Andy Xie was first making a name for himself as a big-time economist when I was back in NY working as an institutional broker on the China desk. That was back around the time of the Asian crash of 1997. I remember following a lot of economists back then - so that I could tell my clients why they were losing so much from the investments I sold them in Taiwan, HK and B shares.

But this time Mr. Xie was a little more optimistic, at least about China. He spoke for an hour over breakfast and gave us some bad news, some awful news, and a little, tiny bit of possible good news.

The bad news is that China is entering a slowdown. The export and manufacturing sector is going to get crushed and the financial sector doesn’t seem to be a real business. Ok - so what? We knew this a year ago.

The awful news is that big parts of the US economy seems to be bankrupt and the Fed is embarking on a Japanese-style zombified recession-athon that will last for years. Well, that was something to hear. A bit of a zinger comin’ my way over coffee.

And the glimmer of hope is that China’s economy will be kept moving in positive direction, albeit a good deal slower, powered by the twin engines of consumer spending and infrastructure. Fair enough. Kind of interesting — but it seems to me that spending in China will slow as the manufacturing and export sectors collapse. If infrastructure is the only thing powering China then we just took a great leap backwards.

But Mr. Xie brought up two points that can be very interesting for expat managers in China.

1) The Fed and Beijing are both pushing on a string. That’s an old finance term for making it easy people to get what they no longer want. They are making it easier to borrow and harder for big business to go bankrupt in the hopes of sparking demand and consuming their way to stability and prosperity — but no one wants to borrow. Interest rates in Japan got down to crazy sub-100 basis points for a while, and it didn’t do a damned bit of good.

2) China has to change it customer orientation. The West (according to Xie) can no longer be China’s only customer. Since China is buying so much from Russia and the Mid East, China must figure out a way to sell to them as well. After all, they’re the ones with the money.

Good lessons for us in our businesses. If you are having to work harder to sell the same stuff to the same people, then may you have to mix it up a little. Demand might not be there anymore — shake up your product line to better reflect what people want or need right now. Not 2 years ago and not someday after things pick up again.

And for some businesses, the real answer might be in finding a completely different client base. For those of you that identify your US business connections as your primary competive advantage, you might want to think about either broadening your skill base or finding new ways to leverage the skill your using. Cuz this might get a little worse and last a little longer than we had all been hoping.

ChinaSolved finds itself in a family way. Not literally, but in terms of HR. It’s time to pick those special managers and key staffers that you want to grow old with – or at least keep on board for another year. You’ll lavish them with special training opportunities and higher pay - management tracks and nicer offices. The good news is that THIS time, you really DO get to choose your family. The bad news – they might not choose you unless you pay them to. What’s the price of commitment and true love in Shanghai these days? That depends on what you’re looking for.

As usual when you’re lookin’ for warm bodies in Shanghai, you’ve got your Pros, you’ve got you’re Semi-Pros, and you’ve got your Devoted Amateurs.

First of all, this is one time you DO NOT want nature to take its course. While that may work fine in some relationships, the tin rule of HR is that the ones you want to hold to on can find jobs anywhere, and the ones you want to see go away will do almost anything to keep their jobs (expect perform up to expectations).

So how do you find true commitment in the big, sweaty city?

Pros: These are the real leaders who can really do the job. Your key to meeting and finding these goldmines? Pay a lot – but not just yet. First you’ve got to plan what they’ll do and how visible it will be. (Hint – they should be RUNNING something big and important, and should be EXTREMELY visible.) Next you have to figure out how to monetize this. You don’t want to use a howitzer to ring the doorbell. If you can put a hotshot behind the wheel of something profitable, then you move on the next step – which is paying for it. Here’s the funny part – you actually WANT to pay for it, because that’s all the Pros care about. Don’t sweet-talk a high-potential hire into working for cut-rates at your shop. It’s just a training gig or a spring-board, and either way you’re the one getting hurt.

Devoted amateurs: Lots of cheap, earnest young workers who didn’t really know how to do much but had lots of enthusiasm and heart. That was the dream of HR departments entering China – in 2001. This demographic was a heartbreaker back then, it got worse as costs rose in the first half of this decade, and since the new labor law has been in affect they’re poison. You’ll need a few around, but the kids without skills are easy to hire but very hard to get rid of – and once you start collecting them it’s an easy habit to fall into. There was a time when we thought we could throw armies of cheap hands at a project and get by. Not now. No no no.

