Stuff the trade

The news yesterday that two former executives of Bristol - Myers Squibb (a pharmaceutical giant) have had prosecution charges dropped against them, spurred this post. These two were top executives 5 years ago and apparently indulged in “channel stuffing” – the practice of dumping stocks into the wholesale or retail trade in order to show higher sales for a quarter or a period. As happens with such practices, if taken too far, one day they catch up with you. In the case of Bristol-Myers, it did and they had to publicly state this and their stock market value fell ; this was what led to the attempt at prosecuting these two executives.

Every consumer goods company in the world does this, to some degree or the other. Consumer goods companies do not sell directly to the end consumer, which is you or me. They sell to a complex distribution chain – wholesalers, retailers, etc etc. What they show as sales in their books is what they sell to their first link in this distribution chain . Its quite possible to give high discounts and sell large quantities to show higher sales in the books, although retail consumers are not buying any more or less. But then, come next quarter, this is sitting like an albatross around your neck – so you have to do even more just to keep the story going. It all swells up, until one day it becomes too much and the company goes public saying this has happened and take a “one time correction”. And promptly start the cycle all over again.

It had gone to such ridiculous extents in the past that factories needed to be set up to cater to this “peak demand”, only for them to sit idle after the dumping was over. Wholesalers were setting up warehouse capacity to hold these “dumped stocks” , which were entirely unnecessary. This practice has come down a bit after giant retailers such as WalMart and Carrefour who buy direct from the manufacturers, survive on lean supply chains and refuse to go along with such nonsense. But it can still be done in a lot of places with lots of people.

You would think that companies stuffed with bright people would see through the idiocy of this and not do it. You can win only in one quarter or perhaps a few – it will very obviously catch up with you. But then the irony is that the more the number of bright people in a company, the more this happens. It would be rare to find a company in the world that doesn’t do this in some form or the other.

That doesn’t make it a fit case to prosecute people as they have attempted to do in Bristol Myers. This is not a case for prosecution. Stupidity in business is not a crime. Trying to make a case by saying that they mislead investors by reporting higher sales is stretching it a bit too far. It’s the Board and senior management that has to watch over epidemics of imbecility that sweep companies from time to time. And if they don’t do their job, they will get sacked in due course.

Next time you buy a product and find its manufacturing date well into the past, you know what’s been happening ……

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Hey Jude - One for the cabbie

Of all the travel “companions” I have had, there has been none more interesting than the cabbie. Just today, I was returning back from the airport, wondering if it would be the first Sunday post I would miss and what do I get ? – an amazing experience on the cab ride back home.

There’s something about cabbies that makes them fascinating conversationalists. Maybe because they bump into all sorts of people every day. They see life in all sizes and shapes. Not all of them are great to be with , especially if they are mobile phone addicts, but most are and I’ve had some interesting experiences in different parts of the world that have stayed on with me.

The guy in Jo’burg. He was a white who revealed that he was actually a qualified Chartered Accountant. But then there’s a sort of reverse apartheid in South Africa these days. He said jobs were hard to come by for whites and he was better of driving a cab !

The guy in Woking who drove me to Heathrow. He was from Muzzafarpur in the Pakistan part of Kashmir. He said no Kashmiri who was sane wanted independence. His solution to the Kashmir problem ? He would make the existing partition permanent and allow people to chose if they wanted to live on the Pakistan side or the Indian side. People can move to whichever country they wanted to live in. End of story.

The guy who drove me from Cairo to Alexandria. For 2 hours he gave the finest rendering of Arabic songs I’ve heard and we had a rollicking time despite the fact that he couldn’t speak a word of English and I don’t speak a word of Arabic !

The cabbie in Melbourne. For some reason ALL cabbies in Melbourne are from India. This was around the time when there was some violence against Indians in that city. He said much was made out of one or two incidents ; he himself felt absolutely safe in Australia and Australians were lovely people. A sane voice of reason when passions were inflamed.

The New York cabbie is in a class by himself. I’ve been with drivers who were from India, Pakistan, Bangladesh, Jordan, Lebanon, Congo, Liberia, Kenya, Jamaica, Mexico, and probably the entire United Nations, but I’m yet to meet a cabbie who was born in the US !

