Learning Experience China 2 - 2

5th November 2008

There is a queue outside a factory in Fuyong near Shenzhen. This is not a queue for workers getting their lunch or waiting for a transport to take them to their hostel but a queue for compensation. Every worker will have about RMB 600 from the state government. In the queue I saw not workers but families. The factory manufactures small capacity transformers for toys and talking to people in the queue, I guess must be closed due to the falling demand for toys which I was quite surprise, afterall X'mas is coming....

There is a Chinese saying that for every factory that closed down, the stalls will be affected. In this instance when the factory that manufacture toys get wind down, their suppliers will be affected and even the small stalls outside the factory will lost their business as the workers who patronize the stall will not visit them. There is a lesson to learn from this story. If you ever go into business, never be the sub contractor to sub contractor to sub contractor. Always try to move up the value chain to be main contractor. For one thing the sub contractor to sub contractor gets to be paid last in the chain. Another lesson is that have a wide customer base and not dominated by one main customer as this case of the transformer company. They have only one customer on their book and also they subcontract the work to build the transformer that goes into a power pack that goes into one part of a toy that goes into the complete assembly of the toy........

By the way the owner of this transformer factory disappear, according to the workers I spoke to. He or she just lock up the factory door a fortnight ago and disappear, no where to be found and no one know where they are. Workers came to work one day and realize that they are out of job...... and for the past one week they have been "rioting" outside their factory....... Closing the factory gate and disappearing is one way of winding down a factory....

I spent the whole of yesterday talking to my client. Sorry cannot tell you who they are.... :-( .... He is facing mounting debt, first from the falling demand in the engineering sector and heavy bank loan which he took to invest to upgrade his machinery. He has three options

1. To close it himself - Voluntarily
2. To have someone to wind him down..... Most likely to be the bank
3. To bear this out, re-structure their liability and not give up

This is a tough decision.

Then there is the question of need to closed down and want to close down.

A business to the entrepreneur is a life - like a baby that they conceive and grow. There is emotion involves with this "baby". There is certain possessiveness. Sometime this "Baby" is more important than their spouse or even children. So when you talk to someone whose "baby" is either very sick or dying, it is a very difficult discussion. The lesson is to be learn from here, is that as an entrepreneur you must be very objective and able to look at a situation from an overview. If the "Baby" is dying and also is going to drag you down (remember the liability of a Private limited company) the entrepreneur must learn to chop and kill it. May sound very blunt but in business and living..... life do go on..... for business may close and start another in another day..... life and family goes on. Coming back to the need and want..... when you need to close it down because the business is going to bankrupt and your wife is going to leave you.... then objective close it .... but if the business has a chance of survival and that 600 families depend on this livelihood then don't give up. Many business that have survived through tough time will come out stronger from the experience.... believe me I have been through it many times :-)

What is my client decision...... to be continued....