Let’s go ahead and get the question out there: Is it a cultural phenomenon for the Chinese to be overly frugal when doing business, to the point of shooting themselves in the foot? In other words, are the Chinese inherently cheap? Many see it as just “cutting a few corners,” but look at the surfeit of examples when it comes to the Chinese sacrificing quality to save a penny on labor, production, etc. : collapsing buildings, lead and other hazardous (cheap) paints on toys, poison in the foods (baby formula, etc.), etc. are all tragic outcomes. (One has to wonder though whether the Chinese didn’t take a few business classes from Wal-Mart execs.).
Chinese citizens are known to be the world’s best savers, to the point that it’s effectively preventing them from transitioning from a manufacturing based export economy to a consumer driven one. And it’s not just that the Chinese are exhibiting destructive “cheap” practices in China, but they seem to be bringing the same self-defeating behavior to other countries as well.
[A] Chinese company asked me to reserve a hotel room for them at a trade show. I got what I thought was a great deal at a Residence Inn across the street. Not fancy, but very convenient. (They are a $500 million company targeting revenue of $50 million in the USA the first year, so I did not believe hotel expenses were a big deal.) When they arrived, they canceled the reservation I’d made and went 12 blocks down the street to a (seedy?) hotel to save $25/night.
One recent question to a U.S. Ambassador of an undisclosed Asian country about whether the Chinese were investing heavily in the country where he is serving brought on dialog about how much Chinese investment thrived on discounts. The Chinese are after all hailed as some of the most savvy business negotiators on the planet. They didn’t get that way by throwing money at the deals.
Perhaps China’s recent history (last 200 years) of foreign intrusion, political turmoil, abject poverty, massive human loss during the cultural revolution, and a reckless ascent into dog-eat-dog capitalism has taught them to save where they can and utilize resources wisely, or else. We see this hyper-frugal residual behavior from Americans who survived the Great Depression–Remember grandparents who would go so long before buying new shoes that holes wore through the soles? Or obsessive coupon cutters, and food canning/storage types?
But there seems to be a shift in Chinese investment attitude, at least on some fronts. In this 2010 CNN Money article, American Made…Chinese Owned: Full Version by Sheridan Prasso, a quote about Chinese-owned Yuncheng’s decision to locate in Spartanburg South Carolina reminds us that price is at the heart of the deal, but not the only issue at hand when it comes to investment:
But unlike its neighbors in Spartanburg, Yuncheng is a Chinese company. It has come to South Carolina because by Chinese standards, America is darn cheap. Yes, you read that right. The land Yuncheng purchased in Spartanburg, at $350,000 for 6.5 acres, cost one-fourth the price of land back in Shanghai or Dongguan, a gritty city near Hong Kong where the company already runs three plants. Electricity is cheaper too: Yungcheng pays up to 14¢ per kilowatt-hour in China at peak usage, and just 4¢ in South Carolina. And no brownouts either, a sporadic problem in China. It’s true that American workers are much more expensive, of course, and the overall cost of making a widget in China remains lower, and perhaps always will. But for hundreds of Chinese companies like Yuncheng, the U.S. has become a better, less expensive place to set up shop.
It would seem that Chinese companies don’t mind paying a little extra in order to reap qualitative benefits, outside of the cheap labor motive many international companies hyper-focus on. If you noticed this example isn’t compatible with the stereotype that Chinese business people are cheap. It reflects a higher level of sophistication, perhaps even reminiscent of a lecture in Sustainable Business 101. The attention to price is still there, but there are more important things in life than cost accounting. Maybe, like clean air? Freedom of speech? Pride in product?
What do you think?