One Billion Customers - James McGregor [66]
A friend of mine who sells equipment to factories in the provinces explained the science of arranging kickbacks in China. First you get an information source in the company who can tell you who really makes purchasing decisions and how they are made. Then you cultivate that person, or group of people, and wait for the signals. “The moment they give you their home phone number, you know you are in,” my friend said. Salespeople are happiest when it turns out that there is a single powerful person who can gaoding, or “fix,” the purchase and clandestinely distribute the cash to his colleagues. If it turns out that multiple people in multiple departments make the decisions, then the salesperson will likely cultivate relationships through nighttime entertainment, much like Lai at the Red Mansion, and bankrolling group holiday excursions. One friend calls this the “3G system”: girls, golf, and gambling. In a weird twist of ethics, cash bribes signal a bond of trust between the people involved because they have to feel comfortable they won’t be exposed.
A more traditionally Chinese way of seeking business favors is to bestow gifts. During Chinese New Year, it is expected that businesspeople will visit Chinese officials and executives at their homes and deliver gifts. In the past, cartons of cigarettes or bottles of expensive liquor were common. Today, laptops, golf clubs, home entertainment centers, and even automobiles can be on your holiday gift list. Chinese listed companies often work in a similar way. One of the main duties of the secretary of the board of directors is to make sure that board members are provided with automobiles, vacations, gifts, and expense accounts at expensive restaurants to keep them happy and beholden to the CEO.
What do you do? As China becomes more wealthy and sophisticated, it is getting easier to avoid corruption. There are many foreign companies that have policies of zero tolerance for corruption in China, and still enjoy good business because their products are the best and in demand. The Chinese market recognizes and seeks quality.
The travel, training, and education for partners discussed earlier is a proven way to operate on a higher plane in China, but this also has to be accompanied by strict internal company policies. Some companies require employees to sign code of conduct agreements. I did this with our employees at Dow Jones, and clearly told them that any violations would not only lead to their dismissal, but that I would also notify the police. We never had a problem, but we weren’t selling widgets to factories in the boondocks, either.
Corruption has been a huge problem for the sourcing companies that act as middlemen between Chinese factories and foreign buyers. Their biggest problem was not with the Mainland Chinese but with Taiwan and Hong Kong factory bosses in China. They are often quick to offer envelopes of cash to sourcing company quality inspectors. One sourcing company run by a friend of mine stopped this through strict rules for their inspectors that include no entertainment or meals at night with factory officials. If a factory offers bribes, the sourcing company immediately cancels all orders. “If you cancel orders a few times, word gets around that you are