The London cabbie , of course. Just get him talking on football and off he goes. Since I know something about English football, I needle him knowledgeably about whichever team he supports and a merry argument can be had for the full trip.

The Indian autowallah – well; a whole book can be filled with that experience.

The recent anecdotes have , of course, been with Chinese cab drivers. Made wonderful because they can’t speak any English and my Chinese is pathetic enough to send them into uncontrollable fits of laughter. They then absolutely want to talk to me to correct my Chinese and some of the best lessons I’ve had have been on the backseat of the cab (due apologies to Zhang). Invariably they want to know where I am from and when I say India, their immediate response is that Indian women are very beautiful. Why ? Because they have big eyes !!

But today was special. I landed in rainy Guangzhou late in the evening and got into a cab. My awful Chinese didn’t provoke laughter. Instead he switched on some music from a CD and to my surprise it was in English. He was trying to make me feel “at home”. He then started to sing along – he must have done this to many foreigners and picked up the tune. I sat open mouthed in amazement as I drove to the strains of the Beatles and one incredible Chinese driver, who didn’t know a word of English, but could hum along to Hey Jude !!

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Damned if you do; damned if you don't

The financial markets have gone gaga over the Chinese central bank’s announcement over the weekend that they would allow the Yuan to rise gradually. There has been almost unanimous international pressure on Beijing to let this happen for sometime. But then Beijing does not like others telling it what to do (after all, who does ?). It will do what it wants, when it wants. But Chinese reluctance has little to do with foot dragging in international diplomacy. It is caught in an almighty quandary.

If the Chinese central bank does not intervene as it does daily, the Yuan would have surely risen a fair bit by now. And probably suddenly. That would be disastrous for China. China is an export led economy. It’s export operating model is huge scale, low costs and wafer thin margins. Costs are under pressure as wage costs rise and general inflation bites. It can only be partly offset by moving factories to the interior where costs are lower than the coastal provinces. Firstly factories are not so easy to shift. Secondly it is a fair disruption to start all over again somewhere else. Thirdly, costs are rising in the interiors too and might only buy 3-4 years time. This blogger has been stating repeatedly in this blog – China is no longer the lowest wage country for manufacturing – pound for pound, India is cheaper, let alone even cheaper countries such as Vietnam.

Therefore if the Yuan were to rise, and rise fast, the export led economy would massively lose its competitiveness. And the specter of unemployment looms. China’s political and social model is centred around providing jobs and big scale economic improvement to its population. Every year, China adds to its workforce numbers that are equivalent to the population of most countries. Any threat of unemployment is even more disastrous to China than anywhere else in the world.

Every company I know , is already factoring in a much stronger Yuan to its future plans. And that means looking elsewhere for manufacturing. Not shifting factories, as yet, but looking to expand elsewhere outside China. Growth of manufacturing in China is now already a huge challenge – people have started to factor currency appreciation and China is not looking as rosy.

But the option of not letting the Yuan rise is worse for China. That’s what is happening today. The Central Bank intervenes buy buying dollars and selling the yuan. This has caused a mountain of yuan sloshing around China. One obvious danger is inflation. The second serious threat, which has already happened, is massive asset bubbles. Both the stock market and property market have gone crazy. The Chinese suffer from the same universal delusion that property prices will go only one way. We all know what happens when property prices fall; as they surely will.

All this is a massive opportunity for India – the only other country in the world with the scale to take on China in manufacturing. And, India is doing its very best to ensure that it can never compete. Low costs alone cannot win. You need infrastructure, sensible land policy, power, government will. Faced with an open goal, an injured goalie and preoccupied defenders, the Indians are busy trying to dribble in the opposite direction and score an own goal.

Back to China. You have to have some soft corner for a country facing a problem because it has succeeded wildly. It is faced with a piquant situation. Damned if you do. Damned if you don’t.

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Clothes maketh the man

This blogger is prone to swings of a sartorial nature in the Sunday posts. Considering that he is a recipient of several "Worst Dressed" awards, this is a tad curious. But then you can hardly answer tags that ask “what are you wearing ?” (a matter of sublime importance to the fairer sex), in a non sartorial way. And if you have strong views on the necktie (aired here) and on that horrible abomination that Indian ladies wear (aired here), then perhaps it is inevitable that such a matter finds its way into this blog.