Semi-pros: Whether its day or night, 7:45 Monday morning or Friday at around 11:45 PM, the semi-pro is Shanghai’s most confounding mystery. In HR-world, these are the people with limited experience, wrong experience, weird experience, or some other type of glass-is-half-full thing going on. They’ll be your greatest success and your most disastrous failure. HINT: look for specific skills that you can use NOW or broad experience that you can apply to specific problems. Ie: You need a graphic artist in a hurry– in a pinch you can try a recent grad or someone from a different industry. Or, to take a different case, you see the CV of someone with 3 years of managing teams — you can put them in charge of people or projects right away and coach them through the product or business specifics in the short term. They’ve got huge potential and everyone will love the happy ending if it works, but you’re devoting seriously large chunks of time to this in the first 6 months — and they can be body-blows when a couple go wrong at the same time.

The CEO at the other end of the line didn’t sound comfortable with the conversation. He was calling me — but not as a client or potential partner. He wanted to find out exactly why I - along with 5 other associates — had walked out of his bar last week as unhappy, disappointed, ex-regular customers. And even though the conversation was cordial enough and I complimented his great work in building a well-known brand in China, I think that we both know that I won’t be returning any time soon.

I’ll be blunter here than I was with him: They wanted to save money by cutting costs in their operation — but instead of cutting fat they cut out the brains.

Time are tough all over and the fantasy about China missing the global economic slowdown are looking more and more outdated. Maybe some China businesses will continue on at full speed, but if you are part of the international China economy (ie: selling to expats, multinationals or the local Chinese who spend like them) then you are probably already feeling the slowdown.

Models switch from EXPANSION to DEFENSE

Lot’s of savvy business owners are already trying to shift their model from bull-market expansion to conservative defense of the markets they already have. It’s a fine strategy — but here are a few things to avoid.

Do NOT cut costs these ways:

1) Fire the middle managers because they make 3 times as much.
There’s a reason they make 3 times as much as your line workers. Unless you plan on devoting twice as much time as they did to get 75% of the results, don’t let your middle managers go. Don’t fire them, and don’t force them out with added stress or pressure.

2) Alienate your core customers to save 10 mao.
Turn on the air-conditioners back on. Stay fully staffed. Hire people who can speak directly to your clientele. Cutting waste is good, cutting corners is not. Everyone is feeling the pinch right now — including your customers. Don’t nickel & dime your clients, don’t expect them to feel lucky that the increases aren’t higher. You need these people a lot more than they need you.

3) Lower the value of your offering.
Don’t add new fees or charges for old services. Even if you have to raise prices, maintain the perception of value. Repeat this next phrase until you get it into your head, “YOUR CUSTOMERS DON’T CARE ABOUT THAT YOUR COSTS ARE RISING!!!”. If you are going to try to get more money out of clients or customers, they should feel that they are getting more. So if you are running a restaurant and you need to raise prices across the board, consider overhauling the entire menu to disguise the increases. The second option is to reprint the entire menu. And for those of you still considering whiting-out your old prices and writing in higher ones — well Jesus Tapdancing Christ, maybe it’s time to consider raising your game a little.

4) Lower the quality of your service.
This is the one area where you should be firmly in control. Service is about training and good management. Yeah, I know its hard — but the standards are low and your front line people are nervous about losing their jobs. Remember that in China you have to train more and supervise more closely. If your quality of service is slipping now, then you probably went too far in your cuts someplace else.

5) Forget that talk is cheap.
When the owner of the chain picked up the phone to call, he was doing more than market research. He was doing damage control. This is a great time to open up new lines of dialogue with your customers and prospects. They appreciate it, and you need their support. A lot of businesses in China grew so fast that they tended to view their own clients like just another limitless commodity that needed to be managed but not really worried about. Well, if the news from the rest of the world is any indication, business owners in China need to start worrying.

Your China HR budget is going to be severely stretched whether the China business environment is good or bad. HR spending in China has gone through the roof, and you are going to have to start worrying about retention and turn-over more and more.

Until now, you’ve probably been looking at controlling turnover and maximizing what little you have to spend on training as two completely separate problems. In China we have a strange situation where training - particularly outside training — is highly desired and sought-after. But the problem is that by the time your expensive training programs bear fruit your bright young manager may already be working for the competition.

