Thursday, January 10, 2008

Mind Games

I'm not sure that I'm built to do business with and like your typical homegrown local (and I'm not sure that's a bad thing). Though perhaps not as despairing as "This is China's" experience, the games that are played are somewhat frightening when you step back to think about it.

For the level of ingenuity being used to cheat and fool each other, you would think that China should be one of the most innovative nations in the world. It has been pointed out to me that even in some of China's largest companies, they keep the books numerous sets of books in enclosed rooms that require going through the General Manager's office to reach - such that if the government comes knocking, the computer can be quickly burnt to a crisp. One of the last people you also want to cheat is your accountant because they will simply submit your books to the government (and apparently this is not that uncommon).

That said, not paying your taxes here in China are the rule rather than the exception. Further, 'not paying your taxes is neither unethical nor does it set a bad example for employees'. It has been argued to me that this wasn't "cheating" given how much government officials have been "cheating" the country themselves.

Closer to home, I know of a factory where a trusted employee found all sorts of ways to cash in. From "entertaining" clients/local government officials, buying "official receipts" on the cheap, to pocketing the rent on the factory that was initially comped by the landlord in exchange for signing the lease, to chintzing on the food budgeted for factory workers for meals whenever the owners were not around (which was a lot). Finally, he even held documentation hostage threatening to submit it to the government because of tax evasion. It made me completely rethink the utility of encouraging employees to refer friends and family as most of this was accomplished through the hiring associates who came from his village. Indeed, because of the way the factory was managed different directors/managers attempted to build their own little fiefdoms each with the intention of cooperating to cash as much out of the factory as possible.

Which brings me to my latest adventure. As noted, we are going through the machinations of buying a vendor. One of my associates has taken the lead on the specifics and explained to me what was necessary since we still wanted one of the owners to remain and manage the company. One of our controls will be the hiring of an accountant who will report directly to us. It was like it was straight from the Godfather. He explained the risk that the accountant could eventually conspire with the owner. The associate explained to me that we would hire someone locally (the owner is from a different "village" (of a few million people) entirely) so that we could know where that person's wife, kid(s), brother/sister, grandparents lived so we could "deal with them if anything went wrong." I'm a little worried by what he means by that.

Later during the day, I sat through what I thought was an entirely casual conversation picking up completely different meanings than the associate. The level subtext could require a cultural interpreter. My associate pointed to everything from questioning one of the owner's motivations, to what was being implied. While the specifics are relatively unimportant, in frustration I couldn't help but ask why this guy didn't just come out and say what he meant - to which my associate sighed that I just didn't understand, saying I'm not Chinese and that this is the way things are. Of course going into this, at least I am doing it with eyes (relatively) wide open.

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