Chapter 4
The Cultural Chasm: From Bubble Bath to Bicycles
The cultural gap between Western importers and Chinese manufacturers manifested in countless ways. When King Chemical purchased the labeling machine Bernie requested, it produced many defective labels that required teams of workers to remove with solvents and reapply. Early production faced communication problems, including a misprinted label reading "Prinky" instead of "Pinky Fresh."
The factory workers didn't understand product terminology like "bubble bath" or "body wash," instead identifying everything by numerical codes. Many workers, coming from rural areas with minimal education, had never used products like shampoo or liquid soap before working at the factory, creating a significant experience gap that affected quality control. They couldn't understand why customers would complain about faulty pumps when "you can still unscrew the cap."
Workers at the factory struggled with basic coordination and decision-making, illustrated by two bicyclists who improbably collided on an empty road. Without specific instructions, nothing got done. Workers feared revealing their poor education, leading to absurd mistakes like a Turkish shoe order where nails were driven into every left shoe because the sample had hung from a display rack with a nail.
Despite bacteria contamination issues in previous shipments, hygiene remained problematic. Workers carried bottles by inserting fingers inside them, and when confronted, Sister promised only to stop the practice "when you are at the factory." The ultraviolet lights and white coats were merely for show, and attempts to provide soap for handwashing failed when workers simply didn't use it. Management even resisted removing a worker with infected, peeling hands from gel production, with Sister arguing the product had harmed him, not vice versa, asking ominously, "How is anyone going to find out?"
The business relationship extended beyond the factory floor. A-Min invited me for drinks, declaring "Ni xihuan hejiu" (You like to drink). Alcohol played an important role in factory relationships, breaking down facades during negotiations. These outings typically involved karaoke with "hostesses" - paid female escorts who poured drinks and sang songs. The next morning, I spotted A-Min's Honda still in the hotel parking lot, suggesting he'd stayed overnight with a hostess. At the factory, Sister questioned me about the previous night, fishing for details about who attended, appearing not like a jealous wife but someone looking for leverage against her husband.
Chapter 5
Negotiating in a Low-Trust Environment
I hired an assistant named Tina from Hunan who had taught herself English through self-study. She provided surprising insights during our lunch outings, including Chinese approaches to dispute resolution and compensation. After an umbrella scratched my face on the street, Tina suggested I should demand compensation from the person who caused it - about 300-400 RMB (roughly $50). She explained how Chinese settle disputes directly by physically detaining the responsible party until reaching a settlement, avoiding police involvement.
Unlike in America where this would cause a brawl, the Chinese nonviolent approach enabled on-the-spot negotiations. Similarly, I'd witnessed motorists resolving accident disputes themselves without third parties, calculating responsibility and damages independently. This direct approach to conflict resolution mirrored how business disputes were handled - through immediate confrontation rather than legal channels.
The Canton Fair exemplified China's complex business environment. While foreigners easily accessed this massive trade show, locals needed invitation letters or had to enter as translators accompanying foreign buyers. The fair functioned as an international bazaar with extensive haggling and price discrimination based on buyers' countries of origin. There was no single "China price" for products. Importers often found themselves at a disadvantage, being sized up by suppliers who quoted different prices to different markets.
Some importers worried about factories displaying their proprietary designs or selling directly to their customers. Despite threats to move manufacturing to Vietnam or India, Chinese suppliers remained confident as importers from competing countries were themselves placing orders in China. The convenience of Chinese manufacturing kept importers dealing with numerous drawbacks rather than shifting to alternative markets.
When Tina called me in distress at the Canton Fair, I found her in tears after being harassed by security guards despite having proper credentials. The author observes how China's social divide between "haves and have-nots" affected Tina, who faced rejection from tile suppliers unwilling to give her catalogs, sensing she wasn't well-connected. Angered by this treatment, I suggested Tina try a different approach - telling exhibitors she works for "a really stupid foreigner" who could be easily cheated. The strategy worked brilliantly, with Tina collecting bags of catalogs and receiving follow-up calls for weeks afterward.
Chapter 6
Quality Fade: The Slow Degradation Game
Chinese factories engaged in "quality fade" - the incremental degradation of products over time. Johnson Carter discovered our bottles had been quietly made thinner without permission, despite us owning the molds. The factory manipulated quality in small, almost imperceptible steps until bottles collapsed with slight pressure. This turned manufacturing into a game where the factory hunted for savings while importers must discover where corners are being cut.
When Bernie tried to meet with the bottle supplier, King Chemical provided a decoy company rather than their actual supplier. Despite repeated requests, they arranged a meeting with a red herring supplier, as factory owners are often in cahoots with one another when dealing with foreign clients. Bernie tried to hold back orders until the real supplier was identified, but pressure to produce merchandise eventually forced him to drop the issue.
