All Roads Lead to China:

Just finished reading the HBR blog post Truth Without Tears in China, written by Frank T. Gallo of Aon Hewitt in Beijing, and it is a PRIME example for me of how expats managing in China need to understand a few fundamental facts about managing in China

1) Chinese(born and trained) employees expect to be managed in a way different that those born and trained in other parts of the world
2) While sometimes mangers need to be careful to understand the culture, and how people want to be managed, there are just times you have to be the bad guy

At the core of the post is the interaction between an expat consultant and a junior analyst.  The expat trusted the analyst to manage a relationship, and in the process the analyst did something without the approval of the consultant.  No body was harmed, but the fact that the analyst had not cleared it with the consultant was the real issue.  An issue which reuslted ina  a bit of a dressing down.. which her hurt her feelings.

It was a classic example of where expats need to be more sensitive for how they should manage junior staff:

The point here is that an American’s reaction to this exchange with Jim would have been very different. While we Westerners recognize that “the truth hurts,” we also believe that telling an employee directly what they need to do differently is a best practice in helping one to grow. Bosses express their “disappointment” with juniors all the time. [...] Jim would have been better off in the first place by not even dealing directly with the very junior Ling, using a mid-level consultant to serve as a middleman instead. The Chinese have a term for people in this role: zhong jian ren. Not only might this more experienced zhong jian ren not have sent the material in the first place, but he would have protected Ling from the loss of face that happens when he or she did actually disappoint someone senior.

Is this really the way to manage staff?  Particularly young staff who are theoretically being trained to assume more responsibility over time?

In my experience.. if you have hired this person with a long term desire to see them grow within the organization… absolutely not.

First, if you are going to delegate the responsibility of managing a client relationship to a junior staff, then you have to do what you can to prepare them for hte task, build in a system that mitigates the impact of a failure, and will have a process at the end whereby said employee can understand what they did right and wrong.  But, more importantly, if you are going to delegate the responsibility, you have to prepare yourself for whatever happens and not get angry if it goes wrong.  After all, it was YOUR DECISION to trust the staffer, and regardless of how severe the clusterf*k, it was ultimately your responsibility to make sure they were prepared.

Second, if and when things go wrong (and they will when managing across cultures), a good manager will learn how to give the most effective dressing down. In the case of this staffer, given the relatively minor offense of not ccing in the boss, a simple “here is why you should have cleared it with me first” would have done.  It would have been a learning experience, not a dressing down, and in the end the staffer would have understood better about managing boss and client relationships.

Finally, this article seems to indicate that in China it is better to delegate to a middle level (let’s assume that exists) than to manage directly.  That, in doing so it will insulate ht e(foreign) manager from having to be the bad guy. When it won’t. First, if it is the goal of the manager to incubate their junior staff, then they should be actively engaged in a process whereby the staffer is tested and reviewed.  That is how the trust and loyalty of junior staff is built in China, particularly between a senior expat and a junior (local) staffer.

So, for all you foreign mangers, my suggestion after reading this article is to do the opposite.  Trust your employees, work with them to make sure they have the capacity to meet expectations, and be the bad guy sometimes.  Hiding behind others will make you no friends, and it certainly will not build loyal staff.

Apple is committed to driving the highest standards for social responsibility throughout our supply base. We require that our suppliers provide safe working conditions, treat workers with dignity and respect, and use environmentally responsible manufacturing processes wherever Apple products are made.

This is the FIRST paragraph for the 2012 Apple Supplier Responsibility report (download here) .

A report released after not one, but TWO, iPad factories blew up due to aluminum dust clouds igniting in the factories.

Now, as many long time readers will know, Apple’s supply chain failures have been somewhat a passion of mine. My first post goes back nearly five years, and over the course of that time I have been trying to make the case that if Apple did not address these issues, it was going to become a problem for their bottom line.

Today, just a couple of days after Apple reported that they make a BILLION USD a day, I believe we are near the tipping point.

In the last week alone the NY times has come out with two pieces on Apple, one of which (Apple’s iPad and the Human Costs for Workers in China) is perhaps the best account of just how bad the situation is within Apple’s supply chain.. and the negligence of Apple’s executives in addressing the problems:

“We’ve known about labor abuses in some factories for four years, and they’re still going on,” said one former Apple executive who, like others, spoke on the condition of anonymity because of confidentiality agreements. “Why? Because the system works for us. Suppliers would change everything tomorrow if Apple told them they didn’t have another choice.”

This report follows others from a collaboration of China’s leading environmental NGOs, Jon Stewart’s Fear Factory, the regular play of Mike Daisey’s observations of Apple, and even follows the very public closure of one of their key Macbook suppliers, who were in violation of Chinese environmental standards.

Which leads me to my final point.  There have been more than a few references to the fact that Apple’s supply chain conditions, while perhaps illegal in the U.S., are acceptable here. But, nothing could be farther from the truth. Throughout its supply chain Apple suppliers are regularly violating labor and environmental laws, and in a way that exposes the firm (and APPLE investors) to risk.

Risk that they cannot meet market demand when a factory is shut down (until emissions meet SEPA standards), risk that they cannot meet market demand when a factory explosion (or two) takes production capacity offline, or more importantly, that ultimately they risk the China market.

That while Chinese consumers have so far shown no interest in group action against Apple, with China now Apple’s #2 market (was “other income” 3 years ago), Apple could lose its biggest cash cow ever.

With that, I will leave you with the words of Apple’s APAC PR Director Carolyn Wu “Apple is committed to driving the highest standards of social responsibility throughout our supply base”

… like a warm blanket from the dryer. Denial makes everything feel better for an instant.

