Spices have been traded in Istanbul for 2000 years

I spent the holidays on vacation in Venice and Istanbul on a mission to understand more about these two important end points on the Silk Road. Starting around 200 BC and extending 4,000 miles, the Silk Road got its name from the lucrative Chinese silk trade and tea trade in exchange for spices, nuts and jewels from Europe and the Middle East.  In addition, various science and technology innovations were traded along with religious ideas as well as the bubonic plague.    The Silk Road was a significant factor in the development of the great modern civilizations. 

Very few people actually traversed the entire Silk Road.  Mostly it was made up of agents and merchants who bought and sold goods along the way.  At major points, great bazaars opened to facilitate a meeting place for traders.

Istanbul is a city that spans the continents of Asia and Europe and was the end of the overland Silk Road.  Merchants took their goods to the Grand Bazaar where they also traded ideas and innovations.  Walking through the Istanbul Spice Market and Grand Bazaar you can just imagine what it must have been like centuries ago packed with merchants bargaining with one another.  The influences of both Asia and Europe are evident here in the architecture of places like the Blue Mosque and the Hagia Sofia representing Islam and Orthodox Christianity.  And of course in the history of its name: Constantinople and Istanbul.

Venice became a major trade port in the Middle Ages when the Chinese Treasure Fleet (at least 100 years ahead in the mathematics needed for navigation) sailed in, ladened with treasures from China.  In Venice you can see the influence of Asian architecture in the mosaics installed in the Basilica of San Marco.  In the Doge’s Palace the famous maps show the Americas and Australia long before Columbus “discovered” the new world.  Plenty of evidence indicates that the Chinese heavily influenced Venetian map making in the 1300s and early 1400’s.  Just imagine what the Europeans and Chinese thought of one another.

I tried to imagine what it was like in these two cities in the Middle Ages.  With a little site seeing at the Spice Market and a walk through San Marco, it wasn’t hard to do.

But of course, counterfeiting is not limited to defense goods.  Any electronic gadget or equipment is likely to include some counterfeit parts, and the counterfeiters are getting better and better at it. It is so difficult to tell counterfeit from legitimate parts, that industrial buyers are often fooled.  Even the price of counterfeits may be equivalent or close to legitimate parts, thus eluding suspicion about parts origins.  This is a problem of such magnitude, that we are just beginning to unravel the stories.  Counterfeit parts may cause your iPOD to fail early or not work properly at all.  But think about the real danger in counterfeit parts in machinery, automobiles and aircraft.

The only way to control counterfeiting is to maintain control over your entire worldwide supply chain.  This means verifying and monitoring all parts suppliers, distributors, subcontractors and manufacturers.  Take nothing for granted. Know your supply chains from start to finish. Verify and monitor every step of the way.

The Association of South East Asian Nations (ASEAN) Single Windows Project is a USAID-funded initiative to facilitate trade between the 10 member states.  This includes developing standard documents and processes across the member states of Singapore, Indonesia, Malaysia, Philippines, Thailand, Laos, Vietnam, Myanmar, Brunei and Cambodia.

I was invited to lead a Business Process Design Workshop for this group in Singapore in August.  What an honor it was to participate in this event with policy makers and customs officials from the member states.  There were 2-3 delegates from each country plus representatives from the ASEAN Secretariat in attendance.

I started off the day with a lecture about Business Process Design and then introduced a toolkit to assist in developing or revising processes.  The challenge was to use examples that were relevant to import/export and logistics as well as those things that are specific to ASEAN regional trade.  As a consultant and coach, I also like to add colorful examples to drive home the points I want to make.  I chose some images such as an elephant to enrich my stories.

Lecturing and coaching in a very diverse cross-cultural meeting was one of the more difficult things I have ever done….and also one of the most rewarding and enriching.  I hope they invite me back for more.

The Lunar New Year started on Feb 3 and lasts about 2 weeks.  This is the time that Asian families across the world gather to celebrate family and good fortune.  This year is the Chinese Zodiac Year of the Rabbit or The Year of the Cat in Vietnam.  The Rabbit or Hare is the 4th animal in the 12-year cycle.

Happy New Year wishes are expressed as:  “gung hau fat choy” (Cantonese) or “gong xi fa cai” (Mandarin) which generally means “Congratulations, may you be prosperous”

The Year of the Rabbit is expected to be a placid year and very much welcomed and needed after the ferocious year of the Tiger.