Johnson Carter bore extraordinary risk in its manufacturing relationship with King Chemical. The importer paid full cash upfront before shipping, while retailers received credit terms, creating a six-month gap between payment and revenue. If retailers discovered defects, they could stop payment and charge additional fees for removing products from shelves. Returning defective goods to China was impractical due to red tape and shipping costs.
Chinese factories rarely admitted fault, creating "he-said-Xu-said" disputes. Legal action was impractical since importers couldn't afford to pause business over individual shipments. When factories did take responsibility, they typically offered discounts on future orders - effectively requiring importers to reward problematic manufacturers with more business to recoup losses.
King Chemical's quality problems primarily involved packaging: wobbling bottles, malfunctioning pumps, breaking flip-top caps, and upside-down cartons. Despite having operating manuals, workers either missed defects or deliberately passed them down the line to avoid creating losses for the company. When I asked where defective products were being stored, the foreman admitted they typically boxed and shipped them anyway.
Chapter 7
The Counterfeit Economy: From Emperor to Factory Floor
The author recounts Emperor Qianlong's discovery of a fake Ming Dynasty jade cup that impressed him for its masterful craftsmanship. Rather than being upset, the emperor praised the counterfeiter's skill and even commissioned a special box for the piece with an inscription on counterfeiting. This cultural reverence for well-executed fakes continues in modern China, where counterfeiting runs deep - from art collections filled with fakes to counterfeit currency so prevalent that average citizens develop skills to detect them.
Manufacturers who can spot fakes gain competitive advantage, while those who create them do so with remarkable speed and skill. The most insidious form involves factories taking a customer's original product and recreating it to look identical but with inferior materials. When caught delivering inferior products, they blamed the customer: "For the price you were paying, what did you expect?"
Such arguments were specious - China was experiencing unprecedented economic growth, especially in manufacturing. Counterintuitively, quality fade increased with prosperity, not poverty. As manufacturers gained skills and financial security, they grew bored with conventional success and sought new thrills through quality manipulation. The lead-paint scandal involving a billionaire supplier to Mattel disproved the poverty myth.
When asked to create a deodorant stick, King Chemical first perfected the casing - creating impressive molds that replicated the look and mechanism of the original - while the actual product inside was completely wrong, with the consistency of warm butter. This exemplified China's manufacturing philosophy of building products from the outside in: first creating something that looked marketable, then focusing on functionality.
This approach aligned with the cultural concern for "face" and resembled Emperor Qianlong's respect for appearances regardless of authenticity. It also made business sense - showing a convincing prototype could secure orders and deposits, after which manufacturers would work on getting the product right. Once perfected, they would then tinker to find cost savings, maintaining outward appearance while compromising internal quality.
In King Chemical's warehouse, Sister showed me their counterfeit domestic products - Olan mimicking Olay, Risoft copying P&G's Rejoice, and Best imitating Zest body wash. Their packaging nearly identical to the originals, these knockoffs revealed the factory's comfort with imitation. During winter, I discovered our shampoo turning to jelly in cold weather. When Bernie demanded answers, King Chemical refused to provide formulation details, claiming their copying methods were proprietary trade secrets - despite the product being based on Johnson Carter's original samples.
Chapter 8
Price Go Up: The Negotiation Endgame
Bernie confronted King Chemical about their tactic of raising prices after Johnson Carter had already confirmed pricing with retailers. This pattern of last-minute price increases was clearly designed to transfer profit margin from importer to manufacturer. Despite Bernie's threats to end their relationship, he had returned with even more orders after similar problems in the past.
The dynamic resembled Chinese fishermen who trained cormorants to catch fish but tied their necks to prevent swallowing - Bernie would secure valuable retail contracts only to have King Chemical snatch away his profits, leaving him just enough to survive and continue "fishing" for more business. This practice wasn't new in China. Even in 1965, the Chinese government announced a flat 20% price increase to all foreign buyers just before the Canton Fair.
Bernie had little leverage since production delays hurt him more than King Chemical, who had access to cheap capital and less pressure to complete specific deals. When justifying price increases, factories always blamed market forces beyond their control, crying "Price go up!" whenever raw material costs rose but remaining silent when prices fell. They refused to share detailed market information that would allow importers to verify these claims.
Factories exploited market fluctuations to maximize profits. When copper prices doubled, manufacturers doubled their product prices despite the metal comprising only half the total cost, effectively increasing their profit margins. When China appreciated its currency by 3%, factories immediately raised prices by 3%, but when the Chinese currency later devalued by 10% or more, these same manufacturers insisted they could hold prices steady.
