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Personal Experience Dealing in China

From | February 14 , 2007 08:52 BJT

Personal experience dealing in China

I’ve been dealing with the Chinese now for about ten years through two different companies, and probably made somewhere between 30 and 50 visits to China.

Describe BorgWarner’s current China operations

We have four manufacturing facilities in China.  We currently have three joint ventures and one wholly-owned venture, and the joint ventures are the oldest of our facilities in China, and we’ve got one in Beijing.  We’ve also got one in Ningbo, which is a little south of Shanghai, and then we have what we’re going to call the BorgWarner Campus in Ningbo, which is a site that will house multiple manufacturing facilities, a technical center, and eventually a shared services center in Ningbo.  That’s the center of the universe for BorgWarner right now in China.  We also have a corporate office in Shanghai.

How does China fit into BorgWarner’s “global footprint”?

Clearly, that part of Asia is the fastest growing, and BorgWarner is fortunate to be participating in that growth.  Relatively small growth in North America, a little more growth in Western Europe, but clearly Eastern Europe and Southeast Asia represent the biggest growth platforms for BorgWarner and will play a substantial role in terms of our future sales revenue.

Any surprises you have encountered while doing business with the Chinese?

I guess the biggest surprise is that we were aware of the fact that it would take a long time, but it takes a longer period of time than we even anticipated.  That was a surprise to us, and we thought we were ready for that.

The second thing that was a surprise to us was that a negotiation doesn’t ever seem like it’s complete.  So when you believe that you have a deal, it’s really just the start of the next negotiation.  So you end up going back and renegotiating things that you had thought had been put to bed weeks, if not months, before.

Probably the third thing that was a bit of a surprise to us was the – not the lack of technical expertise, but the rate at which their technical expertise is growing.  So when we first went to China probably ten years ago, customers relied on us very, very heavily for our product knowledge and our application engineering, and the rate at which that is changing, and they’re developing their own capabilities, is phenomenal, actually.

Advice for suppliers on sourcing from China and setting up operations

Probably the first recommendation is it’s always more complicated than you believe it will be no matter how complicated you think it’s going to be because there’s – it’s such a different market than any that we’ve participated in before that there are just things that we learn as we go along.

Probably the second thing is don’t ever take anything for granted.  Again, assumptions can get you in trouble in China because it’s a very different market, and it makes good sense to make sure that everything is demonstrated.  If someone says that they have the capability of doing something, make sure that they are able to demonstrate that to you, especially on the sourcing side.

And then from the purchasing standpoint, make sure that you’re ready to source product from China and all that comes with that because the Chinese today, in many cases, are receiving hundreds, if not thousands, of RFQs per month.  So if you’re only using China as a way of leveraging your existing supply base and are really not serious about resourcing, your proposal will quickly drop to the bottom of the page, and you’re going to quickly find yourself in a situation where suppliers aren’t willing to quote your business.

There isn’t anything in it for them.  They’re very adept at finding out who’s serious and who’s not serious, and they have lots of opportunities to choose from.  So they can start becoming very selective in terms of who they actually want to partner with in the future.

What employee or HR recruitment issues have you found in China?

Turnover is a big issue in China right now.  There’s lots of capable people that have decent education, developing skills and really need to be part of a Western company for the next part of their education because the cultures are very different.  So it’s relatively easy to attract people.  It’s more difficult to keep people because there are so many opportunities available.  So the recommendation that I would certainly propose is that you have a long-term HR strategy that’s carefully developed and that provides some level of differentiation between yourselves and whoever’s competing for that labor in that particular market.

When we first went to China we set up a factory, one of the differentiators, believe it or not, was having a shower facility that had warm running water, and we were able to attract some of the best employees in the region because that was something that nobody else offered.  Clearly, that’s not the case ten years later, but loyalty is important.  And again, there’s not a huge number of very skilled, very experienced people available so it’s – you can spend a couple of years developing and training someone, and someone can attract that labor for 20 or 30 or 40 percent more than you’re paying that person because they don’t have to go to the trouble of training them.  And even 20 or 30 or 40 percent more than what you’re paying them is probably still a third of what they may be paying a comparable person in a Western culture.  So being successful in China is largely dependent upon the talent that you’re able to attract, and so having a carefully thought out strategy, knowing what you’re willing to pay, and knowing what benefits you’re willing to provide employees, and being part of a very successful company with a big name is extremely important in China.

 Any advice on dealing with the Chinese government?

Don’t leave them out of your plans.  In China, the government has a very different role than it does in Western cultures, and it’s a big mistake not to keep them engaged in your plans and your processes.  They won’t necessarily help you negotiate a better deal with a particular customer, but they can certainly make life difficult, and they can make your business model unattractive if they’re not engaged and treated with respect as you develop your plans for China.  So it’s always a good idea, whenever you have the opportunity and when you’re in the area, to visit with them, invite them to dinner, invite them to lunch, make them part of your celebrations. 

And they clearly have a vested interest in attracting reputable, successful companies to their region because that means more employment and bigger tax revenue, and there are lots of incentives available for people.  But again, you have to get to know the people involved, you have to gain their trust, and they have to know that you’re serious and going to be there for the long term, just like any other relationship.  But courting the government is almost as important as courting the customers in China, and companies fail because they fail to recognize that that’s part of the equation.

Final thoughts…

The only caution, and it took me a long time to understand this, is that I would have long conversations with Chinese employees or customers, and I would believe at the end of that conversation that I was very clear, I was very articulate, and they knew exactly what I wanted them to do.  They listened very patiently.  They nodded their head.  They seemed to be in agreement.  I got all the body language that said they understood and they were going to go out and do exactly what I asked them to do, and then it didn’t happen.  And it took me a long time to figure out that just because I said it and just because they listened patiently doesn’t necessarily mean that they were going to do what I asked them to do.  In their culture, what that meant is, “I understood.  I hear words coming out of your mouth, but that doesn’t necessarily translate into ‘I’m going to do what you’re asking me to do.’” 

And they’re not typically a confrontational society.  So they tend to be more indirect.  So they’ll just not do what you’ve asked them to do and wait for you to come back and tell them a second or a third time, and it’s just part of their culture.  Rather than to say, “I disagree with you,” or “I’d like to add a couple of different thoughts,” or “Frankly, this doesn’t make sense,” in China they’ll agree, they’ll nod their head, and then nothing gets done.  And that’s very frustrating for Westerners because we’re used to a very different kind of a reaction.  So you really have to test for understanding repeatedly; not only, “Did you understand what I said?” but “Are you going to – is that going to cause you to do something different?”  Otherwise, you’ll be retracing the same steps over and over again.

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