This post is instigated by one of the most awful sights in the football World Cup in South Africa. No its not the vuvuzelas, awful though they are. No its not the utter depths that the England football team has descended to. It’s the sight of Diego Maradona in a suit !

I have long been intrigued by what is worn on the sports field. When you play, or coach, or do whatever, on a sports pitch, you ought to look elegant. But its amazing how many manage to dress in something utterly comical. Take tennis, which is the game with probably the worst displays of them all. Pride of place goes to Pete Sampras, who played divine tennis, but in a striped kachcha (an underwear that some Indian men are sometimes seen lounging around in). And that too in the hallowed Centre Court , where the Duke and Duchess of Kent lord over, impeccably dressed. And the women players specialize in wearing silly outfits that purely cater to somebody with an underwear fetish.

Or take the sport of snooker. Pray, why does anybody have to wear a bow tie while playing ?? The silliest sight today, in any setting, is an old gent in a bow tie; and then they make young snooker players wear that awful contraption, But then what can you expect from a sport, where their idea of injecting sex appeal is to have one lone female referee ! Or take American football. Huge hulks wearing tight fitting flimsy trousers is not a sight for sore eyes. Take even cricket. Pajamas have been, alas, accepted for a long time ( where did that era go when gentlemen dressed in impeccably starched whites played cricket), but do they have to be green at the top and red at the bottom (Gils please note).

But football is a curious case of complete anachronism. The payers are OK – decent shorts and decent tops. But the managers ?? Dressed most inappropriately in a suit. Football managers are prone to pacing up and down the sideline, yelling obscenities, questioning the parentage of the referee, making theatrical shows of despair at a miss and utterly comical celebrations at a goal. You can’t do that in a suit, for gods sake. The sight of Maradona hugging and kissing Lionel Messi dressed in one of Saville Row’s finest, is enough to put me off football forever.

But then there are some small mercies. These days women are making their entry into one of the last male bastions – football. The day when a woman football manager emerges is not far off. The very thought of a salwar kameez clad football manager doing all of the afore described actions is enough to make me tremble with sheer terror. I can even swallow the sight of the sartorial extravagances of Maradona.

But then, Diego, just do us a favour. Please. Wear something a little more in keeping with you. We’ll give you a toot on the vuvuzela for that !

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What is BP really responsible for ?

Yesterday was a theatre that has now become a regular feature of US political life. A self righteous and pompous Committee of the US House or Senate “summons” a CEO of some company and harangues him. Political windbags fall over themselves to misbehave with a foreign national. Yesterday was the turn of BP’s CEO Tony Hayward. It got so bad, that one of the Representatives in the Committee, Joe Barton, actually apologised to Hayward and then the howls from the lynch mob made him recant the apology.

The White House and the US Senate and Congress has forced BP to fund a $20 bn escrow account for “damages” with regard to the oil spill and for it to be administered by an “independent” third party and pay out claims. What they have essentially done is to ask BP to write a blank cheque. BP has no choice really; and it duly has written a blank cheque.

Make no mistake. BP is at fault. For taking safety too lightly. For not having a backup plan at all – in the companies I have worked in, you get sacked for not having a Disaster Recovery Plan. BP had clearly short circuited disaster recovery. You don’t think of alternate recovery measures after the disaster has happened. That’s virtually a crime in business. They have to suffer the consequences. If companies are allowed to get away with it lightly, they’ll take more and more short cuts. They cannot be allowed to.

But what is BP really responsible to pay for ? The cost of plugging the leak. Sure. The clean up; without a doubt. Some penal damages for all this mess; absolutely.

But then wait. This is after all the US of A. All sorts of claims are likely to emerge. More uncertain , but credible, claims are fishermen whose catch is affected. Oil workers who don’t have a job because drilling is stopped. There’s a strong case to be made for compensation to both.

But then loud claims are being made for much more. Because the beaches are closed, tourism is falling. So the hotel operators are suffering. Shops catering to tourists have seen decreased sales. Entertainment clubs are doing slow business. What about them ?

Even better – The Governor of Alabama is claiming that the state's tax revenues are down because tax revenues from tourism are down. The consequence is that he has to cut funding for schools. Some teachers will lose their jobs. BP must pay them. Next I am sure will come the airlines. Not enough people are flying to the area. They should be compensated.

