The China Gap: Of Culture, Rules and Quality Control

During a recent BBC radio discussion in which I took part, serious concerns were expressed that a closer commercial relationship between Britain and China ​‘increasingly known as the world ​‘manufactory’ — might be harming the UK economy. Some of the reasons given were as follows: With its extraordinary manufacturing capability, China will seize on British exports to China, copy the design, and manufacture them there, eventually hurting the UK economy.

• With its huge reserves of labour, China has persuaded many UK companies aiming to lower their costs to move their production lines to China. If this trend continues, or indeed is encouraged, the UK’s manufacturing industry will be totally wiped out, resulting in serious unemployment problems.
• Since China has no effective measures to protect foreign companies’ intellectual property, exports to China of the UK’s technology and high-end products will most likely be pirated, damaging both the exporters’ reputation and their business interests.

These are understandable worries. It is true that many Chinese companies have been copying imported goods and making ​‘mimic’ products to compete with the originals, sometimes even replacing them and causing great damage to those exporters. However, the truth is that the market is so big, and the business potential so huge, that no company can afford to stay out of the market. There is no sign that major companies from the Germany, the US or Japan are going to stop moving their manufacturing facilities, or even their regional headquarters, to China.

To avoid products being copied, manufacturers simply have to shorten their products’ life cycles. Generally speaking, for sophisticated products, the Chinese competitors need one or two years to produce ​‘mimics’ of the same quality. Even the best Chinese competitors cannot keep up with the pace, and a two-year life cycle should be reasonable for most products, especially electronic ones which are now upgraded or replaced within months. I would also suggest that Western manufacturers focus more on high-tech and patented products, in order to generate revenues from selling their technology and patents. For instance, Philips, Sony and another two companies collect their patent fees on China-made DVD players, with significant profit margins, while the Chinese manufacturers can also make profits as they take the advantage of cheap labour. However, neither Philips nor Sony can make any profit if they produce DVD players in Europe or Japan, given the high labour costs there.

A further reason for taking the Chinese market seriously, apart from its huge and well-educated labour force, is that China is increasingly becoming a huge consuming country. China is already one of the largest consumers for certain luxury goods such as French XO, Scotch Whisky and Swiss watches. I pray that China will not become a country full of drunkards drinking XO like mineral water, but there is no way of stopping people drinking XO or wearing Rolex watches if they have money and they wish to do so. What I mean here is that China is getting rich and becoming a consuming monster with a huge capacity to digest everything made, naturally and artificially, all over the world. In this situation, if UK companies are reluctant to go to China they risk being shut out totally from the market.

As to the intellectual property problem, from my experience and observation, the Chinese government and Chinese enterprises are making serious efforts to improve the situation. Most technology-oriented companies, like IBM, HP and Dell, have no serious law suits outstanding against Chinese competitors in terms of IP infringement. There may be more of a problem for low-end consumer goods, say shoes, where a manufacturer like Clarks does have to be careful, and prepare to take on possible faked Clarks.

At the same time as the West worries about the possible loss of its technological lead and its manufacturing capacity, Chinese enterprises are eager to catch up with the industrialised countries, and expect to bridge the gap quickly. A few months after my BBC programme — BBC Radio Wales’ Wales@Work programme — I was invited on to the Beijing Television (BTV) Zhongguancun Program. To tackle the question: ​“We Chinese often apply the same technology, follow the same standard and operational codes, deploying the same, sometimes even better hardware, but we cannot produce the same quality goods or achieve the same yields as our Western counterparts. Why?”

My answer is that there are many factors contributing to the gap between China and the West, such as skills, attitudes to work, and above all the question of the enterprise culture, which is in my view what hinders China from achieving the same quality or yield as the West in specific product ranges.

Generally speaking, enterprise cultures around the world vary according to a number of factors ranging from national traditions and culture, to management models, the types of business they do, and so forth. I strongly believe that a country’s tradition and culture plays the critical role, forming the common language for the enterprises in that county. For instance, discipline provides a common culture for German enterprises; loyalty for the Japanese; hard work for the Koreans. I would mention caution for the British. But what is the common culture for Chinese enterprises? I would say it is the spirit of compromise.

Compromise is a motto for most Chinese, originating in Confucianism which has been the de facto national religion in China for a thousand years. Compromise is deeply rooted in Chinese hearts, affecting their thinking and social behaviour. For example, if a Chinese visitor is a guest of a British family, and the hostess offers him a cup of ordinary ​‘black’ tea, he will probably say: ​“No, thanks” the first time it is offered. However, if the hostess has the patience to offer it to him for a second time, he will most likely say: ​“Yes, please”. Many people might think that the Chinese visitor refuses the first offer out of politeness; actually he has been ready, from the very beginning, to accept the black tea offer. However, it is not totally the case as ​‘black’ tea might not be his preference, he may prefer drinking ​‘green’ tea or coffee. He agrees to drink the black tea simply because there is an obligation on him to ​‘compromise’ with the hostess.

Compromise is a motto for most Chinese … affecting their thinking and social behaviour

This spirit of ​‘compromise’ is the national culture in China, with its two important derivatives: ​‘rapport’ and ​‘face’. ​‘Compromise’ between two people result in a good ​‘rapport’, and a good ​‘rapport’ means never injuring other people’s ​‘face’. Very specifically for a commercial enterprise, ​‘compromise’, ​‘rapport’ and ​‘face’ can be mapped on three levels: the organisation, the group and the individual, defining the basic rules for handling public and inter-personal relations, and forming the common language of Chinese enterprise culture. Here is how these rules apply within Chinese enterprises.

• Rule one – ​‘compromise’ applies at the level of the organisation. A general manager in an enterprise, especially in a nationally-owned enterprise, often compromises with his subordinates even if they fail to meet their job requirements. Otherwise, he might become unpopular and eventually be replaced – the government’s interest is to pursue ​‘social stability’ rather than good enterprise management. A general manager who incurs complaints even if he is right is not going to impress the government.
• Rule two – ​‘rapport’ applies at the level of the department. The heads of department in an organisation often prefer to cooperate or support each other on the ground that there is good ​‘rapport’ between them. They may work in a hostile manner with those colleagues who have offended them. Operational codes in many Chinese enterprises are often locked away and never really executed.
• Rule three – ​‘face’ applies to all employees in an enterprise. People rarely say ​“no” to colleagues. A quality control engineer may close his eyes when he is aware of the quality problem caused by his colleague’s careless or wrong operation. And this might be a real problem, the worst case being that he may help his colleague to cover the problem, and issue false reports about the product quality. In a word, there is no standard quality control being exercised consistently in many Chinese enterprises.

All these unspoken intuitional rules, together with other less than professional attitudes, mean that the majority of Chinese enterprises are not at the same level as their Western counterparts in terms of enterprise management. To this extent, it is not difficult to understand why Chinese enterprises applying the same technology, following the same operational codes, deploying the same or even better hardware, cannot produce the same quality goods.

In conclusion, for the time being and even for the next five to ten years, a majority of Chinese enterprises will only be really good at manufacturing large quantity, low-end products. Western enterprises should still be able to take advantage of their cutting-edge technology and high-end products, enabling them to export to China a narrow but important range of goods from nuclear reactors to airbus planes and Bentley cars, in exchange for thousands upon thousands of electronic, textile and other labor-intensive goods. Looking ahead, this is bound to change. The fact that the British motor industry is looking to Shanghai for its future whilst the Chinese IT industry adopts IBM management strategies shows how important it will be for East and West to understand each other’s strengths and weaknesses.