Q: What do many IT departments & the Chinese government have in common?


A:  The old “give us your framework & we’ll do the work & cut you out” tactic.

What does this mean?  A friend shared the following link with me.

  • Why Amazon Can’t Make A Kindle In the USA – Forbes
    I recently noted how conventional cost accounting inexorably focuses executives’ attention on increasing short-term profits by cutting costs.The same thing happens in economics. Take a recent study that set out to shed light on the role of Chinese businesses vis-à-vis American consumers. Galina Hale and Bart Hobijn, two economists from the Federal Reserve Bank of San Francisco, did a study showing that only 2.7% of U.S. consumer purchases have the “Made in China” label. Moreover, only 1.2% actually reflects the cost of the imported goods. Thus, on average, of every dollar spent on an item labeled “Made in China,” 55 cents go for services produced in the United States. So the study trumpets the finding that China has only a tiny sliver of the U.S. economy.  So no problem, right?

The story talks about the dangers of outsourcing oneself out of an industry & gives the example of how Dell outsourced their operations to ASUSeTek & in the end ASUSeTek came back as a Dell competitor and stole their market right out from Dell, selling Asus PCs into Best Buy at cheaper costs, cutting Dell out as the middle man, once they learned the business through Dell’s internal operations.

The Chinese are well-known for this “we’ll do the work for you, then we’ll cut you out as the middle man” tactic.  As you may know, consulting organizations get this from customer IT departments all the time, thinking they’re being ‘crafty’ saying, “Give us your full project plan as your proposal & show us a framework of how to do the deployment… then we’ll take your template & do the work ourselves.”

Fortunately there are limitations to this knowledge transference ‘technique’ – especially when the customer is in way over their head and doesn’t have the expertise, savvy, or vision to accomplish the job correctly:

Take the story of McDonnell-Douglas:
China pulled this exact maneuver back in the 1990s with MD telling them that if they wanted the multi-billion dollar China Air & Govt plane contracts they had to train Chinese to build & maintain the planes themselves:

MD had no choice. The problem was, there was a massive language barrier that multiplied the time required to traing the students by 6-8 fold.  They ended up flying out to train on Chinese soil – very slowly – through translators using extra-demonstrative techniques like assembling engines with transluecent piping that students could visually examine & view thru, plastic parts that could easily be hand-assembled and snapped together to minimize the assembly time, during class, etc.  After the multi-year project was thru, the Chinese never called them back and went radio silent.

4 yrs later they were brought back out of the blue under very costly contracts to examine “what they did”.  To their surprise, the Chinese started fabbing the parts per the specifications given in class.  More surprisingly, they had put the plane together using ‘class parts’ – including translucent piping, snap-together assemblies, etc. and couldn’t understand ‘why things didn’t work’.

After ‘fixing’ the dozens of ‘misunderstandings’, 12 pilots were brought in to fly the first MD-80, assembled on Chinese soil.  6 knew the story about the plane’s assembly and refused.  I don’t know if the MD engineer who told me this story & was involved with the trainings was exaggerating but he told me, these 6 were all declared traitors of the state and sent to a firing squad.  The remaining 6 pilots went under duress.  The plane’s first flight lifted for a couple seconds before it was forced down. 

The Chinese continue to purchase planes from Boeing & AirBus today.  They maintain the fleet they have but it’s a well-known statistic that China Air has the single greatest number of fatal air disasters in the world, next to Cubana & Air Zimbabwe, who are both statistically insignificant in relative volume. http://www.airdisaster.com/statistics/

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