by Carl Crow
Beside them the compradore represented the age of the quill pen and the letter-copying press and all the other business gadgets of the days before the Civil War. He is a vanishing figure.
IV
Those who made fortunes
“Customers are the precious things; goods are only grass.”
It was not until many years after the Treaty of Nanking that the first cigarette was smoked and the first kerosene lamp was lit. Shanghai homes were illuminated by candles and the few street lights were fed by peanut, rape seed or whale oil. Foreigners smoked Manila cigars of Burma - cheroots. Chinese smoked pipes. But in the years that followed, the distribution of cigarettes and kerosene was pushed to every corner of the country and many fortunes were made not only by the foreigners but by the Chinese dealers.
The Standard Oil Company was the pioneer in the development of the sale of oil, the first to introduce modern merchandising methods in China. It is difficult to imagine a more unpromising field than that which confronted them. Most any taipan would have told them that it was hopeless to think of building up a big volume of business. The sun had always provided the Chinese with all the illumination they found necessary. From high to low the general mode of life was to get up at daylight and go to bed with the birds. Even in the Imperial Palace court audiences were held at daybreak and soon thereafter the millions of China were awake and at work.
The use of any kind of artificial illumination was associated in the Chinese mind with a certain amount of moral turpitude because only gamblers, prostitutes and drunkards habitually stayed up at night. The prejudice against interference with the routine of nature persisted for years. When an electric lighting system was established in Shanghai the taotai sternly threatened to punish any Chinese who installed this new foreign device. The foreigners set this down as due to superstition and ignorance but doubtless the good man felt that any arrangement for turning night into day could only have a bad effect on the morals of the community and the night clubs of Shanghai today would indicate that he was right. There were a lot of Cotton Mathers among these Chinese officials.
The Standard Oil Company was undeterred by any qualms of this sort but faced a very practical difficulty in the fact that China had no lamps in which this oil could be burned. The ornate lamps which graced the homes of Americans during the period of Rutherford B. Hayes were too expensive. Only the wealthy Chinese could either afford to buy them or to keep them supplied with oil. Faced by this difficulty the Americans designed and manufactured the famous Mei Foo lamp which sold for a few cents. It provided illumination that might be rated at one candle power, which was as much as the average Chinese was accustomed to or needed. What was important about the lamp was the fact that one gallon of kerosene would keep this tiny light burning for 240 hours. That brought the new illuminant within the price range of candles or vegetable oil and soon the Mei Foo lamp crossed the Rubicon of merchandising - that indeterminate dividing line which separates a luxury from a necessity.
The old taipans had been content to meet existing demands either for produce from China or manufactured goods from home. They sat in their offices and waited for the waves of demand to lap at their feet. The idea that markets could be created had never occurred to them and any suggestion of going out to sell a product brought up a mental picture of a Jewish peddler with a pack on his back. The Standard Oil Company was new to the China Coast and had no taipan tradition. It set out to sell - to make this new and better illuminant available in every one of the thousands of towns and hamlets in the country. As a preliminary to building up a business in China the company reversed the usual procedure and discharged the compradores. The compradore staff was replaced by American salesmen and Chinese assistants who could be trained to follow American methods.
For a good many years almost every American steamer that arrived in Shanghai from the West Coast brought one or more young men who had graduated from the training school maintained by the company in New York. Most of them had college degrees. They had been carefully selected before admission to the school and there they underwent a weeding-out process in which only the fittest survived. All came out under a three years verbal agreement providing for passage home at the end of that period and the possibility of a renewal of employment. Company officials and employees take equal pride in the fact that one of the largest and most efficient selling organizations in the world has been built up without the use of written employment contracts.
After a few months in Shanghai the griffins were sent up country to assist some more experienced manager and later placed in charge of a small station on their own. They did not live the leisurely lives of the taipans. They had to learn the Chinese language, travel about their territories, appoint new dealers, supervise old ones, report on crop and political conditions - and push the sale of oil and lamps. It was a sharp transition from the comforts of an American home to the isolation of a post in the interior of China but the company was generous. The living quarters connected with their offices were as comfortable as it was possible to make them. Sometimes there were enough other foreigners in the place to organize a bridge foursome and sometimes there weren’t.
The youngster spent little time in these comfortable quarters. He was perpetually traveling, constantly looking for new outlets for the sale of oil. Rarely did he travel in the questionable comfort of a Chinese train. He bounced over the roads on the hard floor of a Peking cart, was cramped for hours in the narrow confines of a sedan chair and walked until his feet were sore because that was more comfortable. In the towns and villages he had to put up in Chinese inns and eat Chinese food. His responsibilities were heavy for in a town which he had never seen before he had to decide which of the many applicants would make the best dealer and how far he could go in extending credit.
