Sunday, October 08, 2006

The Real Peril of Outsourcing to China

Outsourcing to China is not an easy prospect. You must deal with language barriers, time zones, travel, shipping, customs, legal structures, visas, expats, kickbacks, repairs, support, different standards of human interaction, contract commitments, "good faith," trust, quality, legality - it literally never ends These are all immense challenges that often turn out to be more expensive and time consuming than their worst projections, yet these are all just process challenges that will having you watching where you step before you walk into the real elephant in the room.

What we in the United States and the rest of the industrialized world are doing is transferring the rich knowledge of manufacturing, management, and design, that is our competitive advantage, to a country that has no institutional respect for our property, whether intellectual, legal, ethical, or financial. Anyone who thinks they can manufacture something in China without going up against a market filled with look and act alike fakes within 6 months had one too many drinks of the globalization cool-aid. Although the cost of Chinese manufactured goods is perhaps 80% less than those manufactured in the "West," after all the above costs, the savings can go down to 30%. At that point, you are in currency hedge territory, and when you add on the immense distraction of building a global outsourcing operation, the money and time you could have spent out maneuvering your competitors, and the impending competition from Chinese fakes and competing brands making deals with your factory to make similar products, you must ask yourself if it's worth it in the end. In two years when it's 6.5 yuan to the dollar, will it be worth it then?

The answer to that question is certainly not always "No." But the answer should be "No" much more often than it is currently. If you dominate distribution, or have an overpowering brand - e.g. Walmart or Dell - and your production volume is on a truly giant scale, there is no question that Chinese factories can crank out product like no one else. If your company currently lacks the manufacturing expertise, and your product is more brand and aesthetic, or "me too", than it is design and function, you have less to be stolen in China. But if you are creating something of true value, you might want to consider staying the hell away. Go somewhere that is perhaps more expensive up front, but lacks the above-mentioned costs and where your innovations stand a chance of being protected.


Some more thoughts for another article:

Beyond the question of individual interest, in the meantime, we have stripped the west of the resources to produce the raw materials and manufacture goods critical to our defense. Were World War III to break out, we had better hope China is on our side, because without them we would lack most of the raw materials, let alone factories, to match our World War II effort. I don't have to mention what that does to our hand in the cases of Taiwan, North Korea, Japan, Argentina, and pretty much everyone else whom China has embraced over the last 5 years.

Perhaps the brightest side of all of this is that our entangling economic alliances may weaken our country, but ward off global war by advancing our interdependence. As I heard recently from an unremembered source, only 2% of interaction between nations is through official diplomatic channels - most of the 90+% is through trade. As in all of human relations, interdependence both corrupts principals and averts conflict.

Monday, October 10, 2005

China's Rural Democratic Uprising Turns Brutal

In a shocking display of brutality and hellish desperation a mob, backed by local government officials and police, has reportedly beaten to death (or nearly so) Lu Banglie, a leading democratic activist and lawfully elected village chief, in Taishi, Guangdong, China. His unconscious body was driven away in a police car, no ambulance in sight.

Read the Guardian article and a second.

This is not the sort of law and order story Beijing should expect to encourage investment.

For a brief timeline of what's been going on in Taishi, look here. For a detailed and another first hand account, look here.

Grassroots opposition to corruption, pollution, and extortion have become common in China, with over 100 per day, but this represents a potentially groundbreaking development and has perhaps created a martyr for reform sympathizers.

Wednesday, May 25, 2005

An unusual story of personal failure in China

Three years ago, I received the most outlandish of all corporate grants: for three months I would get paid to live in Beijing and play punk rock.
My benefactor was a stationery corporation that manufactured address labels, file dividers, ...

An entertaining tale worth reading, though I'm not sure for what.

Tuesday, April 19, 2005

Anti-Japan Protest

Note: Sorry for the formatting. I'm just getting started on this. I'll try to fix it eventually.

We arrived at People's Square shortly after 9 am. There was a moderate sized crowed, a few hundred people, and lots of police preventing people from entering the the square.

It looked like a bust, but it was possible other crowds were mingling on other sides of the square unable to gather in the center. We started to walk around when a roaring crowd turned the corner - several thousand people with banners, headbands, and fliers marching at a rapid pace. We were absorbed into the crowd, and surrounded by Chinese flags and anti-Japanese slogans.


This analogy won't be helpful to most people, but for a long time it reminded me of "Bay to Breakers", an annual drunken costume parade through San Francisco. Waking up early to walk a long distance across a city in the middle of the street, baking in the sun, everyone laughing and cheering. Replace the calls for keg stands and boob displays with "Die Japanese pigs," "Beat up little Japan," and "Japanese, get out" and you're picture is getting crisp.

Occasionally physical ugliness emerged. Despite the destruction, there never seemed to be any reflection or remorse about the damage caused. A few brave saints, and even a few policemen, sometimes intervened here and there with waving arms to persuade the mob to move on. Japanese cars were surrounded and pelted relentlessly with eggs and bottles as they were stuck in traffic, sometimes for several minutes. Japanese establishments were dripping with raw egg and scarred with broken windows.

The favorite chant of the day was "Boycott Japanese products." Early on, the crowd was handed a thick stack of fliers containing a long list of Japanese brands to avoid, including that of the Canon camera with which I took these pictures. Boycott flyers were thrown off several high buildings and rained down onto the crowd.

