Business Ethics is Shaky Here – What About in China?
Where I’m Coming From
I’m an American and am disgusted and embarrassed by all the corruption recently uncovered in US corporations. At the same time, being of Chinese ethnicity, I’ve been disturbed by Chinese in China blatantly violating agreements and business law such as mass copying of copyrighted material.
So I need to first say this article is not about philosophical or moral issues. My blog is to provide guidance to help US firms get business done in China more easily and efficiently. More profound thinkers can figure out the mysteries of ethics in this world. I’m digging into the Chinese mind to see how it views our notion of ethics and hopefully come up with intelligent ways to deal with this issue when conducting business in China. I’m analyzing the lack of “ethics” and “integrity” in China and suggesting ways to cope with it.
The Explanation Starts Here
Chinese live in an environment we cannot imagine. For Americans, the idea that your spouse or parents could suddenly disappear in the middle of the night for two years cannot be real – either a nightmare or something that happens in some uncivilized country.
But that happened to a Chinese biochemical professor who stayed at our house at Stanford during his exchange studies, except it was he who was taken away during the night. For TWO YEARS he was locked up in a jail without knowing why he was there while his wife and son continued living their daily life with no explanation of what happened. Finally, he was told he had made a derogatory remark about Mao Zedong’s wife when she spoke at his college campus. One of his friends had reported on him. After two years of jail without explanation he was abruptly released on the condition he would stand up on a public stage for a day and loudly confess his stupidity. Yes, that was 20 years ago, but there are tens of thousands of such memories still in the heads of Chinese citizens today.
Now fast forward for a reality check in China today. Amazingly, not a lot has changed in terms of “Big Brother” situations: Sudden shutdown of your business, change of rules and regulations without warning, sudden disappearance of institutions, media outlets, sources of goods and services, people, or massive removal of jobs or relocations with almost no explanations or warnings. This is happening now!
Just last week, some lawyers who are known to represent Government dissenters in China suddenly disappeared! No explanations and no official statements. Poof! They’re gone. No official news. Only through pieces of evidence circulated through the Internet was this known.
What does this have to do with ethics?
The psychologist Abraham Maslow in his famous 1943 paper A Theory of Human Motivation, explained how humans operate under a hierarchy of needs. We first take care of our most basic needs, like bodily safety and hunger. As each lower level is taken care of, we can progress to the next higher level until at the top, after we have satisfied our personal needs for recognition and/or fortune, we move into altruistic endeavors to help others or to enhance society in some way. Maslow showed how we cannot jump up levels of priority until lower needs are satisfied. The homeless man who is hungry cannot worry about some higher issue like campaigning to stop pollution. Or the ethics of stealing food from the back of a restaurant.
Most Americans in the business world are not at the low levels of Maslow’s hierarchy of needs. They are not regularly worried about their basic safety or security, such as whether or not they have food on the table, or if their home might be taken away, or their spouse disappearing, or their business suddenly shut down. Generally, we’ve been at a much more comfortable level for many generations. We have a democratic government that gives the people a lot of protection and a system of law and order that is much more predictable and stable than in China.
Imagine Growing up in China
In contrast, generations in China have existed at the lowest levels of Maslow’s hierarchy. A young man there would know about horrors inflicted on his parents, grandparents, friends’ relatives, etc. A sense of survival is inborn and nurtured within him. He grew up learning hard lessons we would consider outlandish. I suppose it is not unlike growing up in a ghetto in the US where you join a gang and together you fight for survival.
The overall theme in China is “I gotta survive today. Tomorrow might be a whole different thing! Get it now – I may not have a chance tomorrow! Rules and laws and agreements? What do they mean a few days from now? They come and go, changing whenever – and I have no control over it.”
If you grew up having seen survival only by the smartest, shrewdest, toughest people, you would certainly learn everything you could about how these survivors operate. If you don’t, you will not survive!