This is the problem with creating such a fund which will be managed by somebody “independent”. Whoever manages this, will have to cater to “public opinion” which at the moment is little better than a lynch mob. As the saying goes, if you give a flower garland to a monkey, don’t be surprised at the consequences. Handing $20bn to politicians to manage is deadly stuff.

Now, BP can afford this. Very likely its final bill will be way in excess of $20 bn. Even that won’t kill the company. But this is a dangerous trend. Just because somebody can afford to pay, demanding the money is not right. Establish who is to be compensated and by what amount. Determine it by just and fair evaluation, not because paying everybody wins you an election. Don’t accept a claim from everybody under the sun. Once this is established, make BP pay.

Creating a slush fund and then inviting everybody to dip his snout in the trough is no way to run anything.

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Datta Samantism in China ?

Readers of this blog may be forgiven for not being familiar with the late Dr Datta Samant. He was a fiery trade unionist in Bombay in the 1980s who changed the industrial relations scene in India. His style was extremely confrontational ; he specialized in making demands of 700% wage increases, going on strikes invariably and was prepared for an agreement only upwards of a 100% wage hike. The textile industry in Mumbai was virtually destroyed by him . A few workers benefited when managements caved in to his demands ; but on the whole most, and especially Bombay, lost.

Not as dramatic, but something on those lines is happening in China. There has been a coordinated strike in Honda’s manufacturing plants in southern China demanding wage hikes. Honda increased wages by 24%. Foxconn, the company at the heart of the unfortunate suicides in its plant in Shenzhen , has increased wages by upwards of 30% to reportedly 100% for some. Guangdong Province, the factory to the world, increased its minimum wages by 20%. Industrial disputes have risen manifold in the eastern coastal belt where much of China’s industry is located.

Industrial relations in China is very different to the rest of the world. There is no real organized trade union , unlike in most other countries. Worker rights are usually non existent or trampled upon. Strikes usually cannot happen without “approval”. The average worker has little say ; he can be sacked easily and replaced a dozen times over.

Yet a collective swell of worker activism is happening. This is also the result of demographic changes happening in China at breathtaking pace. The early boom had been fuelled by dirt poor migrant labour fleeing misery in the interior and coming to the coast for what appeared to be the Promised Land. Rapid upliftment from poverty occurred. Now that the escape from poverty has happened, the working community is looking for more. Minimum wages which appeared at first to be a fortune, now appears to be a pittance. Costs have started to rise. China is no longer a “cheap country” – pound for pound, India is now significantly cheaper, leave alone even cheaper places like Vietnam.

Tectonic changes will happen in China I believe. Industry is starting to drift westward as the coast will start to look more and more like a Japan. Some will start to drift out of China altogether. There is no country in the world with the ability to take on the scale of China, so an exodus will not happen, but a drift surely will. The interior of China is still a low cost region, but even that is rapidly changing. China’s manufacturing might is built on low costs, wafer thin margins and huge scale. It can least afford cost escalations of any significance.

For longer term sustainability, wages have to rise, but slowly. Not the Datta Samant variety , but a steady increase each year. This enables aspirations of labour to be met, without destroying the economic model that created the industry in the first place. It also enables productivity and innovation in cost management to kick in to offset wage increase.

Datta Samant is a very bad example for workers to emulate. Wage increases, yes; but sudden massive increase ? NO ! Its not in anybody’s interest.

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Oh ! Jerusalem

Of all the places in the world, there’s none so unique and none so disturbing as Jerusalem. This Sunday its a sport free post – while sport is indeed a passion of mine, I appreciate that many fair ladies who visit this space are not exactly enamoured by macho displays of tribalism (which, in one sense, is what sport is). So I turn to the another of my interests, travel, to provide food for this morning’s ramblings.

Yet another of my passions instigated this post. I am a self confessed ardent admirer of BBC Radio. In that hallowed place, one of the most enjoyable of broadcasts is “From Your Own Correspondent”, where BBC correspondents around the world take a break from chronicling the world’s miseries and instead talk about life as they see it. Wonderful wonderful series that I heartily recommend. Two days ago I listened to Matt Fry talk about Jewishness and Jerusalem in a brilliant piece that is ringing in my ears; hence this post.