Take a look at SmartChinaOrg.com ( www.smartchinaorg.com ) for an interesting take on ROI and training in China. It turns out that training’s true role in the organization may be more complicated than just skills & processes. In China training can be an important and cost effective tool for retaining key employees.

Here are a few ideas to maximize your training ROI — as a retention tool

1) Have a regular schedule. One cool training session 14 months ago stands out in your mind, but your team has forgotten it ever took place. Plan a regular schedule — which should include major multi-day events and smaller, less formal events.

2) Use for team building. Your Chinese HR manager may still think that packing a room full of unrelated employees is a great way to spread costs, but it kills one of the most important potential benefits — the team build. 6 - 8 in a group is best, anything under 20 can still work. Over 25 in the room and you are in danger of it turning into a lecture.

3) Outside is better than inside. Professionals are better than colleagues. Anyone is better than the boss. Make the training a break from routine. Let them get out of the office and go to an event at a hotel or conference. Put someone on a plane to HK or Beijing. This is a great, moderately priced way to recognize performance or smooth over a rough patch.

4) Chunk it. They aren’t going to learn the art and science of sales in a 3 hour seminar, so don’t waste their time and your money - unless you are getting another kind of benefit (fun, cheap, etc). Instead, focus on skill that will be beneficial to the company right away. In the case of sales, I’d work on phone skills with your locals and younger guys and closing techniques or sales management with your more experienced people.

5) Follow up immediately. This should include something real. A budget, a project, a promotion, a new office, an assistant, a raise - something. This is all cheap (relatively) and HIGHLY TARGETED. You can use it when and with whom you want — but it works much better as a preventative than as a cure. If they’re already talking to someone else, a 2 day workshop on time management ain’t gonna save it.

As with any kind of spending, follow up systematically and choose your metric carefully. I recommend months on the job be one of them.

Your China HR spend is high and going up fast. You probably already know this. If your are like most managers in China, you are looking for a way to control payroll — and it’s important that you don’t pour gasoline on the fire with a poorly planned (or unplanned) policy on salary negotiations.

You do, in fact, have a choice when it comes to dealing with your high impact employees. Pay more now or pay more later.

Take a look at your key middle-managers. If they’ve been on the job for more than 3 months and haven’t set the place on fire yet then they are probably thinking about the raise and promotion they expect you to give them any day now. There are two ways for you to play this.

1) You can pre-empt a major, potentially ugly salary negotiation by beating them to the punch and giving them a raise and/or promotion before they ask for it.

2) You can follow a more traditional route of delaying, waiting for the annual review, pleading poverty, driving down expectations and generally resisting any pay raise.

Which makes more sense in this market environment?

The pros of giving them a boost BEFORE they ask is that you can usually get away with a smaller increase, the promotion will have more impact and you preempt them from actively searching for a new & higher-paying job. You will also make them happier and improve the general moral in your shop — assuming your new manager’s colleagues agree with your assessment and can reasonably expect similar treatment.

The Cons? You can expect to repeat this process fairly regularly — both with the manager you like and all of his colleagues you may not like as much. The other problem is that this often turns out to be a short-term morale booster that raises longer term expectations. You also have to be on the lookout for an ugly surprise in the event that your guy is hip to your trick of paying less early. There’s a real risk that he may thank you — and then take this as a cue to commence much more agressive negotiation.

If you are like most traditional Western managers, you are going to do everything you can to delay the conversation about salary raises and promotion for as long as you possibly can. Is this a good idea in today’s China?

Well, the good news is that it’s certainly cheaper in the short term. While a few Chinese managers and staffers are quite outspoken and direct, most tend to avoid head-on confrontation. But pleading poverty or telling him to wait for the annual review often has a different outcome in China than it does is the US or Europe. The manager in question may very well leave your office all quiet, resigned and polite — and then pick up the phone and find a new job with your competitor in no time. Now, if this were NY or London, you could expect an ultimatum or emotionally charged negotiation to get him to stay. In China, however, he may disappear without a word. Yes, I know — you trained him, showed him the ropes, taught him the business, and treated him like a son. If you’re lucky, you’ll only have to give him a 25% raise to convince him to stick around. You may never even get the chance to make him an offer.