There was never any difficulty about finding a dealer. While the business brought profits to the company and to the competitors who followed them these profits were as nothing compared to those amassed through the sale of this new commodity by the thousands of individual dealers - profits which enabled them to finance the purchase of Chinese produce and stimulate business where they were located. China had been a nation of localized traders for thousands of years but it remained for this American company to show them that a nationwide distribution of a product was possible and that trade brings prosperity to buyer and seller alike. The Chinese representatives were carefully selected. For more than forty years the fact that a man was a Mei Foo dealer has been enough to hallmark him as a man of integrity who probably had money in the bank and owned land and houses. He sold the oil in infinitesimal quantities. Rarely would anyone buy the gallon that would keep the lamp burning for 240 hours. A gill which could be carried away in a bottle was the most common purchase, but there was a constant stream of purchasers before the yellow-fronted shops.
More than one third of the young men who went home at the end of their three-year period did not return to China. They had not been able to stand the Chinese food or the bedbugs in the Chinese inns, or they had been too liberal in pouring their drinks. At that the percentage of survivals among the Standard Oil employees was much above the general China Coast average. Most of those who survived the tough three years of trial stayed on until they retired. From the single establishment and supervision of agencies they went into many other activities, the purchase of land and the building of installation tanks for the storage of oil, the plotting of new routes for oil barges through the creeks and canals, and always the perpetual controversies with Chinese officials in the matter of taxes. They all spoke the language and each had at different times been stationed in a number of different provinces. Out of the years of experience there developed a group of Americans who had a highly specialized and thorough knowledge of China.
One of them became so accomplished in Chinese scholarship that he could take a Chinese writing brush in hand and draw up in perfect form the most complicated Chinese legal documents. Another was the first to discover that mah
jongg was a game which foreigners as well as Chinese could enjoy. Because of this discovery the craze became almost world wide but Joe made little out of it. The Mei Foo man in China represents the best type of the old China Hand. He understands the Chinese in a way that is beyond the comprehension of the old-fashioned Shanghai taipan. He has been through the Chinese mill, rubbed shoulders with the sweating millions, cracked Chinese jokes and gorged at feasts with his Chinese dealers. Beware of him in bridge or poker games. Don’t attempt any endurance contests with him. He will buy a nightcap for the orchestra at a night club and show up for work in the morning bright-eyed and clear-headed. Those who couldn’t survive went home.
As the Standard Oil Company organization reached far into the interior the Mei Foo employees probably faced more difficulties than any other business men. During the civil wars that ravaged the country in 1927 conditions were at their worst. Chiang Kai-shek had broken the power of the war lords, but the authority of his own government had not been established and in many parts of Central China there was complete anarchy. Wars may disturb trade but they never destroy it. In the final analysis trade is not a matter of buying or producing articles and selling them at a profit but of supplying the wants of the world. Anarchy may reign, bombs may destroy cities and the streets may be littered with corpses and drenched with blood but people must eat and sleep and protect themselves against the heat and the cold. The flow of trade, the supply of things that people desire, will always go on.
It was the job of a Standard Oil man during this troubled period to ship twenty tons of kerosene from Haichow to Hsuchowfu, a distance of 118 miles. It is worth while telling of his experience in some detail because it illustrates rather vividly the difficulties under which foreigners did business during the years of Civil War. The route over which the oil was to travel had been fought over for months, the military authorities were in complete control and there were no regular train schedules. The Socony man who had lived long in China and knew his way about didn’t bother to ask the officer in charge whether there were any cars available for the shipment, a question he very probably could not have answered. With the help of his Chinese assistants he located an idle car which could transport the cargo and placed a guard over it. With that as a starting point negotiations were begun. The ordinary rate for this shipment was $10 a ton or $200 for the lot, but the official with whom he dealt explained that owing to the shortage of cars it was necessary to add a surcharge of 20 per cent, bringing the total to $240. This having been paid a second official appeared to collect an additional surcharge of 35 per cent which the first official either did not know about or had neglected to mention.
Having now paid out $324 the American assumed that all demands had been met and superintended the loading of the oil on his car. When he went to the station to inquire about the time a train would be made up for Hsuchowfu he ran into another charge. It was carefully explained to him that the money he had already paid belonged to the railway and must be accounted for. The army had to have revenue so had levied a transit tax of $8 per ton, an additional $160 to be added to what had already been paid. Here a new official appeared on the scene and called attention to an export tax on kerosene which had recently been promulgated, and on this $50 was collected. A tax of 40 cents for each tin of kerosene brought the total to $791. There were only a few more charges such as $2 per ton for the support of the police. As the shipment had been under the protection of the city, water, and railway police this tax had to be paid to each of these branches of the police service.
All of these exactions bore the semblance of legality, many of them being modern developments of taxes that have been in force in China for hundreds of years and so supported and legalized by what Chinese and foreigners alike known as “olo custom.” There was no reason to believe that any of the officials who collected the taxes derived any personal benefit from them. But the final demand was a polite form of squeeze. The original officer with whom the American had dealt explained that his work as station master was outside his regular duties as a military officer, therefore he felt that he was justified in asking for $20 as compensation for his services which he had performed outside the hours devoted to his regular military duties. From the China Coast point of view this was an entirely reasonable request. It would still have been reasonable if he had asked twice the amount.
