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Oct 31, 2009

Why are the Chinese Focused So much on Food and How this Affects your Business in China

The Chinese have a traditional way of greeting each other.  They say “chi fan le mei you?”  This means, “have you eaten?”  I heard from Sean Hayes of our Korea Law Practice team that Koreans do the same thing.

They also say hello and how are you and long time no see and stuff like that, but, the traditional way to greet someone is by asking if they have eaten yet.  This is unusual to say the least and often misunderstood by foreigners in China.  There are many theories of where the greeting began and I won’t go into those – the most important thing is to understand how important eating is in the Chinese culture and psyche.

Many years ago, when I had been here for about a year and thought I knew a lot about China, I was driving through a district of Shenzhen (a city with 12 million + people) and it came to me why eating was everything in China.

It was about noon and we were weaving our way through the throngs of people leaving their offices/factories, and the cars, taxi’s, buses, three wheeled gasoline powered tricycle things, and every other contraption known to mankind.  Now, I wasn’t driving but I was in the passenger seat and my driver was in 5th gear going 30km per hour and the car was shaking and I kept wanting to reach over and down shift for him but I refrained and gritted my teeth until they started to disintegrate.

It didn’t help that I hadn’t had anything to eat since that awful cup of Chinese hotel coffee and greasy fried bread stick that I had earlier that morning.   So, I tried to get into that Zen state that has gotten me through some of the most uncomfortable situations and I looked out the window at the chaos that was unfolding around me.

Right when I was concentrating on my breathing, I looked down the road and thought I saw what looked like a buck naked caveman eating a coconut.  ”I have taken this Zen thing to a completely new level” I thought to myself and looked away.  "Can’t be a naked caveman, surely someone would have taken him away or thrown a shawl around him or given him a fig leaf.”

I looked back in the same direction just to see if I might have not imagined this and there he was, a completely naked caveman eating a coconut.  He looked exactly like Tom Hanks in that movie where he is stranded on the island with the volleyball – not the fat Tom Hanks but the one after he had been there for a few years.

As we approached, he was on the area that in most countries would be a sidewalk, but in China is actually a labyrinth of open manholes, electric scooters carrying propane, rickshaws loaded down with styrofoam, dangling high tension wires and an assortment of other wonders and dangers. He was indeed naked and brown, obviously from not wearing any clothes, and his hair was matted and dreadlocked, obviously from not having a haircut, and he was eating what looked like a coconut or some other thing with a hemplike exterior.  Now in Borneo or Sumatra I wouldn’t have been surprised to see this phenomenon, but in Shenzhen China at noon on a busy work day – I was shocked.

The caveman walked through the crowd and no one even paid any attention to him.  He just leisurely strolled along and the Chinese purposefully moved on their way to somewhere without noticing him.  I wondered what they were thinking: “naked man – hmm,” "naked man – gotta get back to work,” "naked man – time to eat,”  "that coconut looks good – I’m hungry,” oe “what’s a caveman?”

I asked the driver, in Chinsese, about the man and he said, “what naked man?”  I said, “that one right there in front of the car” and he said oh, and I’ll never forget what he said next and you shouldn’t either because it’s the moral of this story, he said “where do you want to eat?”

Well, I was hungry and I have been to many of the big cities in the world, but I have never seen a naked caveman walking down the street eating a coconut and I just couldn’t think about food right now.  I said, “that man is naked, won’t the police or someone come to take him away?”  He responded, “maybe he is crazy, now do you want Chinese food or McDonalds?”

I couldn’t let it go that quickly so I called a Chinese friend and told him what I had just seen, he said “he’s probably crazy, do you want to eat hotpot tonight?”  Unbelievable is all I could think and I said I would think about it and call him later.  We had passed the caveman and were rolling along in 5th gear when it hit me.

They are obsessed with eating.  Now I don’t know where it came from and don’t really concern myself with the roots of their hunger obsession, but I just, then, realized that eating consumes their mind and probably gets in the way of otherwise productive thought.

