You’d have to be a blind man living in a Mongolian cave without internet access not to notice the obvious – China has become a haven for fraud, almost on the same level as Nigeria. However scams that originate from China are far more devious, sophisticated and costly. Whereas a Nigerian scam may cost a company tens of thousand so of dollars, a Chinese scam is more likely to put you out of business. In fact according to data extrapolated from statistics compiled by Interpol, the WTO, and International Chamber of Commerce, 37% of all business failures of foreign companies in China can be traced to employee theft and other misdeeds. China Security Solutions, a small but growing Beijing firm specializing in corporate security also released the following stats compiled from the above reports;
* 78 % of all employees in China admit stealing from their employers at least once a year – money, time, inventory, property, or information.
* 24% of all employees in admit to stealing from theft employers at least monthly
* 17% of all China employees admit to stealing from their employees weekly.
* 44% say they steal office supplies, gasoline on company credit and other items less than $1,000 in value per year.
* 29% of company employees admit to stealing overtime they never worked and use other employees to “clock them in and out.”
* 32% say they steal property or inventory with values that average $6,500 per year.
* 12% say they steal data that can be resold such as client, price, and vendor lists along with confidential quotes on large contracts. Average annual value exceeds $50,000 – per theft.
* 12% say they steal “gifts” that they intercept from banks, suppliers, clients that were destined for top executives that include liquor, mobile phones, VIP gift cards, etc. Average value is $12,000 per year.
Now while most of us have read the headlines about about the big China swindles involving Yahoo, Cisco, Google, etc. most business owners in China think they are “to small” to be a scam target. In reality, if you are doing over $500,000 of business in China, chances are you are already a target. Alex Crowley, an investigator with CSS relayed the story of a low paid receptionist/secretary in Beijing who was earning only 4,000 rmb a month for a foreign export company from Australia. However this young 25 year-old was also collecting another 3,000 rmb every month from a local competitor to obtain a copy of every email and telephone inquiry asking for price quotations from prospective buyers. CSS eventually caught her in the act, but not after her company already lost an estimated $300,000 in sales. After her departure, business for the company doubled within three months and a certain company failure was averted. This girl is one of thousands recruited every day to become one of China’s infamous “business moles” who used to be sent abroad as cheap interns to work in foreign companies in America, Canada, and the U.K.. But since over 9,000 foreign companies have opened offices in China since 2008, it is much easier to infiltrate companies here in China as this article explains
Alex pointed out that “Every chain is only as strong as it’s weakest link, and while companies may spend $100,000 on expensive IT firewalls and software to keep hackers out, they completely overlook the the bigger enemy within – their own employees.” Corporate security review reports that CSS compiled for five MNCs in China reveal that a company’s own employees do far more damage on average than hackers. In fact, the average losses traced to employee theft in China is 9% of annual gross revenues and this number is 3% more than losses sustained in the west. To read more details and stats about the damage caused by employees in China visit this link:
Why is stealing from employers so prevalent in China? Alex has a theory that makes sense “The Chinese people have suffered for centuries, always having to beg, borrow and steal to support their families. This self-survival mind-set stays with them from generation to generation, even though the economy is now booming.” Most psychologists agree that Chinese citizens over age 50 fear the good times are only temporary. But overall in Chinese society, those who can exploit foreigners and get away with it are actually admired, and considered to be “clever” by their peers. Pilfering from your employer therefore, is not seen as such an evil or dishonest matter, but rather a supplemental form of income. Few Chinese ever feel any shame or remorse when caught cheating a foreigner.
Most employers actually expect some theft at the work place, but they are shocked when they learn what is being stolen – and then sold. Indeed, Alex says many of CSS’s clients are relieved to learn that thefts were limited to property or inventory, and horrified to learn that VIP client lists were the coveted prize.
But lets focus for a moment on how a company in China can protect itself from its own employees. CSS offers seminars and workshops in Beijing and Shanghai at present and will add Shenyang and Hangzhou to the list soon. But for now Alex offers these ten common sense tips that most of us might never think of…
1. Never keep valuable nor sensitive data on a networked computer in your office.
2. Change access codes and passwords monthly and when an employee is terminated
3. Install CCTV cameras (real or fake) in all warehouse spaces by the entrances
4. Do not use Wi-Fi if your office is below the 9th floor
5. Stop hiring employees without speaking with their last three supervisors
6. Conduct random unannounced audits of your books and accounts
7. Ask new employees to consent to a polygraph exam every six months
8. Never use only one accountant
9. Keep a detailed log on access to company keys
10. Get a free CSS consultation and vulnerability assessment
Employee theft in China is the elephant in the room that nobody likes to even acknowledge in a country where “face” is such an integral part of every social and business encounter. It is this same face that keeps employee thieves safe from detection and prosecution. No Chinese will ever accuse another of a crime in the office or warehouse, since being a “snitch” in China is a social disgrace. Chinese strive to live in a “harmonious” world that their leaders have been programming them with for decades. This is why most all Chinese will avert any argument or confrontation and often appear to be indifferent. So business owners should never count on anyone other than themselves to police their own personnel and work environment. Alex tells the story of one leather goods manufacturer in China who was losing over $30,000 of inventory every month. In frustration, he offered a $5,000 reward (a year’s salary for most of the workers) for the identity of the thief and complete confidentiality was assured. Even after increasing the reward to $20,000, there was not a single tip. Old Confucius must be spinning in his grave at 1,500 rpm. In his day, Chinese were the most honest people on planet Earth. Times have surely changed.
No company can ever be truly theft-free in China, but CSS guarantees to keep the thefts under $10,000 a year and restricted to property and inventory. They do have proprietary methods that are certain to keep out hackers, embezzlers, and data thieves if management is willing to learn and follow their regimen which takes five days to train department heads in HR, Sales, Operations, Finance and Customer Service. Alex left me with some parting words that I will never forget “China is the world’s largest iceberg and its what you don’t see that will cost you the most money and grief. You can never assume that what you see on the surface represents the true reality of the business environment. What takes beyond your field of vision is substantially more important to your survival.” Indeed, if business owners want to keep unpleasant surprises to a minimum, they should at the very least take this article as a wake-up call and learn from the mistakes of others. CSS offers a free white paper on loss prevention in China and it can be obtained by sending an email to ChinaWhitePaper[at]ChinaSecuritySolutions.com.