So what’s the best strategy? Early on, decide who you want to keep and how much you are willing to spend to make that happen. Then manage closely during the first few months and hit your high-potential people with a raise before they ask — but don’t stop there. You should also put him on some kind of management track - THAT HE KNOWS ABOUT and give him extra training and development opportunities. You won’t be able to do this for everyone — so you have to make a conscious, strategic choice about who is worth keeping and have a plan for for making that happen.

Check out our new project — www.SmartChinaOrg.com . It’s a site devoted to leadership and team-building for international managers in China. We’ve tailored it for mid-level and upper managers who are responsible for boosting productivity and accomplishing more with fewer people. If you are the guy who gets chest pains when the companies office manager and best salesman both quit in the same week, then this blog’s for you. http://www.smartchinaorg.com . Good luck out there.

HR prices in China are about to go up – steeply – no matter what happens to the economy. If you are involved in the service industry in any way – and that would include all of us – then you are faced with the option of paying a lot more early or late. The only alternative is finding creative, out-of-the-box-thinking solutions – but we all know the chances of THAT working out.

The funny part is, this may all work out just great for you. Or someone like you.

New Millenium Math

Things in China have gotten expensive. Annoying for you – devastating for the masses on the lower rungs of the middle class. Anyone earning under 6,000 rmb a month is really feeling some pain right now, and that probably includes a lot of the people you have working for you – and plan on keeping.

If the Chinese economy gets sucked down into the global morass of sagging economies, then you are going to be swimming against a very cold, fast tide to cut costs and maintain profitability. You will need to cut those costs by firing people – or at least letting attrition work its dark magic. The few key people you have left will be shouldering more and more responsibility – and they are probably smart enough to figure out that they are being shafted. The guy in the office down the hall will gladly give their salary a heft bump to replace the pissed-off, overworked middle manager who just quit his shop for the same reasons.

If the Chinese economy avoids a slow-down then you’ll still be faced with broad-based salary hikes – but now in addition to paying more for those competent managers, you’ll also be bloating up your team with a lot of low-experience, high gross-pay employees under the new labor contract. And every one of them will need another piece of real-estate, a computer, software licenses (I may be goin’ out on a limb here, but you know what I mean), training, and lots of other costly extras. You will have a hell of a time making productivity climb as fast as your payroll does.

Dreams of Shanghai as a high-tech, high-concept outsourcing center seem to be wafting away on the hot breeze.

In “Waiting for Godot”, the famous Beckett play that many of us vaguely remember reading in high school, the characters are paralyzed by anticipation of the arrival of a mythical being that will give meaning and purpose to their pointless existence. There is no action or decision that should not be delayed until after the arrival of this omnipotent demigod– whom no one has seen and no one really knows too much about. It’s a humorous and intellectually challenging notion on the stage – but it’s a disaster when it takes place in your China operation.

Yet every time my client puts up a help-wanted posting, the company seems to ease into an expectant stupor – waiting for the new designer or IT guy or sales manager who is going to bestow order and logic and meaning.

What about your shop? Are you and your team getting hung up waiting for the mythical Da Ge who will fix everything?

Waiting for Da Ge usually takes 2 forms.

Sometimes the company makes a key strategic hire or expects a big gun from overseas to be transferred. It makes sense to defer big decisions and delay trying to solve troubling bottlenecks until the new person arrives, because they will be bringing with them new resources, experience and perspective. Solving big problems is, of course, the job of senior people, and it is only natural and positive to expect a great deal from new leaders.

Other times, however, the company slips into a much less healthy state of paralysis. Often a business will be suffering from some problem or inefficiency, and the bosses reluctantly agree to expand headcount and post a ‘help wanted’ listing for a new hire. In one recent case I was involved in the hiring of a firm’s first graphic designer. Suddenly, every single problem could only be solved after the designer arrived. Sales presentations, brochures, seminar announcements – even internal strategy documents – had to wait for the new graphics artist to work her magic. The only problem was that no one knew when the designer was arriving, what she was really capable of or when she would be ready to start contributing to the company.

The decision to hire is so important to rapidly growing China-based businesses that it can have an unanticipated impact on the company. When it leads to greater efficiency or competence then it’s a creative disruption that can help the company reach new heights. But all too often entire departments go on hiatus and delay every decision as they wait for the arrival of the mysterious unknown.

