In the East, particularly at traditional companies, saving face is important. Saving face means that you don't admit your own mistakes and you don't publicly humiliate co-workers by exposing their mistakes.
This can create management challenges for companies doing business in China. Foreign companies are particularly vulnerable, since a Chinese employee who admits to making a mistake not only shames himself, but also brings shame to his country in front of foreign visitors. As a result, simple problems left undiscovered can easily grow into full-blown crises.
One manager at an international company in Shanghai says he routinely sends foreign employees to give bad news to customers, since foreigners don't get embarrassed as easily. (Some of the people interviewed for this story did not want their names used because "face" is a sensitive topic.)
Technology for transparency
"This is one of the critical areas that we have to face upfront," says How Newseng, general manager at Fairchild Semiconductor Corp. in Suzhou, located near Shanghai. The company's global headquarters is in South Portland, Maine.
How says that one way of addressing the face-saving problem is to have good technology in place to automate reporting functions. "We want to take out any personal involvement in the system," he says. Using PeopleSoft software "allows us to have good detection if anything goes wrong," How explains.
But Chinese people aren't unique in not wanting to pass on bad news. "Other countries in Asia find it difficult," says John Oska, regional supply chain manager for the Asia-Pacific region at Sealed Air Packaging Co., a Shanghai-based division of Sealed Air Corp. in Saddle Brook, N.J. The company currently has two small plants in China and is building a new plant in Shanghai.
"Sales reps in countries such as Indonesia are reluctant to advise customers that a shipment is late or not to spec until the customer calls to complain," Oska says.
One of the ways around that problem is to give the customer direct access to the information, he says, but many of his company's local suppliers aren't capable of providing that level of IT-enabled visibility. Fortunately, it's a lot easier to demand visibility internally, and Sealed Air is rolling out SAP 4.7 this year to do just that.
Shanghai General Motors Co. is also implementing SAP software this year, and it's making a concerted effort to improve the reporting systems of its suppliers as well. The exploding pace of growth of China's automotive sector makes good systems a necessity, says Chris Gubbey, executive vice president at Shanghai GM, a 50-50 joint venture between General Motors Corp. and a local partner, Shanghai Automotive Industrial Corp. GM first came to China in 1999. By 2005, China had become the second-largest market in the world for the company. "It is the world's fastest-growing vehicle market," says Gubbey, noting that the number of cars GM has sold in China has grown from 30,000 in 2000 to an expected 400,000 this year. That pace of growth puts significant stresses on the technology infrastructure, he says.
"At the beginning, everyone was paper-driven," according to Gubbey, who deals with 276 local suppliers. "But with the volume expansion and the complexity expansion, they can't survive that without systems in place for managing it."
As a result -- and despite a vicious price war and ongoing cost-cutting -- Shanghai GM demands good management systems from its suppliers.
"You don't get to talk about price until you've met quality, service and technology requirements," Gubbey says. "When they have transparency, they react to things more quickly. If something goes wrong, you see it right away."
Persuading suppliers
Not all companies have that kind of leverage with suppliers, though. Wilfredo Tan is the managing director of the Asian supply chain at Reston, Va.-based World Kitchen Inc. He works with hundreds of factories in China as he looks for companies to produce ceramics, cookware and kitchenware -- goods that are then sold through leading retailers and the company's own stores.
World Kitchen uses SAP internally, but it can be difficult to convince a supplier that an ERP system is worth it. "Technology is the largest chunk of the challenge," he says. "Not many companies are starting to invest in technology, though they are upgrading their manufacturing equipment."
When a supplier does have an ERP system installed, it makes a big difference, Tan says. "Without ERP, we have to have on-site people at that factory. We monitor everything," he says.
To encourage IT investments, World Kitchen's technical experts work with its suppliers. "Our IT people come out and do their own evaluation," Tan says. "We walk them through what we want them to have."
Having an ERP system in place helps alleviate some of the cultural barriers to communication between Chinese suppliers and Western companies, Tan says. "It makes it more convenient to communicate with each other and helps with forecasting and planning," he explains.
An ERP system is also a good indicator that a supplier has internal processes and procedures under control, Tan adds. "If they don't have ERP, their procedures are a little unstable."
Taking charge
Some international companies take matters into their own hands and build complete planning systems for their suppliers. A director for one such company, who did not want his name used, says that getting a straight answer can be very difficult, and people in China are sometimes reluctant to take responsibility. "We've been burned way too often," he says.
Good technology can be very helpful, he says, but an ERP system doesn't solve cultural problems all by itself. "There are plenty of people with ERP systems having a tough time," he says. "If you put in a system, how do you know the data is correct? People are very good at pretending to do what they're told."
Process is even more critical than technology, according to the director. "The system is secondary. We spend 90 percent of our time on processes rather than systems installation," he says. "We spent two and a half years on change management before we spent one cent on putting in a planning system."
Since his suppliers had no IT systems at all, his company was able to write a system for the suppliers and host it for them. "It's something we can do cheaply here," he says.
Chinese companies are increasingly using ERP systems as a way to demonstrate reliability to foreign customers, says Scot McLeod, marketing vice president at Ross Systems Inc., an Atlanta-based ERP vendor. "Especially if they're producing goods for export, there's hefty demand to provide assurance to their customers that it is a quality product and that they will be able to deliver it in a timely fashion," he says. Ross, which has about 150 customers in China, was acquired by Hong Kong's CDC Corp. in 2003.
But in China, all ERP systems are not created equal. They must be equipped to handle double-byte characters, since written Chinese is not alphabet-based. Most of McLeod's customers are multinational companies based in North America, Europe or Japan.
"The companies that come from overseas have a strong need to have systems that give them strong control and visibility," he says. "Especially if they're setting up operations for the first time, they're taking a risk. The quality of the labor is a risk; the quality of the local management is a risk. They're looking for ways to reduce the risks that they are taking. By putting a system in place, it gives them the control they need to do that."
Sidebar
IT in China: different strokes
Not all communication problems in China are cultural.
Lenovo Group Ltd., the computer maker that recently acquired IBM's PC division, had problems getting sales reports from the small stores that sold its computers. It found that while midsize distributors were using a browser-based system and larger distributors filed XML feeds, the mom-and-pop stores weren't hooked up to the Internet.
Still, everybody had a cell phone, says Wu Ying, executive director of business transformation. So a year ago, Lenovo put in place a cell-phone-based sales reporting system, and now mom-and-pop store owners send Short Messaging Service messages on their cell phones. "It's unique," he says.
Today, at least 85 percent to 90 percent of all distributors file sales data, enough to enable accurate forecasting and to help Lenovo know when to offer promotions. "If our eyes are blind, then we will lose the game," says Wu.
Trombly is a freelance writer in Shanghai. Contact her atmaria.trombly@gmail.com.