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Offshoring Gone Wild: Stories from the Front

Jan. 13, 2022
Readers share experiences with Chinese business ethics.

I ended my December 15 article, “A Look at China’s Unethical Business Practices,” with the comment that “I’d appreciate hearing about any experiences you have had or know of relative to Chinese business ethics.”

Whoa! That statement sure must have hit a nerve, since I heard back from a lot of readers who provided me with a couple of dozen firsthand experiences related to that request.

They are compelling in their own right, so I am sharing a representative number (edited for spelling and grammar) of reader responses:

Worthy of Laughter

On the import side from non-Chinese companies, we see goods stopped or slowed due to variety of issues. I always laugh at U.S. tariffs against China as they have thousands of regulations they can impose on foreign companies. When the U.S. puts tariffs on Chinese goods coming into this country, they just pull out one or more of those regulations and apply them to our products. Thus, they have no need for tariffs. Most people aren’t aware of them since they don’t announce their actions to the world.

Held Hostage

When our company has tried to move our product out of China, local Chinese logistics companies haven’t released it. This has amounted to millions of dollars of product. In trying to get the goods released, we have had no real help from local government to release back to our company. These same companies have also tried to bribe us to get those materials released; again, we received no help from the government. When my employees in China tried to go to the warehouse to inspect our goods, the warehouse owner had hired security and wouldn’t let us see them.

Disassembly Required

Chinese customs officials often force manufacturers of imported goods to reveal technology specifications and supplier information photos and then [customs officials] physically inspect it. China customs has even built clean rooms to inspect imported products that typically can’t be opened in a regular environment. This would seem to imply that they disassemble them for their inspection. They have even asked my company for full access to our SAP.

IP Theft

Intellectual property theft is the biggest issue in exporting goods to China. Chinese employees steal key IP and start their own competing companies. The Chinese government does very little to stop this from happening. Most high-tech companies I have been with keep products with high IP out of China. And we pretty much understand that we will lose the old technology we sell there.

Amazing Subsidies

Through portals such as Ali Express, small Chinese exporters can quote amazingly low shipping costs, via a concealed government subsidy. I'm located in Australia and can receive small commercial goods in air packages sent from China to Australia for just 5% to 10% of the amount that Australia Post would charge to send them across my own city. This is because at the Australia end of the shipment, delivery must compulsorily be performed by Australia Post at no charge! Why? Because of an agreement … within the Universal Postal [Union]. This means that UPU member China can set pennies-on-the-dollar airmail packet postal rates for [Chinese] exporters, thus subsidizing their companies. Australia Post is bound to deliver our imports from them to the last mile. Of course, any Australian small packet exporter would have to pay the exorbitant Australia Post rates to send anything to China, so it's a unidirectional distortion.

Scam Alert

My company is a manufacturer of gears/ pulleys etc. We also sell bearings as a distributor. I—the purchasing manager—and our bearing sales manager to go to a huge bearing show in Shanghai, China and of course, we were inundated with suppliers wanting to show us their factory and goods.

Read more of Paul Ericksen's supply chain management articles.

We set up one meeting for the next day. This guy says it was his factory. We did the tour and at the end got to packaging area. He asked us what brand of bearings did we want? They basically had every box from every bearing brand out there and would just put the same generic bearing in a box identified as the brand of bearing the customer was interested in.

The following day we set-up another tour with another supplier. The guy were we’re working with took us to the same exact factory we were at the previous day, saying it was his factory … we got the hell out of China soon after that. Anyone that does business in China is asking for trouble.They have zero integrity.

The Chips Fall

I was the production manager at an electronics company in Huntington, New York. Small place, maybe $3 million in sales. The primary focus was electronic controllers where we would find a machine manufacturer that had knobs and buttons on their control panel and redesign with a touch panel / LED display readout. Think treadmills as an example.

We landed a contract with a company out of New Jersey to redesign their controller for dry-cleaning machines. The owner of my company was also the primary designer. To save costs due to the expected volume, he planned to have a Chinese company manufacture the units. The New Jersey company recommended someone they used in China. To my dismay, the owner of that company did not blow out [make unreadable] the chips that were put in the controller for evaluation purposes… Well, the owner of the dry-cleaning machines showed up two months later demanding a price decrease as he had a newly designed controller from China—and you already guessed it, the Chinese unit was a carbon copy of our unit. The NJ guy was a real jerk and he used the Chinese company to steal our design.         

Circling Back

I was tasked to help with export paperwork, having a prior past life experience with Harmonized Tariff codes.

It seemed to be spun as a positive, progressive move but always appeared to be a domestically destabilizing activity.

Chronologically, my job ended in February 2005 and the business’s auction of assets occurred in 2008. A shame as the company started in 1932 and was purchased in 1983.

Interestingly, what remained of the company was sold to a Chinese investor about five years ago who has defaulted on many agreements, and there is current activity to purchase it back by previous ownership.

It will be interesting to see how it unfolds.

Paul Ericksen’s book is Better Business: Breaking Down the Walls of the Purchasing Silo. Ericksen has 40 years of experience in industry, primarily in supply management at two large original equipment manufacturers. 

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