Integrity was not in her vocabulary
Jenny spent half her lifetime in China, coming to the US at the age of 20, then progressed through the highest levels of academia and the US corporate world. She told me a shocker about herself: She did not know what the world “Integrity” meant when she arrived in the US! Further, you can’t just look up the meaning of such a word because you still wouldn’t get it unless you had the experience to understand it. It’s like looking up the word “love” – would you get it without appropriate experience? Jenny had to learn the meaning of the word gradually as she watched people operate with integrity.
Growing up in China with constant concern for survival puts a different light on basic behavior. A lot we take for granted does not apply. How can you be concerned with Integrity and operate on a high ethical level if any day you could be suddenly locked up in a jail without explanation?
George, a Chinese entrepreneur living in California, came back from China having secured the “exclusive US marketing rights” for a biometric lock. He and the CEO had developed a close relationship and they agreed to grow a distribution company together in North America. As George began promoting the lock across the country, he learned the same lock was suddenly available from a small vendor in New York who also claimed he had the “exclusive rights.” When George confronted the CEO about the breach in their agreement, the answer was: “He brought cash to the door! You don’t expect me to turn down cash do you?! Besides, he is just a one-man company; he won’t be much competition for you.” When George asked about the “exclusivity” agreement, it turned out the CEO did not even know what the word meant!
(BTW, contracts written by US companies’ lawyers are a joke. They are undecipherable by even US business executives, so what are they thinking when they ask Chinese to sign them? Don’t these lawyers realize their stupid language just gives others an excuse for misunderstandings later?)
The business people in China have not had 10 years in the US as Jenny had to learn what words like integrity and ethics mean. Even if they learned the words, the environment in China does not allow these words to be fully functional. Maslow would say: They can’t operate at this level if they are still concerned about going hungry at any moment!
What to Do
How to do business in China without getting burned? The answer starts by recognizing there are no simple rules. I cannot give you 10 steps to dealing with ethics in China.
Think this way: How would you deal with a homeless, destitute person if you needed his help in doing some work and he barely speaks English?
- You give simple instructions
- You monitor his work
- You keep your eyes on him
You can consider him a cheap resource to get your task done, but also keep in mind:
- He is a fellow human being who is trying to survive the best he knows how
- He is living from day to day and does not have the luxury to plan ahead in his life
- He is not able to communicate with you at your level of English, your social status or your position on Maslow’s hierarchy of needs
Having given you a general orientation, let me give you the suggested attitude toward a Chinese Manufacturer:
- I’m using Chinese factories because they are a very cheap resource compared to most alternatives
- However, I know there are some extra procedures and costs involved in using this resource
- They also know they are a cheap resource for me, but they actually don’t want to be. They are forced by competition to work at minimal margins
- They are trying every way they can, every day, to make more profits, and they know their competitors are doing the same – they are all trying to survive another day. I know they will cut corners, cut quality, extend delivery, inflate fees, any way they can; they operate under a short term, survival mode
- In negotiating deals, I engage practical, savvy lawyers who are not creating contracts that sound good to me, but create simple, enforceable contracts that make sense in China.(I want contracts that maximize the probability of good performance, not US type contracts that only lawyers can interpret and protect you in case you go to court – going to court against Chinese entities is a whole different subject but for now let me say it is a fruitless pursuit! So why create contracts that are ineffective?)
- I will establish the best communication channel possible, the ideal priorities being: blood relatives, personal acquaintances, schoolmates, long term business associates, reputable firms, etc.
- I will set up methods of checking quality and progress to the maximum extent practical, starting with continuous process checks, daily monitors, batch/lot checks, random tests, etc.
- If possible, I would set up quality and progress checks on sub-vendors and all critical suppliers
- I recognize some factories produce well-designed products from the US at virtually break even margins, then make their profits selling unofficial copies of the same thing to 3rd-world markets at a premium price. If I am not interested in selling to those markets, maybe I turn a blind eye to their side operation so I can continue getting my low prices.
- Sooner or later I may catch my manufacturer at some shady act. I can sever relationship with them as evil entities and go through the enormous hassle of finding another supplier who might be just as evil, or I can treat them as naughty children, make a big, threatening fuss, get them to correct their behavior and continue watching them. I know the latter approach will make more sense over the long term.