It’s not something that I honestly think about much on a normal basis because the people who surround me, the people I manage, and the people I teach are all bilingual and are expected (by one system or another) to operate around me in English.  Sometimes simply because I am in the room and there is an unwritten rule that whenever a laowai is in the room that everyone should speak English.

So, managing the day to day is not the problem, at least when it comes to my immediate core of people. A core of people who I have worked with, mentored, and managed, but more importantly serve as my only means of communication with the “outside” world at times… world that includes Chinese CEOs, government officials, and community leaders

It is, because I am trying to compete against Chinese, my ability to interact and communicate with externals (government officials, corporate executives, community leaders) at a level that allows them to pick up the phone, call me, discuss a problem/ project, and then feel so comfortable that they would refer me to their friends/ colleagues… over a Chinese peer who (as my wife says) has lived in the Laowai’s world.

So, as I have come to understand, being fluent is a critical piece of that puzzle, and regardless of whether or not I have the best strategy, research, or team, it is my inability to personally speak at a DaShan level of fluency that is the barrier. In a sense, because I Am not fluent, I am running in a race that I have no business being in.

Were I working for a multinational it likely would not be a problem. Were I interacting exclusively with, or selling exclusively to, a foreign set of externals it wouldn’t be a problem.

Something I am not sure other entrepreneurs in China have faced, but it is certainly something I have faced over the last few years…. and it is certainly something that those interested in Cihna should consider beforehand as well

Watching last week’s SOTU, and thinking generally about the jobs situation in the U.S., it is hard not to be entranced by the President’s call for reshoring jobs. And it is not hard to know where he is looking to steal those jobs from. China

Some, like Josh Noble at FT, believe that Obama’s call for reshoring is a bit of a pipe dream. That, like Steve Jobs said, “Those jobs ain’t coming back“, and offers 5 reasons for saying as much:

1). Skills. Many of the middle and senior managers in China’s factories have been working in production their whole lives.
2). Scale. Wages in some Chinese factories have already reached levels comparable to eastern Europe – in EU member states like Romania and Bulgaria. But none of those countries has the sheer weight of numbers required to build factories employing hundreds, thousands, or even tens of thousands, that southern China can offer.
3). Infrastructure. China’s ports, freight railways and airports – especially in the south – are as good as anywhere in the world.
4). Supply chains. After 30 years of manufacturing, most businesses have well established chain of supporting manufacturers. [...] replicating those entire chains elsewhere in the world seems like an unlikely prospect.
5). Future customers.As the Chinese consumer spends more, Chinese factories will be much closer the their target audience.

All of which I would agree have, in one form or another, led to the movement of jobs from the U.S. to China and would each present barriers to those jobs returning to the U.S.

However, as I am finding out through a bit of research about the U.S.’s effort to attract firms, there is hope for reshoring some jobs. As I have said in the past. However, the jobs themselves (and the sources of those jobs) will likely be different. Here’s why.

Beyond the 5 characteristics of China’s market that are attracting firms, it is also important to also recognize the fact that China has worked very hard to get to where it is at. Sure, there are skills, cheap labor, strong infrastructure, and future customers. But that is also due to the fact that there was a PLAN. A mission (a the highest levels) for create economic growth, jobs, and prosperity, for the Chinese people themselves.. which catalyzed China’s leadership to take actions that resulted in the above.

Beyond the 5 year plans, and talking in the backrooms of Mahjong parlors, there has been a lot of action that supported this mission. Creation of economic zones that catered to all manners of business (by model, geography, and industry), development of very attractive incentive schemes that were designed to attract certain types of money and build scale in certain fields/ industry, and planning that laid out a path where core & satellite cities came up together in a manner that supported each other (several cities sourced raw materials, one city focused on assembly, and others served as logistics hubs).

Which ultimately led to what was perhaps the greatest consolidation of supply chains in the history of retail manufacturing. EVER.

But, as we began seeing in 2007/8, supply chains can move. They can move to the interior parts of China.  They can move to Vietnam.  They can move back to the United States.

Particularly when inflation of raw materials, labor, and energy increase to a point where outsourcing to a third party no longer makes sense. Or the failures of economy, society, and environmental create a dynamic that essentially reverses previous policies and force government officials to remove incentives (and perhaps create dis-incentives).. or, that the failures of process and quality will themselves prove too costly to ignore.

Each opportunities for change. Each opportunities for reshoring (even if on a limited basis).

So, while there are certainly barriers when it comes to manufactured cost, and access to the Chinese market, that are going to help keep firms in China.

But, that is not to say that there are not firms who are looking for an opportunity to exit the China supply base.  That, through a plan, and the development of the right mix of economic incentives, firms may begin to move production back to areas that have been gutted over the last 15 years… tax breaks, access to government contracts, cheap buildings to move back into, and shout outs from the President of the United States … could each have a level of attraction for different firms of different size and product, and that movement could lead towards more investment, much as it did in China.

It’s not to say that Apple would return any of their 700,000 jobs, but then again, I am not sure those jobs would be in high demand given all the recent press surrounding the labor conditions in the typical Foxconn assembly shop

More on this topic in due time..