Here’s the prediction from the Chinese Cultural Center in San Francisco: Good taste and refinement will shine on everything and people will acknowledge that persuasion is better than force. A congenial time in which diplomacy, international relations and politics will be given a front seat again. We will act with discretion and make reasonable concessions without too much difficulty.

If you have manufacturing sites in China, you should expect delays in shipping as most of the factory workers return home for the long holiday.  During Chinese New Year, there may be no one left in the factory to answer the phone or check email. 

Be vigilant in checking the quality of products made just before and just after the New Year.  Before the start of the holiday, factories rush to complete all orders and ship everything possible.  Quality may be overlooked in anticipation of the holiday.  Just after the New Year, a significant number of new migrant workers (30% to 40%) start jobs or change jobs in factory towns and there may be a significant learning curve, causing quality deterioration.

I’ve been watching and listening to the events and chatter about Hu Jintao’s visit to the US.  There is certainly a striking difference between the way China and the US are acting now that Obama is President and Clinton is Secretary of State.  While there are still many issues to be resolved, there appears to be mutual respect between the leaders.  This makes me hopeful.

President and Mrs. Obama even hosted a rare State Dinner for Hu.  President Bush just had a working lunch.  This is a significant difference in the respect given to US-Chinese relations.  It’s about time America took its head out of the sand and fully acknowledged the second largest economy and fastest rising super power in the world.

The economics of  the two countries tell the story of why it is so important to have a good working relationship.  The US GDP is $14.6 trillion.  The Chinese GDP is $5.7 trillion and rising at double digit rates.  But if you compare PPP (Purchasing Power Parity) or PPC (Purchasing Power Correction), a comparison of consumer buying power in each country, China’s economy is already larger than the US.  And it will continue to grow.  In the next few years, China’s middle class will be 700 million people;  more than double the population of the entire US.  Not only will this be the largest consumer market in the world, it will become the greatest target market ever for US goods and services.

Of course we all understand that China is still working on things like human rights and democracy.  But there is no stopping the warp-speed economic development inside China. 

I visited a toy factory in Guangdong Province, China on Friday.  This factory manufactures plastic toys and represents other manufacturers that produce radio-controlled toys and dolls.  It was quite amazing to see so many plastic toys in one place.

I noticed though, that the Chinese staff was less enthusiastic than usual about selling to me.  I wondered about this, but didn’t say anything.

Then I saw an article in the South China Morning Post about toy manufacturers at the Canton Fair, the largest trade show in the world, going on now in Guangzhou.  The article reported that toy manufacturers were rejecting large orders and those that were more than 3 months out, for fear of RMB currency adjustments.  Apparently, toy manufacturers typically operate on a 2-3% margin and fluctuations in currency can result in losses.  Western toy buyers, however, are still demanding lower prices.  This double-whammy is causing toy manufacturers to reject orders or cautiously proceed.

I am not sure if this is good or bad.  I do know that the low-end toys are sold at low-end retailers such as Wal-Mart where the shoppers cannot afford to pay more.  If there is a shortage of cheap plastic toys, will family lifestyles be affected?  Will this begin to happen with other products?  Is this a vicious cycle?

Currency adjustments to the RMB not only affect the price of imports into the US but they will also affect the razor thin margins that Chinese manufacturers earn.  We must proceed with caution and gently allow the RMB to adjust.  Otherwise, we may be faced with whiplash economic peril in the East and in the West.

But Chinese Prime Minister  Wen Jiabao  and others in the Chinese government are fighting back.  If the RMB is re-valued, they say, it will cause full scale recession in China.  In America and other Western importing countries, it would cause an automatic rise in prices for imported Chinese goods by 5-15%.  If China goes into recession, the whole world will suffer.  The cost of goods to American consumers would increase, theoretically causing us to buy less, thus ordering less from China…and so on.  It’s a vicious cycle that hurts both US consumers and the Chinese economy.  There’s a new world financial order and China can tip the delicate balance if the RMB suddenly increases in value.

But our American politicians on both sides of the aisle argue that millions of jobs will return to the US because it will no longer be cheaper to manufacture in China.  HA!  No way!