Along the way, people old enough to actually remember the Japanese occupation quietly watched along the streets and displayed themselves on what usually seem to be long abandoned balconies above. When these elders raised their fist in camaraderie, receiving loud cheers, I felt a waft of inspirational intergenerational bonding in a society often observed to be rapidly dividing between children of the Great Leap Forward, and children of the economic revolution.

The 4 hour (estimate) march from People's Square to Hongqiao was marked by repeated car assaults - it's easy to attack a car when you can't see the driver inside - and short pauses to sing the Chinese anthem and throw eggs whenever a Japanese electronics store, restaurant, or sign was passed. As we neared the embassy row in Hongqiao, Japanese restaurants became more frequent and the violence escalated. Often it was difficult to figure out what moved the crowd, but you could always be sure it was something Japanese. The Chinese language's suitability for rhythmic call and response chanting was displayed as the protesters chanted awful racist things that newspapers wouldn't dare repeat in most countries.

Near the embassy compound, the crowd split. Before reconvening at the embassy's rear wall, my half had to circumvent several riot police lines by ducking through an overgrown fence and a vacant lot. When we arrived, the chanting was turning into rock and bottle hurtling. Police and rock throwing protesters shared the embassy wall with little confrontation. At first, rock throwing received angry pointing and scolding from from police, but that quickly subsided to passive glances. Within a few minutes, the embassy's windows were shattering, each direct hit bringing loud cheers.


The crowd eventually decided to keep moving around to the front of the embassy, but several thick lines of riot police were blocking the way. One of the lines was in a narrow alley, the other hidden behind a large number of vehicles that had been parked to block the way. The crowd chose the latter route, and I ended up on the front line, watched from behind by those who had climbed onto the trucks. The crowd was taking runs at the riot shields. I had concluded this was nuts and no one was getting through, but within a few minutes the line broke and people were charging in. I was hesitant to follow, as I figured the police would swarm and arrest the invaders, but in split second 20 or so had run around me and it was clear we would be pushed in by the eager crowd. Safety in numbers - I figured what the hell, how often do you get to break through a line of Chinese riot police?




With that under the crowd's belt, we quickly broke through a second similar line and ended up on another side of the compound, after humorously walking past the backside of the police line still standing strong in the alley. At that point it was pretty empty, but thousands were pouring in from every direction. The crowd raised Chinese and anti-Japanese flags up the diplomatic flag poles, and tied banners between the flag poles and some nearby scaffolding.

Several protesters made it over the compound wall onto a blue canopy and were busy attempting to plant Chinese flags, as if they were claiming the territory. A couple more stood on top of a corner building and threw large rocks through the embassy windows. Emboldened, the crowd below ratcheted up the projectiles until one was impacting every second or so. Within a few minutes, all of the exterior windows had been shattered and the metal siding was clearly dented. Bottles full of paint marred the embassy walls with black, blue, and red blots.


At one point, two policemen in riot gear tried to persuade a man on the blue canopy to come down. The crowd jeered and he wouldn't budge. After a few minutes, one policeman gave up and walked away with a "fuck that" hand motion. The other comically chased him for a second and seemed to yell at him unsuccessfully to come back. The scene provoked cheering and laughter. After resigning to losing his colleague, he returned to the protester and seemed again to be trying to get him to come down. A few minutes later though, it looked as though they were best friends.





After some time, we moved around to the street on another side. The street was packed and a line of determined riot police were standing 1 meter from the embassy wall. A rowdy crowd was chanting slogans. Determined leaders at different points along the wall would chant call response style for a period, and then suddenly turn to charge the line, quickly followed by the crowd. I never saw them make it through, but for one person who was quickly thrown back into the crowd. Unlike most of the relatively laid back law enforcement around, these recruits looked frightened and determined.

Semi-circles formed in the front of the line, making room for polite turn taking in throwing rocks at the windows. Helpful couriers delivered fresh rocks regularly. From the smiles and cheers, you'd think everyone was at a county fair. Much of the crowd was still mesmerized by a few comrades who had mounted the corner structure and continued to pelt the embassy from up high.

We wandered for a long time on this side. After backing up, I had to admire that I've never seen so many rocks and bottles simultaneously in the air for such a long period of time. For several hours as we squeezed around the embassy, at least 5 objects seemed to be in the air at any moment. The embassy was clearly heavily damaged. Students climbed polls and trees with megaphones, and chanted. Others took turns standing up and leading chants. For such a violent protest, everything was quite orderly. At no point did I feel unsafe or threatened.

Eventually the police began slowly pursuading people to leave from the fringes. Interactions with the police were extremely friendly, often marked by chuckling and shrugs. Eventually, the crowd peacefully disintegrated, often returning to the march format of the early morning, leading the crowd away. We left at this point, and the protest seemingly ended on time at 5 PM.

There were times where I felt the protesters were like a wild horse that had been tamed with blinders. I tried to picture what would happen if someone took off those blinders by shouting something far more controversial. It seemed the crowd might follow. On the other hand, this is Shanghai. Most of those at the protest have benefited enormously from the current regime's policies and recent economic growth (ironically fueled largely by loans from and trade with Japan.) The fresh looks in people of all ages as they participated in their first large scale protest projected a hunger for more action. Perhaps the permissiveness last weekend was a calculated step by the regime to move toward power distribution, or perhaps it was a dangerous gambit to dominate Asia. Either way, it was memorable experience for all involved. and stepped up a long muffled political awareness.

For more pictures, click on a picture above and view the gallery.