Having been in China for a decade, it’s no longer a surprise to me when someone asks “have you eaten?”  I now respond with a yes or no and ask them if they have eaten.

I like to eat, especially big old Texas hamburgers and a good pizza and even some Chinese food, but it doesn’t consume most of my waking thoughts.  So I started to think about other things like productivity and creativity and rationality and how they apply in China and I keep coming back to the caveman and the people around him that were singly focused on something other than his being naked walking down the city street.  It has to be food.  They are always thinking about food.

I haven’t done any research with focus groups or control groups or any groups for that matter, but I have looked around and observed and I have reached the non scientific conclusion that the Chinese are more concerned about eating than anything else.  Even their obsession with money and saving face and smoking is far outweighed by eating.  For those of us China veterans we know that trying to accomplish anything from 11:00 a.m. until 2 is next to impossible.  I have even suggested that if anyone thinks about attacking China, they ought to do it during lunch because the Chinese will probably think, “look at that we are being attacked and overrun by aliens, where do you want to eat?”  Note to aliens, I have given you this pearl of wisdom without sending you a bill, please wait until I am out of the country.

So, if you are thinking about doing business in this huge and burgeoning China market or have done business here for years, you should understand the customs and psyche of the people who are and control this market.

While they can do good work and are industrious and hard working and entrepreneurial and lots of other things that I won’t mention here, they are often distracted by some genetically coded obsession with eating.

Plan your meetings accordingly, schedule factory/supplier/partner meetings first thing in the morning or mid afternoon (after they have eaten and slept).   Bring candy and pass it out if you see their blood sugar meters dropping into the “your head looks like a bowl of noodles” zone.  Don’t get frustrated, instead try and understand the things that make them tick and adapt to their ways, which you will never change in 5,000 years and i believe you will be more successful in doing business in China.

You won’t believe this part, but several weeks later we were driving through a completely different district in Shenzhen and i had reached another conclusion that the other gears didn’t actually work and that’s why we were in 5th all the time and who did we see – yes, the caveman.

Naked as a newborn (with brown skin and pubic hair and dreadlocks) and this time he was eating a banana! A banana!!  Even Hollywood couldn’t script this.

Scene 2. Naked caveman walking down the street in Borneo, no let’s make it Shenzhen and he’s eating dumplings or noodles, no a banana this way it looks like he pulled it right off the tree.  You’d think I wouldn’t be shocked but I was and I got excited and said to the driver, “look at that naked man he is the same one we saw two weeks ago isn’t he?”  He said, “what naked man, we never saw a naked man . . . are you hungry, where do you want to eat?”

The post was writtent by Frank Caruso.  Frank is the head of the China Law Practice at IPG.  He has lived in Shenzhen for over a decade.

Oct 28, 2009

Promoting Economic Freedom

Korea Times

October 23, 2009
by Sean C. Hayes (Host of this blog)

Two roads diverged in Korean yellow woods. Will Korea remain on the road less traveled and maintain its cumbersome regulatory framework governed by an inefficient, illogically burdensome and self-interested bureaucracy or will Korea free itself from its autocratic regulatory regime and bureaucracy and choose the other road?

In a country with a notorious Sybil-type personality, only the most arrogant of pontificators will take a stab at predicting the future of Korea.

What is definitely known about it, however, is that most economists and business professionals nearly unanimously opine that we must free ourselves from autocratic, authoritarian and government-focused regulatory regimes in order for the people of nations to prosper.

In short, we must respect and foster economic freedom. The leading indicator of economic freedom is the Index of Economic Freedom.

The index was developed by the Wall Street Journal and the Heritage Foundation and has empirically established, over its 15-year history that those nations that have increased scores year-on-year have nearly universally increased their economic prosperity and those nations with high scores are the most prosperous of nations.

Korea ranks in the ``moderately free'' category behind regional rivals Hong Kong, Singapore, Australia, New Zealand, Japan, Macau and Taiwan.