Yet, in this weekends FT piece Luxury Brands Long to Bond With China’s Millionaires it seems that the market has not reached its full potential (globally):

Chinese shoppers have become a fixture of the luxury retail scene in the US and Europe, drawn by prices that can be up to 50 per cent lower than tax-elevated levels at home. But many upscale brands have yet to bond with the truly wealthy – China’s million millionaires.

“It’s like they’re dancing with each other but sometimes going past each other,” says Christine Lu, co-founder and chief executive of Affinity China

[..] Even when luxury brands get the basics of hiring Mandarin speakers and accepting the China UnionPay credit card, Ms Lu says that misunderstandings with the wealthy can still arise.

Western luxury retailers like to ingratiate themselves by building “unique relationships” that depend on employees learning about customers’ lives and anticipating their needs.

When reading the article, what struck me the most was that there was a belief that the Chinese consumers should be more inclined to spend the money on luxury outside China.  A natural conclusion on some level as historically (particularly with the Japanese and Koreans), this was true, and at the same time the cost of buying luxury products can be 30-50% more in China

A barrier that does not seem to be bothering Chinese consumers tot he point they are unwilling to spend large sums of money at the right time of year:

Aspirational luxury retailer Coach (NYSE:COH) may get a solid lift in sales as Chinese New Year, or Lunar New Year, nears. China is the largest market for Coach outside U.S., and with the Chinese luxury spending expected to increase significantly in the week leading to January 23rd

So, what is with the mixed messages?  How can it be that, even with the Chinese being the undisputed king of luxury buyers, there are still brands (and events) in the US saying that the market has yet to ripen for them?

A few thoughts based on conversations I have recently had with two luxury executives (whose brands shall not be mentioned).

Early on in the luxury game, when LV and others were building massive stores on Nanjing West Road, the theory went that these would be showrooms. That, because luxury products were subject to luxury taxes (resulting in the 30-50% increased retail price), buyers would go to Nanjing Road, see what the brands had to offer, build their shopping list, and then head to HK (or some other destination) to make their purchases.  And this did happen for a while.  Buyers still flock to HK on group trips, and undoubtedly there are also groups (of a higher income bracket) headed to Paris, London, and New York on shopping trips as well.

But something else happened as well.  These stores started to make money.  A LOT of money… 20 million RMB a month kind of money..  In one conversation I was told by an executive that he had a client who would regularly spend north of 1 million RMB in his store, and one day while in the store this executive had a chat with the buyer to understand why he did not fly out of country to make the purchases.  After all, 30-50% savings would seem attractive to most buyers right?  Wrong.  For this buyer, for every day out of China was seen as a loss. He was someone who did not have time, or interest in a vacation, and to spend 250,000RMB on a watch was “his vacation”.  Money, and the ability to save money, was not a concern for him.  So, already brands were learning that while there was certainly a market in Chinese travelers, the market in China was itself (even with the luxury tax in place) one that was not as expected.  IT was not going to be a place where brands should look to advertise for the sale, but should be seen as the place to make the sale itself.  Particularly as Chinese in China’s second and third tier cities, who were under even more travel restrictions, would travel to Shanghai and Beijing regularly to make their purchases.

Second to that, when it comes to selling to “travelers” brands are also having to adjust their strategy as well.  That, while the Japanese tourists may have gone to LA, NYC, and London to buy up everything they could, the Chinese are a bit more picky.  Particularly as they have flagships in their backyard.  In another conversation I had, it was clear to the executive (through his discussions with his target market of professional females) that when they went to Paris, London, and NYC, they had much more specific shopping needs and were often going to find the luxury gems that they could not get anywhere else.  In essence, they were going to find the items that would put them ahead of their friends. The special/ limited edition items that, regardless of price, could not be found in China at all.  These were the consumers that he was looking to attract, not those on tours, because they were more mature in their tastes, knew what they wanted, and would spend 3-4 x more in his shop than anyone on the traditional buying tour. A group that Christine Lu seems to be more interested in herself.

For me, where this is interesting, is simply the fact that the Chinese consumer is on some level rewriting the rules.  The speed by which wealth has been created, and across all provinces, has had a tremendous impact on how people spend.. and while the Asian consumer of old may have readily taken a trip out of country to go on buying trips, for the Chinese the conditions are different.  Getting out of country for many is a difficult and time consuming process sometimes (visa approvals), while for others it is time spent away from their cash cow.

There is little doubt with those that I have spoken with that the “Chinese” luxury consumer is a force to be reckoned with, and will grow rapidly for the next 3-5 years, but has shown that it will not play by traditional thinking.  They are not the Japanese of old who would line up 2 hours before a GUCCI store would open on Rodeo drive, and this group is far more likely to make the bulk of their purchases in country when accessible and for the everyday use.

So, when brands are trying to position themselves (globally) to the Chinese consumer, they need to keep this in mind… that, if a Chinese consumer is going to fly half way around the world to enter a store, there better be a pot of gold at the end of the rainbow.

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 in the office, and it certainly will not build loyal staff.