I have been there and Jerusalem is like no other place on earth. There is something in the air, that even the most devout of atheists will find it hard to ignore. The air is thick with prayer. Three of the world’s greatest religions – Judaism, Christianity and Islam, consider it one of the most holiest of places. In the one square kilometer of the walled city, there is the Western Wall, Judaism’s most holy place, The Church of the Holy Sepulchre where Jesus is said to have been crucified and buried and the Al Aqsa mosque, the third holiest shrine in Islam after Mecca and Medina.

Not being from any of these three religions, I can have some objectivity in viewing Jerusalem. From extremely pious and devout people to outright nutters, Jerusalem attracts every kind of religious belief. It is truly the religious capital of the world. It should represent the very height on human compassion, of greatness, of moral enlightenment, of everything that is good about man.

Instead it is soaked in blood ; and has been so for two thousand years. Throughout history Jerusalem has seen no peace. Every base instinct of man has been in full and ample display in Jersualem. Forget compassion ; Jersualem has only seen war. Forget tolerance; Jerusalem has only seen extreme bigotry. Forget morality ; Jersualem has only seen killing. It should have been the summit of man’s achievement; instead it’s the very symbol of everything base about man.

Its exactly the same even today. Prayer and violence rule side by side. Every individual there betrays his faith by acting against every principle his faith has stood for. Emboldened by prayer, he is ready to kill. If not physically; in mind. The great glories of humanity; what makes us human, alas, are completely absent in Jerusalem.

Perhaps the world would have been a better place, had there been no Jerusalem. But then, that’s a naïve thought. If there was no Jersualem, man would have invented one. Perhaps that’s exactly what he did; for who is to say that the religious beliefs that millions bestow on Jerusalem are actually true.

Perhaps that’s what humanity is all about. Of the glorious and the wretched; side by side. Ah ! the follies of man …. Maybe Jerusalem IS the centre of the world.

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Oh ; What a May it has been

What a May it has been. If you have been a sports fan, that is. I already posted on the day that the earth shook here. May also saw the world team table tennis championships for the Corbillon (women) and Swaythling (men) Cups. This time it was held in Moscow.

China dominates the world of table tennis in a way few countries can dominate in any sport. It is the national sport of China. China wins everything in table tennis, whichever team it sends – its top team or its fifth team.

Last Sunday, I settled down on a lazy Sunday late afternoon to watch the finals. Of course China had come easily to both the men’s and women’s finals. They hadn’t lost a match. I wasn’t expecting anything to be different in the finals as well, but when the Chinese play table tennis its sheer poetry. So I settled down to watch even thought I was expecting to see a whitewash. How wrong I was.

First was the women’s final for the Corbillon Cup. Pitted against mighty China was tiny Singapore. Singapore can’t play TT for nuts. But they have adopted, at least on the women’s side, the concept of importing Chinese and giving them citizenship. A little bit like the Kenyans who run for the Arab countries. China had fielded a very young team. The unbeatable star of the last 10 years – Zhang Yining had got married and decided to skip this event. The Chinese inexplicably benched Guo Yue, who has lots of experience in international events and fielded the world’s top ranked, but inexperienced Liu Shiwen , Ding Ning, and Guo Yan. Feng Tianwei, Singapore’s No1, who took Singapore citizenship only 2 years ago won both her singles. Amazingly China, lost the finals 3-1 ; in terms of a sports upset this was off the Richter scale. Singapore, a country that has won nothing ever in any sport, were the world champions. Any other country would have gone completely crazy ; Singapore being a nanny state, looked to its “paramount leader” to tell them that they could feel happy.

Next came the Men’s final – China against Germany. Usually, its an all Asian final. But Timo Boll of Germany was playing the finest table tennis of his life and winning everything. Germany beat Korea and was now playing China in the finals.

First up was Timo Boll against Ma Long. Ma had risen to be the World No 1 ranked player. Young, extremely fit, he has a ferocious forehand – if you take one of his forehand shots on your body, you’ll get an almighty bruise – such is the power he wields. He had been in top form in the tournament and the match developed into a classic. Ma won the first two games. But then Boll fought. And how he fought. Inch by inch he climbed back into the match. A good crowd started to go berserk. Every neutral was cheering Germany. But China had its won contingent of fans, as always and thunderous shouts of “Zhonghuo Jia You” – the Chinese cheer, rent the air. The fifth game swung this way and that. Finally Boll won. Germany 1- China 0. What on earth was happening.