Consider the lowly industrial spring.  As I discussed in my recent interview on NPR Morning Edition http://www.npr.org/player/v2/mediaPlayer.html?action=1&t=1&islist=false&id=130258250&m=130260491  even if the price of Chinese-made goods increases by 5% or 10% or 20%, it is still much cheaper to produce goods in China.  The biggest effect will be increases in costs to low-end US consumers.  Consider Wal-Mart.  When low-end goods increase in cost, the Wal-Mart shopper, (probably the least able to afford an increase) gets the brunt of the increased price.  It will cause low-income American citizens to suffer…and it will put low-paid Chinese factory workers out of their jobs as demand decreases.

The same is true if the US Government slaps import tariff increases on Chinese goods.  The effect will be shoved off onto consumers who must now buy the same goods at higher prices.  Again, not a brilliant idea with so many people struggling in this economy.

This is a serious no-win strategy.  I agree the RMB should be re-valued gently over time to create a more level global playing field.  But making revaluation happen rapidly will cause big, ugly repercussions.

Since my book, 42 Rules for Sourcing and Manufacturing in China, was published, it has done very well on

But when NPR called me, I was truly honored and thrilled.  I have listened to and been a fan of and member of NPR for years.  I respect NPR’s approach to programming and enjoy the feature clips.  So the opportunity to be interviewed was fantastic.  The link to the audio story is here http://www.npr.org/player/v2/mediaPlayer.html?action=1&t=1&islist=false&id=130258250&m=130260491   

Adam Davidson, and NPR reporter called me early on Thursday morning and asked me several questions about the cost differential on Chinese-made products if the RMB was allowed to freely float against the dollar.  One of the examples I used was of the industrial springs I have written about in this blog on May 26, 2009.  That was the anecdote he chose for the story.

The story aired on Friday, Oct 1, 2010 on the Morning Edition show.  My 15 seconds of fame!

I taught a 2-day workshop on Sourcing and Manufacturing in China on Sept 16-17.  This is the second time I have taught this workshop, but the first time in the US.  The last workshop was in Shanghai in April.

This time it was in Atlanta and the students were all Americans.  This was a great group of people who were anxious to learn and discuss the possibilities of doing business in China.  I was impressed with them.

More importantly, I keep learning, too.  I have started to examine the ways Chinese culture affects the Chinese manufacturing environment.   Of course, 5000 years of Chinese culture is behind everything that’s said, behind every dinner that’s hosted, behind every ride, every cola offered to you, every small gift, behind every business deal.

One of the most important things I teach my students about is the disparity between East and West cultures regarding contracts.  In the Western world, we rely on contracts to spell out the terms and conditions, expectations and approach for doing business together.  If the contract is violated; we file a law suit and go to court. 

In China, the contract should be seen as no more than a way of communicating the end-state of production.  After the contract is signed, you may be the only person to ever look at it again.  If there is a problem with production or the agreed-to terms in the contract, you are likely to be told, “this is not the way we do it in China.”  The business relationship you have with your Chinese supplier is based on “guanxi” – personal relationships – not on written legal contracts.

If you were to take your supplier or manufacturer to court (and generally, I advise against this because it is a waste of time and money), you are unlikely to get a favorable judgment.   This is because Chinese laws are immature with little precedent history.  Everything is subject to interpretation by a Chinese judge.  In the rare case you might get a favorable judgment, it is probably not enforceable.  Your Chinese manufacturer will simply go out of business.

Taiwan-based Foxconn (AKA Hon Hai)has been dragged from relative anonymity of contract electronics manufacturing services (EMS) into the glaring spotlight, together with its customers, Apple, Dell, HP and others.  Under the lamp, Foxconn’s practices have been examined for evidence as to why young people are committing suicide on the Foxconn manufacturing megasite in Shenzhen.  Shenzhen is a city of about 14 million people (approximately 12 million of them are migrant workers), about 40 miles from Hong Kong.  The press and Human Rights activists point to the low pay, long hours and cramped working conditions.

But all of the stories seem to be out of context.  If you consider the suicide rates for high school and  college students in the US (approximately the same age group), you’ll find that the Foxconn rate is actually quite low: 5.4 per 100,000 which is roughly one-half the rate in the US.  If you consider the wages and working conditions at Foxconn vs other factories in Southern China, you’ll find that they are competitive if not slightly better.

Foxconn is by far the largest contract manufacturer in the world, with about 400,000 workers in China alone.  As a result, they are often the industry leader in innovation, trends and tactics in the management of their manufacturing and assembly operations.  They are also a target for the criticism launched by the Western world and human rights activists. 

All facts and context  considered, Foxconn should not be criticized for their working environment, and the Western world needs to calm down.