Raising Your Supplier’s Prices in China: Not the Answer You’re Looking For

So much to chew on lately in the blogosphere and media regarding
China’s quality, prices, liability, etc.  There is a lot of noise out
there regarding "who" is to blame and "why".

Paul Midler, of TheChinaGame blog, recently wrote a post entitled The New Bugaboo: Low Prices.  Midler presents some good counter-arguments to those out there that claim US businesses’ chase for low prices is the true culprit in these quality fiascos. Midler’s general points are:

A) US companies cannot fully control their suppliers.  Chinese suppliers, just like any person, are in control of their own actions and decisions.  Consider the analogy he uses:

Consider yourself in this situation: You ask someone to run to the
store to buy you a candy bar, and you give him more cash than
necessary. Keep the change, you tell him. The guy gets to the store and
decides to shoplift the candy bar instead of paying for it. Are you
responsible for this person’s unethical actions?

B) Putting the blame on the abstract cause of "price pressures" to excuse Chinese suppliers’ failure to live up to certain standards in environment, labor, and quality criteria simply passes the buck in terms of responsibility.

C) Simply paying the suppliers more money to solve these problems is a ridiculous notion.  If actually implemented, many Chinese suppliers would be laughing all the way to the bank with no intention of actually improving conditions to the level that we’d like.  Unless we were of course to pay more next year, right?  Paul offers another good analogy:

First, if you give more money to a supplier who has behaved
unethically, isn’t that sending him the wrong message? What would these
people say about a CFO caught embezzling corporate funds? “Well, he
must have taken the money because he needed it. Let’s give the guy a
raise and see if the problem clears up on its own.”

I agree with Mr. Midler.  Price is the reason companies approach low-cost countries, like China,
with manufacturing in the first place.  It isn’t the Sichuan hotpot
dinner (although I do find myself wandering out to restaurants
specifically for this reason).  Simply paying more for a given product will probably do nothing to fix the issue.  Consider this little anecdote I wrote a while ago about surgeons masks being offered at a factory I toured in Shenzhen.  U.S. companies wanted surgeons masks available to factory workers.  The factory begrudgingly purchased them.  Half the workers didn’t want to wear them. 

In another case, an associate of mine with a U.S. automotive tool sourcing company a few years back, got burned when he offered laptop computers to some employees.  Being new to China and a bit naive, he thought he would give laptop computers to three employees in their newly formed Changzhou office.  Supposedly, the workers would be delighted and their productivity would improve.  The employees were gone, laptops in tow, in a matter of a few weeks. 

These are only two, small anecdotes.  But they demonstrate a point.  It goes far beyond simply offering a piece of equipment, clothing, or raising the price.