A great clip from Jon Stewart on Foxconn, and a timely one given Apple’s recent revelations that its supply chain is still a clusterfu*k, Apple makes over a billion USD a day in profit, and in one of the last meetings with President Obama Steve jobs made it clear that Apple’s outsourced supply chain would not be returning to the US.  EVER.

Personally, as I said in my first post on Apple more than 4 years ago, I am still a believer the having a supply chain that includes many suppliers who Chinese labor or environmental regulations, while trying to build out the Chinese market is a massive risk for Apple.. and a risk I think they are slowing coming around to.  Only question is whether or not it will be in time…

More on that later, but for now enjoy the clip.

• [will impact more foreign firms in #China NGOs upbeat over China's #environment #transparency progress http://t.co/h310gQKt #apple #
• #Shanghai Delays Unpopular Tax On Foreigners fm @rflannerychina http://t.co/aYoYmkoY #expats #china #
• Quality in #China Is it Valuable Enough to Pay for? http://t.co/y1Nd1Tub #consumers #
• @ShanghaiHunter Thanks for the RT and comment! #
• @alex_n_stone thanks for the RT! #
• Very interesting (and comprehensive) interview of Gary Locke on @charlieroseshow last week. http://t.co/qsFGZhuF #China #
• On this day, 10 years ago, I landed in China. Wow... it's been 10 years! #
• @shanghailaine thanks! Been an interesting journey #
• #China Urban #Population 51.27% | Rural Population 48.73% http://t.co/aulJDs8G #urbanization #cities #Resources #
• @chinahearsay Been true for a while, but now undeniably true. #Shanghai real #population is 5-7m higher than official figures #
• @larsonchristina china is in real trouble by 2040... only 1.6 ppl working for 1 retired. safety net not ready #
• [worst advice I've seen on managing staff in a long time] Truth Without Tears in #China http://t.co/qqQnMncB #HR #leadership #

It’s official.  There are now more Chinese who call home in one of China’s urban centers than those who remain on the farm.  It is a process that began in the late 70s with Deng Xiao Ping opening up China’s economy, and according to the McKinsey study “Preparing for China’s Urban Billion” it is a process that will ultimately result in over 1 billion urban dwellers in China’s cities by the year 2030.  And the graph above is all one needs to understand why the process will continue.

For city planners, this is a mixed bag. In my work in China’s first tier cities, this is about finding ways to integrate local populations and “new” citizens, while in China’s second and third tier cites it is more economic (making sure there are jobs) and infrastructural (schools, roads, etc).  It is a process that in the short term is leading to all kinds of resource (water, energy, food, oil, steel, cement, coal) imbalances as the national distribution networks are unable to keep up, but over the next 10-15 years the hope is that as these new urban centers stabilize so will this issue.

A couple of notes about why I see this move as necessary:

1) Strength in domestic economy.  If there was one part of the economy that China (and others) was looking to solidify it is that of their domestic economy. It is an economy that is to date almost completely reliant on government expenditure (bridges, port, and KTVs) and exports for manufacturing. Over the last 4-5 years this has been changing, thanks in part to Wall Street blowing up the US (and EU) economy, but it is a re-balancing that has been made easier as the early migrants in China’s gateway cities have begun to settle… and spend.

2) Resource allocation in China, as mentioned on a number of occasions, is a massive problem that urbanization (over the long term) will help to alleviate as infrastructure improvements come online.  It is perhaps the most difficult issue economically for China as logistically China is very inefficient and the gateway cities are always a first priority.  Regardless of the cost to a neighboring province.

3) Social safety nets will become easier to manage.  By attracting (rather than separating) families, the urbanized China will be able to better support its social stability.  Having 150 million nomadic workers is not sustainable.  I one had an ayi whose husband was in Guangzhou, and children in her hometown. she only saw them once a year, and this led to a lot pressure on her (and her family).  Creating urban centers within each province that are able to relieve this pressure is in China’s long term interest.

but, as with every period of transition, there is going to be pain.  And regardless of whether or not China’s planners have the best of intentions, there are going to be groups who get screwed, get angry, and do not benefit from the process.

In this regard, I see a few issues:

1) City planners, who have been focused on economic development, are going to have to invest significant amount of time, money, and people to integrate these populations. They are going to have to achieve the five tenants of harmonious society that I mentioned previously in order to be able to attract and settle populations.  Cities have to get migrants integrated and invested into the success of the city

2) Inflation (from resource constraints).  while there are more than a few reports out about the role of investment banks inflating materials pricing, in China, the major driver is stockpiling of tradeable commodities and demand of consumable items. China’s ag sector is woefully inefficient at getting food from farm to table (up to 60% loss), and until farms move from 660 sq.m of land to 660 hectors per farmer, issues of food inflation, food availability, and food safety are going to persist.

3) Water. While the rest of the world focuses on carbon, China is focused on water.  It’s glaciers are melting, it’s lakes are drying up, and more than a couple of its largest cities are already admitting they cannot carry their populations without the assistance of other provinces.  It was once believed that the southern water resources were enough to supply the north through massive water works projects, this has come under more scrutiny in the last few years as the south continues to experience droughts that are bottoming out boats and dams.

It is THE problem in my mind, and the following quote from the recent Chian Dialogue article China’s thirst for water transfer sums it up nicely:

“China’s population has increased by 700 or 800 million in the past few decades, and people have also been flowing into the cities with unprecedented speed. Urban industry is also rapidly expanding. This is something no other country has experienced. The water those people need just isn’t available locally.”

So, they have made it this far, and there is no reason to be anything but impressed by the progress that has been made.

It is progress that has been anything but perfect, and there are core issues still left to be addressed, but there is no doubt in my mind that with a population the size of China’s the grand framework for balancing China’s economy, environment, and society is in continued urbanization.