Into that cauldron walked Ma Lin, Beijing Olympics gold medalist. Ma Lin is an old hand, very experienced, but he wasn’t in the best of form. Ma Lin was amazingly relaxed and even had a smile – he is usually poker faced and looks like a robot while he destroys his opponents. This time he was pumped up, but calm and using all his experience he easily beat Dimitrij Ovtcharov. And then young Zhang Jike, a surprise choice for the third singles found himself in all sorts of trouble against Christian Suss, but held his nerve to win.

That set up Timo Boll against Ma Lin. And what a match that was. Every point was fought and Timo Boll played perhaps some of the best table tennis he has ever played. But Ma Lin, with all his experience, lifted his game and simply would not let Boll get away. It swung this way and that, but Ma finally held match and championship point. He took it and China went delirious. Ma Lin had held nervous China together and won for his country. Timo Boll looked crushed, but every Chinese player went and hugged him, for he had played divinely. Well done Germany ; you were heroes even though you lost. And Ma Lin, showed that despite all the talent and youth and fitness you can have, the old dog can show a trick or two. It was a day of table tennis that those privileged to watch would never forget.

I had watched non stop edge of the seat action for some four hours. I still can’t get over what a day it was. On such days, sports transcends everything to become almost divine .....

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Factory Working

The press coverage of the worker suicides at Foxconn is throwing open the debate on China’s challenges as it seeks to continue its economic miracle. If you have not followed the events, last week was the eleventh time this year that one of its workers , at its factory in Shenzhen, committed suicide by jumping from his dormitory. Li Hai was only 19 years old and had worked only 42 days in the factory before he died.

Foxconn is a giant electronics assembling company. Taiwanese owned, its largest factory is in Shenzhen in China. The Shenzhen plant assembles phones for Apple, Nokia, etc etc. It is typical of the industrial might of China – the factory employs some 400,000 workers at its site in Shenzhen and they all live in the factory premises in large dormitories.Its a virtual city by itself. This is the model in China. Migrant workers come from the west to the coastal cities to work and factory complexes are in effect self contained townships. Foxconn is not typical – its huge. Most other factories in the Shenzhen belt are smaller, but the model is essentially the same.

The knee jerk reaction in the press was that the suicides were symptomatic of labour abuse in Chinese factories. But its not as pat as that, I believe. The situation is far more complex.

In the early days of China’s industrial boom, the situation at factories was appalling. Conditions were unsafe, often fatally unsafe, working conditions were horrible, physical abuse was rampant – every horror of modern industrial life, and more, was widely prevalent. But things have changed. Safety is much better. Handling poisons or being forced to inhale toxic fumes is rarer. Wages have risen. Of course there are abuses, but they are not as vicious as they were before,

But it’s a tough tough life for a factory worker. Foxconn was actually one of the better employers. Conditions were not unsafe. But it was boring monotonous work and the pressure was always high. Wages are dependent on productivity and the typical worker mindset is to make the maximum money possible. Even though official working hours are long, employees actually seek out employers who would allow them to earn overtime by working seven days a week.

Wages are low, sure, but have risen from what they used to be. The whole economic model is based on low wages. If wages rise, factories like Foxconn won’t exist. And compared to the alternative of farming in the fields, the earning potential is manifold higher – that’s why 200 million people have left the villages and come to the city for work.

It’s a profound social problem that China faces as the first sheen of economic development wears off for the migrant worker. The migrant worker is the unsung hero of China. She (most factories prefer women) has left her family and lives alone in a strange place where she can’t even speak the local dialect. She works incredibly hard. If she’s married and has a kid, she’s left the kid back with her parents and might see the child only once a year or so. The work is boring, tough, and totally insecure – there’s no such thing as permanency and attrition rates are usually 50% in the factories. At first, the allure of wealth, which could not even be dreamt of in the village, masked everything else. But then, as time goes by, the thorns come out. Its not all that rosy.

Something exactly like this happened just after the Industrial revolution in Britain. Its happening again in China.

I strongly recommend a superb book – Factory Girls, by Leslie Chang. It opens your eyes to the good, the bad and the ugly of the factory world of China. There’s both the good and the bad – in real life the answers are not so simple. It’s a complex and tough world out there.

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