the problems and meet their commitment, they
reluctantly say, ‘ma bann fa’ and lose face.
• But the failure is reflected back to the Americans
– Unknown USA assembly techniques aka; ‘tribal knowledge’
– Defective components, poor documentation
– Unrealistic production start dates
– Poor product forecast
– Movement of tooling was not factored in timeline
– Regulatory approvals were not factored in timeline
– Shipping, duty, customs delays were not factored in costs
Thus the 3 rules of China Operations were born
Due Diligence, Due Diligence, Due Diligence
The outcome of the effort was the successful transfer
of production with reasonable cost savings.
But it can cost careers
The jobs of the Group President, VP / GM of a division,
the controller and the purchasing manager. The
resulting turmoil at the American company damaged
the development of Quanxi (relationship) between the
staff of both companies.
Advantages for American
businesses in China
• Growing university
educated middle class,
with 300M+ per YEAR.
• Broadband Internet,
satellite TV, cell phones
creates a desire for more.
• Huge demand for high
style foreign goods
available for a very
American’s trying to do
expand into China
• Dual Income families in
China spend from 10 - 25
times their annual
income on homes.
• Disposable income
cannot support imported
• The majority demand low
cost domestic products
• Almost every American has an extremely limited
view of China.
– It is a sweat shop manufacturing country
– The population is uneducated living in abject
– Everything produced in China is tainted and
– The manufacturing companies don’t care
– The country is completely repressive and the
spirit of the people have been broken
• The reverse is closer to the truth.
– Like every country, there are “sweat shops”, even in the
USA. Due diligence dictates that you visit the factory,
observe the people and if possible, observe the workers
after normal working hours.
– The majority of people are uneducated, for the last 10
years China graduated more Engineers than the entire
USA graduates in all categories, 400,000+.
– Chinese products are tainted and of poor quality. But
quality control is our responsibility and our lack of due
diligence is our fault. We have our own problems with
spinach, lettuce, carrots and cars, we even have formal
recall processes in place.
– Chinese people do care about producing quality
products and they will stop production when there is a
It is difficult to talk about China and give the audience a
true sense of reality, without showing you the
China is a conundrum.
As you will see in the following slides, there is abject
poverty next to unexpected opulence.
A country struggling to pull themselves into the 21st
Century with unexpected sights every day.
But, there is a unique spirit within the people,
a spirit of friendship with a burning desire to learn.
Shipping Container Homes
14 one room homes
Largest 2 story Wal Mart in the World
Opulent condominiums in Shenzhen
216 Hole Championship Golf course
1 – 18 Hole Course is open 24/7
Delivering Acetylene on a motorcycle Chinese built Buick Shanghai
Toyota Land Cruiser Police cars Modern Expressways, Dual Language
Even Friday nights take their toll on the working man
Thank You for your time, here are a few suggested
Links for China Business
Squire Sanders Law Offices - Searchable database with newsletters on
China discussing IP and other regulations.
Newsletter on issues in HK, China and Asia,they have a newsletter that comes
out several times a week, http://tpwebapp.tdctrade.com/edm/pdm/index.htm
Hong Kong newsletter
Chinese newspaper in English