More and more expat businesses in Shanghai are turning to marketing outsourcers to help them with specific parts of their trade. Some need help starting a new product, while others may want to grow the territory. The problem is in finding outsourcers you can rely on. This is especially true in China, where it’s hard to verify a track record.

One thing you can try is to have them show you more than a cookie-cutter proposal that references vague job functions at big companies. That isn’t going to help you.

Keys to developing an ‘internal’ business plan.

1) Goal-Setting.
This is the beginning and the end – the alpha and omega. If their plan isn’t centered on specific goals then they are driving fast with no destination in mind. Good marketers develop good targets. If you’re buying marketing services then you have to beware of potential ‘sand-baggers’ – guys who set their own projections too low so that they can avoid pressure and still finish with dramatic target-busting performance.

2) New approaches & methods.
Innovation is good. When you hire a marketing team, you are really empowering them to represent your business. If they are not bringing their own ideas, experience and intellect to the mix, then you are getting cheated. Encourage your team to come up with new ideas that push the envelope and try new ways to attack your market.

3) End to end solution or integrations & education.
Decide what you want and go for it. Some outsourcers are like contractors – you want them to come in, do something, pass it off gracefully and go away. Other times you want them to start something permanent and hang around long enough to iron out the bugs and train your people. Either is fine – but you should have an idea about what you want and then structure your search around that.

4) Costs, limits and realities.
A business plan that doesn’t differentiate between normal expenses and extraordinary business restructuring isn’t really a plan. Yes, innovation and new ideas are great. But every organization has limits – and if your guys plan runs counter to company rules or practices then you are gonna have a rough road.

5) Ambitious – but realistic.
The best plans push the system without breaking it. Generally you’re looking for guys who can produce more with less, but don’t make that your only criteria. Marketing has the ability to magnify the force of your company, but only you develop and execute the right plan. Your real stars will come up with new ideas that take into consideration shifts in the marketplace, competition and new technology.

“I love working for Bob. He’s so whimsical and mercurial. Remember that project he had me start 3 weeks ago? The one that was top priority and required me to work weekends and stay until 7:30 or 8:00 every night? Well, it turns out that not only doesn’t he need it – but he’s known for 10 days that it was pointless. Isn’t that a hoot?”

It’s actually pretty rare for top managers to speak this way. Low-level staffers, on the other hand, do learn to work this sort of leader pretty quickly

What can you do to make sure that your team sees you as someone to follow – and not an obstacle to manage?

Entrepreneurs behaving båadly isn’t necessarily a ‘China Issue’, but the large number of entrepreneurs and lack of management depth means that once you start down the wrong road you can get lost pretty quickly.

What can leaders of fast-growing companies do to make sure that those whose respect is crucial to success don’t view them as a loose cannon?

1. Track the projects you start. 

It’s you responsibility to keep track, and to let your team know when things change. The higher your position, the more you time you spend managing other people’s activities. Not having a clue what your top people are working on means that you’re clueless – not that you’re important. CEOs of giant firms consider this a crucial success factor – and so should you.

2. Don’t hit the panic button too often.

Limit the “drop everything and do this right now” projects. How many #1 priorities are you assigning in any given week? If you are saying, “this is a top priority” more than 2 or 3 times a week, you may be diluting the importance of your own words.

3. What happens to the output? 

When you’re people sign off on a big project, does it get filed away and forgotten about or is it contributing to the success of the business in a real and tangible way? If your guys feel that they’re doing pointless busy-work, then they’re going to become low-quality performers. That pathetic old saying about the “mushroom method of management” (keep them in the dark and feed them bullsh–) is even sadder when you’re doing it by accident.

4. Creativity isn’t another word for flakey. 

Just because you are innovative and impulsive doesn’t mean that the normal rules of business have been put on hold. Too many young managers confuse innovative or dynamic with inconsistent and unpredictable. The further outside the envelope you are, the more important basic leadership skill become.

5. Delegate intelligently.

Delegation doesn’t mean giving someone else the crappy jobs, and it doesn’t mean using low-level staffers as punching bags. It does mean ceding real responsibility to trusted staffers and making use of your key people’s intellectual firepower and strategic abilities. Don’t make the mistake of thinking you’ve hired a team of clairvoyants who can fill in the dark and shadowy voids of your brilliant but vague vision.