All these matters having been settled it developed that there was no engine available, and when the American found one in the train shed it was without either crew or coal. He provided both, rode on the train to its destination and delivered his oil. I happened to be present when he was telling of this experience. It was all in the day’s work and another old China Hand congratulated him on his luck in being able to get a serviceable car. He had had a similar experience with added complications due to the fact that he had to build a new floor in the car he found before it could be used to carry anything.
Shanghai importers prospered, if at all, on the agencies they held and the policy of most of them was to pick up as many as possible. They would usually be had for the asking and if the article sold the agent made money. If it didn’t sell he just forgot about it and thought about the profitable ones. If an importer wasn’t doing any too well, he usually made a trip to New York and picked up a new line of agencies, which was easy because the American manufacturers usually entrusted the sale of their goods to the first man who came along.
During the Grover Cleveland days one of the importers was in New York on a quest for agencies. He had picked up one for a typewriter and one for a line of patent medicines and as an afterthought secured the agency for an American cigarette company. The first time Americans had an opportunity to buy cigarettes had been at the Centennial Exposition in Philadelphia and while the cigarette business in America was not large it was growing and the tobacco manufacturers were hopeful for the future. The Shanghai importer didn’t think there would be any sale for cigarettes among the Chinese but there were always a lot of foreign sailors in Shanghai who might provide a small but steady market.
Cigarettes exported from America did not have to bear the internal revenue stamp which adds so much to the cost in their own country. In China the only tax imposed on them at this time was the 5 per cent import duty levied on all articles of foreign manufacture. The result was that the cigarettes made in America could be sold in China for less than half what the consumers at home paid for them. The brands shipped out were of the cheapest and it was hoped they would appeal to the sailor trade, for the price of the individual packet in Shanghai was very low indeed. Sailors bought the cigarettes in satisfactory quantities for they had to lay in supplies to last them until they reached the next port. Foreigners in Shanghai also bought a few of them. It was a very satisfactory agency which with the agency for the typewriter and the patent medicines would give the importer a good living, perhaps enable him to retire in another twenty years.
Some of his Chinese employees who had never smoked anything but the foul-smelling Chinese water pipe tried the new smokes and liked them. The water pipe, which was used by millions of Chinese, had to be filled with tobacco and lighted for every puff. It was an operation that demanded the smoker’s undivided attention. China was speeding up. The cigarette could be smoked while nimble fingers flew over the wooden beads on the abacus, could be carried in the packet and smoked on visits to a tea house. They cost very little. A brother of one of the clerks got a sub-agency and opened a retail shop. Soon there were other shops and the cigarette agency was the most valuable connection the importer had.
As the orders came into New York in increasing quantities the manufacturers saw that the China market had possibilities they had never dreamed of. The cigarette business in America was growing and it appeared possible this success could be duplicated on the other side of the Pacific. They decided to send one of their best salesmen out to Shanghai to help push the sales and chose J. A. Thomas, who later became one of the most successful and widely known business men in China. It w
as always a question whether his organization or that of the Standard Oil Company was the best.
As Thomas came down the muddy Whangpoo and saw the mass of humanity which is Shanghai his salesman’s eye visualized those thousands and millions of possible consumers and he laid his plans. One of the hard and fixed rules of the import business in China was that everything must be paid for in the currency of the importer’s own country. He quoted prices in gold dollars or pound sterling, in francs, lira, crowns, guilders, marks, schillings, rupees or roubles. That was the kind of money he had to remit home and was the kind he collected from the compradore. Thomas decided on a sales policy that everyone thought was suicidal. He announced a scale of prices in silver dollars, a coin which in terms of all gold currencies went up and down every day. That policy was never changed and is one of the reasons why the cigarette business in China soon ran into the millions. A Chinese dealer could come in and buy one case or ten cases of cigarettes and pay for them with the hard silver dollars he had stored away in boxes in his strong room. Sometimes the silver price at which the cigarettes were sold meant a loss when the silver currency was exchanged for gold but that was easily wiped out by advancing the price at which the next cases were sold. A profit on exchange would enable the company to set up a reserve and so keep the price steady or give dealers a pleasant surprise in the form of a cash rebate on goods they had bought and paid for. Thomas knew that his business was unlike that of the other merchants. Consumers would not stop smoking cigarettes just because the price was a few coppers a packet higher and as long as consumers bought them the dealers would stock them.
In order to make it easy to go into the retail tobacco business he adopted another policy that made conservative old taipans shudder. He sold cigarettes on credit, thirty, sixty or ninety days. He presumed that, the business being a profitable one, dealers would be able to pay and that being Chinese they would pay if they could. Just as a precaution he set up a reserve of 1 per cent for bad debts. No one had ever before extended credit in such wholesale fashion and the 1 per cent was just a guess. After this item had been carried in the balance sheet for some time an annual audit disclosed the fact that it had run up to hundreds of thousands of dollars. It was a reserve that seldom had to be called on. The dealers made so much money that they were keen to keep their credit rating with the company.