Despite economists claiming "Made in China" was a deflationary force for America, the real deflationary heroes were importers fighting to keep prices low. Chinese manufacturers proved to be formidable negotiators, using pricing tactics that defied logic - charging triple for bottles double the size and claiming volume increases made no difference in pricing. Sister used negotiations strategically to gauge Johnson Carter's profit margins by observing Bernie's reactions to different pricing models.
Unlike other industries that reward customer loyalty, Chinese manufacturers operated a "reverse frequent-flier program" where relationships deteriorated over time. After enticing importers with initial low prices, factories gradually degraded quality while increasing prices.
Chapter 9
The Chess Players: China's Long Game Strategy
Chinese manufacturers built shiny new factories not necessarily for capacity but as advertisements to impress Western importers. These facilities created "curb appeal" that allowed them to justify higher prices, though the same quality issues would persist regardless of the building's appearance. The workers who placed dirty fingers in sterile bottles at the old factory wouldn't suddenly change their practices because of higher ceilings or brighter lighting.
When Sister unexpectedly took Bernie to see their new factory instead of the familiar shampoo plant, he grew increasingly agitated as we toured a facility that was double the size and far more modern than the original. It featured shiny stainless steel mixing tanks, new conveyor belts, and a water purification system. "How could you not know about all this?" Bernie demanded of me. "They don't have enough orders to keep one factory busy, and now they build another one."
For Sister, the new factory signaled an arrival and a changing relationship. During negotiations that day, she remained stubborn and disinterested, wanting Bernie to know she no longer needed his business. Bernie vented on the ride back to the hotel, feeling betrayed after helping establish King Factory. He worried about competing with higher-paying customers for the factory's time and attention.
Despite claims that Chinese manufacturers were forced to make products for no profit, the author observed factory owners growing wealthy while claiming poverty. This paradox led him to question how manufacturers could willingly sell products at cost. The answer emerged when he discovered King Chemical secretly shipping empty Johnson Carter bottles to another location. Following Bernie's instructions to investigate discreetly, he found a small makeshift factory where workers were hand-labeling bottles for bubble bath products - despite having no current orders for this item.
Bernie deduced that the factory was working with an Australian agent who had previously ordered large volumes of bubble bath before disappearing. The factory and agent were producing counterfeit Johnson Carter products, cutting Bernie out completely. For Chinese suppliers selling to primary customers at near-cost, these contraband operations served as crucial profit centers.
Chapter 10
The Global Chess Match: First Market vs. Second Market
From China's perspective, the world was divided into two markets. The "first market" included countries like the US, Canada and Western Europe where intellectual property rights were protected and significant investment went into product design and marketing. Orders from these countries tended to be larger, and manufacturers offered considerable discounts to attract their business.
The "second market" comprised economies where intellectual property wasn't well protected. Though these customers placed smaller orders and contributed little to design, they paid higher prices. Chinese manufacturers strategically positioned themselves at this global crossroads, often earning their entire profit from second-market customers while selling to first-market importers at cost.
Manufacturers exploited their position by moving designs from one market to another. A common practice involved accepting an order for 500,000 pieces from a first-market importer, producing 700,000 instead, and selling the surplus 200,000 at significant markups to second-market buyers. With margins on surplus products reaching 100-200%, factories could afford to price the original order at or below cost.
Chinese manufacturers operated under different economic principles than their Western counterparts. Political connections often mattered more than immediate profits. Factories that employed many workers or brought in foreign currency gained political clout with government officials. King Chemical's enhanced standing became evident when Sister proudly showed a photo of her husband meeting Communist Party officials - in China, guanxi (relationships) was more valuable than money.
Some industrialists used their manufacturing facilities to create other opportunities, like obtaining inflated property valuations to secure loans for real estate investments. Others produced at cost to gain access to product knowledge, market trends, and potential new customers. King Chemical's showroom displayed Johnson Carter products as examples of their capabilities, allowing them to attract other buyers with these proven designs.
Chinese manufacturers no longer needed their first-market importers as much. After years of working together, most know-how had transferred, and second-market importers now generated significant revenue. American importers approached business linearly - buying for a dollar to sell for two. Chinese suppliers sold products at cost because they wanted to reach the customer's customer, make real estate plays, or build government connections. While importers played checkers, manufacturers played chess.
As Chinese manufacturers have grown wealthier, they've found and exercised more leverage with foreign buyers - contrary to American assumptions that China would become easier to work with as it prospered. The manufacturer-importer relationship serves as an allegory for future US-China relations. During the Clinton Administration, when Congress debated China's Most Favored Nation status, the US missed an opportunity to demand political and economic reforms. Instead, American politicians and business leaders rushed into greater interdependency with a nation of questionable reliability. This decision to fling open trade doors before either side was ready - driven by greed and without understanding the consequences - was the one thing related to China that was truly poorly made.
