What happened at Feng Ping and what does it mean to western companies doing business in China
3. January 2014
After five years of spending months at a time there, Jim Fiocchi doesn’t know if he’ll ever return to China. Back in the states for just a few days, Jim admits over the phone that he’s still jet lagged from the 12-hour flight from Hong Kong to O’Hare, but there’s more weighing on him than the 14-hour time difference between Chicago and South China. (Pictured above, John (left) and Jim Fiocchi).
Four days earlier, in mid-December, Jim and his brother John fled the company they founded in 2008 under the cover of night and hidden in the back of a car. For the two weeks prior to their escape, they were prisoners within their own business, held hostage by a combination of employees and vendors.
I’ve been a guest of Feng Ping on two occasions, most recently in the fall of 2012, staying at the plant both times. News of the company’s disintegration—fueled by alleged rampant embezzlement by key employees, who are also accused of colluding with the same vendors that barred the Fiocchi’s from leaving—came as a complete shock.
A different model
When I first visited Feng Ping in 2011, I didn’t know what to expect. If you’re in this industry for any amount of time, you’re bombarded by two things with some frequency: solicitations for mold sales from Chinese tool makers, and horror stories about business dealings with Chinese companies that have gone spectacularly awry.
I’d visited with Chinese molders and moldmakers on a prior trip, and was getting closer to what I felt was a better understanding of the plastics industry in that country, moving beyond stereotypes of shops with dirt floors, free-for-all intellectual property theft and wholly unscrupulous business practices.
Still, even with as much as I thought I knew, Feng Ping was a surprise. For one, Jim and John owned the business outright, no Chinese partner (often a key element in the aforementioned horror stories). Jim and John also lived at the plant with their workers, sharing meals and rotating in and out of South China and their homes in Chicago to make sure one of them was always in Feng Gang. Again, many a horror story includes absentee Western partners returning to their joint venture to finds locks changed (or businesses up and moved completely).
At a time when companies like Foxconn were making headlines with mass suicides of overworked, grossly exploited workers at plants in South China, I found a happy, engaged workforce at Feng Ping. Workers who took meals with their bosses and seemed to genuinely appreciate the American owners’ nods to their culture. Chinese New Year’s was marked with a feast of food and fireworks; Feng Shui was acknowledged in plant layout, and Eastern medicine and spirituality were present throughout the factory. When I last visited, Jim and John were building a bar/club on company grounds for workers to relax in, as well as a grocery store, where they could buy real cigarettes, for instance, instead of the counterfeit smokes sold in town.
Beyond all that, from free English classes to taking 23 of them to Orlando for NPE 2012, Jim and John strove to award their most valued employees; many of whom they’d worked with for nearly two decades, going back to the Fiocchi’s Box Enclosure business, which started sourcing molding and tooling from China over 20 years ago.
Jim and John even took pains to learn Mandarin, interspersing local language into conversations with Chinese nationals who were at first shocked, but then pleased, to hear their mother tongue coming from a Westerner.
So what happened? According to Jim and John, Mr. Loak, a key manager (Jim said he was one of the original ‘brothers’, a core group of Chinese nationals who had been with the Fiocchi’s before Feng Ping even existed), had been embezzling money for months. The scheme is not unfamiliar to people who’ve done business in China.
Vendors markup purchase orders to companies, with kickbacks from overpriced goods and services flowing to the supplier and the employee signing the PO. Jim and John had talked to me about kickbacks during my visits, acknowledging that they’re pretty much an accepted business practice in China—a problem that could be managed if never fully vanquished.
Mr. Loak allegedly went farther, however. In addition to skimming nearly $5 million from Feng Ping, according to Jim and John, Mr. Loak set up a shadow company, intercepting purchase orders meant for Feng Ping and funneling them to a new business he was establishing with other, key Feng Ping managers (Jim and John believe 18 managers were involved).
When I visited the company, Mr. Loak was the person I was sent to any time I had specific questions about business levels at Feng Ping. If there was one employee who had full access to all the company’s dealings, it was him. Within a few clicks, he could give me an entire range of key indicators from his computer, everything from equipment on order to mold builds in progress. Quieter than a lot of the workers I met there, with black glasses and a slight build, Mr. Loak was still friendly and quick with a smile, if a nervous one.
Before the company expanded rapidly (growing from one building and just over 100 employees to 11 buildings and 800 workers), Mr. Loak shared an office with Jim and John—a nod to his importance to the company and the trust he was given by the Fiocchi’s.
Making sense of China
Here’s where I admit I do not understand China at all. I’ve been there four times in all, having generally positive experiences each visit, and coming back thinking that a lot of the worst stereotypes I hear about it are close-minded oversimplifications. That said, many stories were troubling, and despite a mostly full embrace of capitalism, the country operates for all intents and purposes as a totalitarian state.
But my experience at Feng Ping told me a westerner could thrive in China. It would take more work and more vigilance, but it could happen. Now, I really don’t know. I held up the Fiocchi’s as a model of how to do that, but seeing their business implode after they took all the steps you’re supposed to take to avoid disaster, who knows?
When I visited Feng Ping, I was never the only Westerner. Dropping in and out would be representatives from other companies who found Feng Ping after nightmare experiences with other China shops. Like a support group, they would cathartically share their China horror stories and express how happy they were to have found Feng Ping.
When I spoke with Jim, he estimated that 250 customer molds, in various stages of completion, were stranded at Feng Ping. Jim and John had undertaken various steps to ensure tool delivery, while also trying to pay workers and vendors, but the scene at the plant had devolved into chaos. Vendors blockaded the plant, keeping Feng Ping from selling equipment or delivering tools (which of course further exacerbated the financial hardship). At one point, Jim said workers looted the plant, while local police looked on.
The company has filed for bankruptcy and presumably the matter will be settled by Chinese courts. Thinking about many of the horror stories I heard, however, I doubt if anyone involved believes that “the rule of law will” win the day.
“If you’re a foreigner in China, and you go to a Chinese court, you automatically lose,” Jim states flatly. “If you’re not a Chinese citizen, and you are facing a Chinese national, you automatically lose, even if you go with all the evidence, all the proof.”
Jim told me that regardless of what happens, he and his brother come out of this experience wiser, if not richer or poorer, as they return focus to the ventures they had before their China experiment.
“Right now I could never imagine myself going back [to China],” Jim says. “Most of these people, we’ve known for 15 years. They all basically betrayed us, and hurt our customers to make a little bit of money and start their own company.”
On my first trip to Feng Ping, Jim, John, and I spent some time in the town of Feng Gang. Several times, locals—in particular older ones—would stop in their tracks and stare at the sight of westerners. Jim and John were used to this, and considering how closed off China had been just 30 years prior, the reaction was understandable. When I look back now, however, I wonder if China in a broader cultural sense can ever fully accept foreigners.
Chinese leaders would be wise to note stories like the Fiocchi’s, or the biggest challenge to the country’s ascendancy could be the assumption that westerners will always be viewed, and treated, as outsiders. In the past, China thrived as a closed culture and country, barring trade and interaction with foreign countries. Today, however, China positions itself as a global player—a status it cannot fully achieve without opening up. (Below, left to right John Fiocchi, Jim Fiocchi, and Mr. Loak).