Article

2007-08-09 China-Japan-Koreas

'Quality Fade': China's Great Business Challenge

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Posted by Alaska Paul 2007-08-09 16:20|| || Front Page|| [8 views ] Top

#1 "Everything will be all right," said one U.S. importer on a buying mission to China. "As the country continues to develop, the quality of its products will naturally rise."

Trust a person whose paycheck is signed in Chinese ink to say something this blindingly stupid. Either this importer has never studied case histories of Chinese commercial malfeasance or he is a total moron.

Some quality issues are not all that serious, but others are downright frightening. One of the most disturbing examples I have encountered while working in China involved the manufacture and importation of aluminum systems used to construct high-rise commercial buildings. These are the systems that support tons of concrete as it is being poured, and their general stability is critical. The American company that designed and patented the system engineered all key components. It knew exactly how much each part was supposed to weigh, and yet the level of engineering sophistication did not stop the supplier from making a unilateral decision to reduce the specifications. When the "production error" was caught, one aluminum part was found to be weighing less than 90% of its intended weight.

Got that? These arent lead laced Thomas the Tank Engine toys, these are pouring forms used in the construction of high-rise buildings whose collapse can cause hundreds or thousands of deaths. There is no production error imaginable whereby an engineered and dimensionally specified part can somehow lose 90% of its intended weight. This is a case of someone knowingly taking profits by compromising critical criteria in a vital component whose failure can cause needless and massive loss of human life. It is nothing less than attempted mass-murder and should be punished as such.

Because it takes importers a long time to find suppliers and to get them up to speed, importers keep their suppliers a secret. The last thing that an importer wants to do is let his competitors know the source of any supply chain advantage he may have. Even when it is in their collective interest to share information, importers keep to themselves. As a result, factories pay little, if any, reputational cost for production shenanigans. The invisible hand doesn't work well when the manufacturers themselves are unseen.

This has to change. A blacklist of Chinese violaters must be assembled and those listed prohibited from exporting their garbage to American shores for years at a time. A supply chain track-back will be needed to prevent these scum from transshipping their trash through another manufacturer.

Third-party testing is far from fail-safe. Consider one study conducted by the U.S. Consumer Product Safety Commission in 2001. In a review of nearly 200 recalled electrical products from China, the CPSC found that more than 25% had had prior approval by an international third-party testing agency such as Underwriters Laboratories (UL), Intertek Testing Services (ETL) or the Canadian Standards Association (CSA).

Got that? A solid 25% level of substandard quality in previously inspected electrical components. How many fires were started due to arcing or short circuits? This is no accident.

In one case, after a load of plywood was rejected at one factory, the supplier simply mixed a portion of it with product that was perfectly good in later shipments. Working the bad into the good is a common way for a factory to reduce loss. A supplier can bury sub-standard product knowing full well that warehouse workers in the U.S. do not have the time to examine each piece that comes in. And detailed contracts cannot succeed in bridging any moral gap. In order for supplier relationships to work successfully, there must be a basic level of trust.

Its time to recognize thatmuch like Islams delusions of adequacythe Chinese are imbued with a mistaken notion that they are the Master Race. There is no possible trust that can evolve in these circumstances. Much like Islamic taqiyya, Chinas overweening self-esteem permits them any fraud or deception without the least compunctions.

Chinese manufacturers that engage in quality fade unfortunately subscribe to the view that business is about increasing one's share of the pie rather than growing the pie over time.

Once again, the zero-sum equation rears its ugly little head. This is a recurrent theme in high context societies and more enlightened cultures will continue to pay the price until they understand that such a dismal lack of ethics must be slapped down hard.

The key to turning the situation around is to incorporate a habit of quality into the culture. China, however, has not shown that it has any interest in doing so. Recent accusations of unreliability in Chinese products are now being met with tit-for-tat claims that U.S. products are faulty.

A pluperfect example of the zero-sum equation at work. Just in case anyone thinks that this cannot happen in America, it already has. Nixon's disastrous "Price and Wage Freeze" taught American manufacturers how to shave materials and labor costs with ruthless abandon. The Ford Pinto's gas tank debacle is sterling proof of this.

Posted by Zenster 2007-08-09 17:57|| 2007-08-09 17:57|| Front Page Top

#2 I can remember when "Made in Japan" meant shoddy. The Chinese can clean up their act, if they want to. If not, there's lots of people who'd like those jobs and we all know the factories are easy to move.

Posted by Nimble Spemble 2007-08-09 18:14|| 2007-08-09 18:14|| Front Page Top

#3 I was thinking exactly the same thing. I remember when "Made in Japan" meant "crap", especially their cars.

One problem China is facing is that manufacturers looking for the lowest cost labor are now leaving China for other places where labor is even cheaper. China is being forced to compete with Indonesia and other countries and so are cutting corners to keep prices down. They are focused strictly on price rather than quality. That will change when their own consumers demand higher quality goods.

China is entering a new phase of development where the first phase was industrialization on a wide scale, this phase is more about maturing as their domestic market moves upscale. As that happens, expect Chinese goods to increase both in quality and price.

Posted by crosspatch 2007-08-09 18:56|| 2007-08-09 18:56|| Front Page Top

#4 And, frankly, some of the importers are working AGAINST the call to improve quality. Walmart, for example, is asking that seafood they buy from China be exempt from standing orders for inspection before release from customs.

Mind you, I don't care if Walmart wants to be known as the premiere source of cheap, poisonous fish...

Posted by Rob Crawford">Rob Crawford 2007-08-09 20:19|| 2007-08-09 20:19|| Front Page Top

#5 NS: we all know the factories are easy to move.

Once installed in China, factory equipment cannot be moved. This is why anyone with proprietary machine tools takes good care not to install them in China.

Posted by Zhang Fei 2007-08-09 22:17|| http://timurileng.blogspot.com]">[http://timurileng.blogspot.com] 2007-08-09 22:17|| Front Page Top

#6 You don't physically move the factory, you sell it to someone else and open a new one in Indonesia or Malaysia. So you move YOUR production to another country leaving someone else with the old factory. The new factory can now produce with less labor cost than the Chinese factory can and so the Chinese factory is most likely put to use in satisfying domestic demand as it will not be able to compete on the world market.

There was a time when one could open a factory in China and labor would flood to your door looking for work. That is no longer true. In order to get workers, you must entice them away from other factories by raising wages or adding fringe benefits such as meals. As this progresses though the system, Chinese goods slowly begin to rise in price. Taken to its logical conclusion, when China's standard of living finally matches America's, then Chinese goods will cost as much as American goods.

In a completely global economy with all trade barriers removed and complete free trade with no tariffs you eventually get to a point where the entire world reaches the same standard of living.

Posted by crosspatch 2007-08-09 22:56|| 2007-08-09 22:56|| Front Page Top

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