The seven economies ranked free are Hong Kong, Singapore, Australia, Ireland, New Zealand, the U.S. and Canada. Twenty-three nations are ranked ``mostly free" and include the United Kingdom, Iceland, Japan, Austria, the Netherlands, Germany, Sweden, Norway and Spain.

Nations ranked ``free'' had per capita GDP average of $40,253; ``mostly free,'' $33,428; ``moderately free,'' $15, 541; ``mostly unfree,'' $4,359; and ``repressed,'' $3,926.

Also, higher ranked nations receive higher scores in the Human Development Index, Pollution Control Index, Democracy Index and other prosperity related rankings.

The Index of Economic Freedom has also shown that nations that decrease their score year-on-year decrease their overall prosperity, while nations that increase their score year-on-year increase their overall prosperity.

Korea in many areas ranks as a ``mostly free'' nation. It has respectable rankings in business and monetary freedom and less than ``mostly free'' scores in financial, trade and investment freedom, government size and property rights, and of course dismal scores in freedom from corruption and labor freedom.

The good news is that the Lee Myung-bak government has made significant regulatory reforms during its administration.

The most significant reforms have been in the area of tax, zoning and industrial complex procurement and development, environment and capital markets, but many of the reforms have been thwarted by the efforts of a vocal radical liberal super minority that is highly capable of manipulating the population into believing in their anti-American, anti-free trade, anti-foreign capital and pro-militant labor policies.

Another great development under the Lee administration has been the Regulatory Reform Committee. The committee is headed by one of Korea's great scholars, Choi Byung-sun.

Choi has been a lifetime advocate of economic freedom and has taken a prominent role in the administration and his committee has taken a prominent role in fighting what he has noted on the committee's Web site as ``nonsense'' regulations.

The future of Korea may be in hands of the mainstream if the mainstream can be motivated to act. If the mainstream is willing to stand up against the minority it is likely that Korea will head down the path to joining the ranks of the most developed nations.

The question remains whether the Lee administration or other political leaders can motivate this mainstream to stand up against the minority or will major reforms be stymied again by this politically powerful, yet, small minority.

This post can be found in Korean here.


Learn from Lee Administration

Korea Times

October 2, 2009
by Sean C. Hayes (Host of this blog)

The Lee Myung-bak administration and local governments have been pumping money into the economy through infrastructure spending. The administration has also lessened the regulatory burden on builders and provided funds for infrastructure and other building improvements.
U.S. President Barack Obama, on the other hand, created a stimulus package that overwhelmingly has been used by states to pay for social program promises by politicians and feed the folks that put the Obama administration into office.

For example, a group backed by Al Gore received a $600-million grant to develop an electric car; numerous charities that promoted liberal democratic causes received a stimulus fund; $30 million went to a train station that was abandoned for over 30 years; and $1 billion is going to a ``FutureGen" power plant that seems likely to be never put into operation.

Of course, if the Republicans were in office this same type of cronyism would have occurred, but in a time of such need the political powers should have left politics at the back door.
Many Republicans and Blue Dog Democrats are beginning to question and realize that this stimulus package did little-to-nothing to improve the ailing American economy and will simply lead to a larger deficit, higher taxes and potentially a longer recession.

The stimulus, thus, seems to be failing us.

Obama's promise that the unemployment rate would stabilize at around 7.9 percent if the stimulus bill was passed is off by 2 percentage points, and the argument that the rate of increase in unemployment has decreased is backed by no evidence.

Furthermore, economies such as Brazil, China and Germany, that implemented smaller stimulus packages and maintain low debt as a percentage of GDP have fared much better in this economy than countries such as the U.K. and the U.S., which implemented massive packages and maintain high debt as a percentage of GDP.

This may indicate, but no comprehensive studies with large data sets have yet been completed, that the stimulus programs may not accomplish the pump-priming Keynesian effects envisioned, and that lower taxes and a natural decrease in the asset bubbles would have done the trick.

If this is the case or not, the Lee administration approach to the stimulus should have been the path taken by America. These programs will have a lasting effect on the economy, since infrastructure spending has been shown, in numerous studies, to increase a nation's efficiency and growth rates.

The Lee administration, realizing the value in infrastructure improvements, has implemented a plan to expand Incheon International Airport, update transportation to the airport, build and/or remodel new local and national government buildings, while lessening the regulatory burden on builders.

The Lee administration has additionally created a Green Initiative Fund and vowed to spend 50 trillion won for these green projects.

America's economy may not have been benefited by the stimulus package, but would have been benefited and is in need of a drastic overhaul of its infrastructure.

According to the president of the American Society of Civil Engineers, the U.S. has ``been operating on a patch-and-pray system." The ASCE has published a report giving America a "D" in infrastructure and claimed that America would need to spend $2.2 trillion in order to get to a "B."

There is some good news on the horizon. Obama seems to realize the problems with America's infrastructure and has vowed in campaign and non-campaign speeches to improve the ailing American infrastructure. Hopefully, this infrastructure package will not be linked with wasteful cronyism like the first stimulus bill.


Oct 1, 2009

Protecting your Intellectual Property in Korea

Korea Times

October 2, 2009
by Sean C. Hayes (Host of this blog)

A popular song regularly played on the radio proclaims that in the summer of 1989 the songwriter was ``trying different things and smoking funny things.''

If you have any exposure to the Korean market, do your business a favor and don't be like the songwriter.

All business with any exposure to the Korean market must have a plan in place to protect their intellectual property.

Thus, for the sake of your company, at a bare minimum, you should follow these simple recommendations prior to entering Korea.

Every public company and most private companies have valuable intellectual property. In Korea, and most of the world, this basic plan will assist in protecting and also fostering your company's intellectual property.

We should not forget that often intellectual property is the most valuable asset that your company possesses and thus if you have refused to have a protection plan in place, you should question whether in the fall of 2009 you to have been ``trying different things and smoking funny things.''

Therefore, first have your business do a complete inventory of your intellectual property.

Form a team to audit all your intellectual property including your patents, trademarks, service marks, books, manuals, videos, software, know-how, and trade secrets.

The team should include, at a minimum, a senior manager experienced in the internal workings of the company and an outside consultant (attorney or intellectual property consultant) who is experienced in creating inventories.

The team should send a tailored questionnaire to the heads of all your company's departments.

From the questionnaire and other ascertained information, the team should produce a complete intellectual property inventory that details what intellectual property the company possesses and evidences how much the intellectual property is worth to the company.

Second, as in the words of the U.S. Commercial Services in Korea, ``protection of intellectual property and the laws governing enforcement of these protections exist but are not necessarily extra-territorial. What is understood and practiced in the United States is not always practiced in Korea.

``U.S. companies wishing to sell their products or services in Korea should first and foremost register their intellectual property rights (copyrights, trademarks or patents) in Korea.''

Call a lawyer and get your intellectual property registered. The cost of registration is minimal.

Thirdly, have a plan in place to deal with intellectual property violations.

The plan should include an internal monitoring and worldwide registration and licensing scheme; an action plan to deal with intellectual property violators and patent trolls; formating of a team that is responsible for maintaining and fostering intellectual property rights and making sure that intellectual property is properly reflected in the company's financials.

Fourthly, have a law firm, in Korea, on retainer. A monthly retainer, in Korea, with prepaid hours is inexpensive.

Direct the firm to investigate, contact violators, draft license and distribution agreements, regularly review your intellectual property invoice and take an active role in further developing an appropriate scheme.

Additionally, keep the firm in the loop on all new intellectual property developments.

Lastly, integrate the home office with the Korean entity. All too often the Korean branch is totally out of the loop and hence unaware of developments at the home office. The Korean branch, in not only intellectual property, but in other company areas should at least be near the loop.

This basic plan will not only help to protect your intellectual property in Korea, but also assist U.S. public companies in avoiding the long arm of Sarbanes-Oxley.

For the sake of your company and the sake of not being labeled by your board as potentially ``trying different things and smoking funny things,'' implement this basic plan.