There has been no shortage of blog posts and news stories on the quality issues in Chinese manufacturing in the last few weeks. The most recent story is Mattel’s recall of 1.5 million (967,000 in the US) toy products, which was announced last week.
Mattel has done the right thing and while some may believe their brand
has been tarnished in the short term, I believe their acknowledgement of their accountability for what has happened and the actions they’re
taking will only help reinforce their brand in the long term. What
perspective on this recent event involving Mattel will be more sticky
in consumers’ minds? The fact that they produced and sold poor quality
product from China? Or, the fact that they assumed responsibility for
their oversight and took action to correct it? In the long run, my guess is the latter.
But, like most news stories, the more the press covers it and people hear about it, the more likely people will become ambivalent to the issue. But for those of us involved with manufacturing in China, Asia, or anywhere for that matter, the subject will continue to be just as important. So where do we go from here? Where does China go from here? What have countries in China’s situation done in the past in this situation?
It will not come as a surprise to many that China is not the only country to experience quality woes. But it may be surprising to learn that Japan was once in China’s place. Japan, a country widely associated with companies that consistently produce high-quality products, once held China’s title of "low-cost/low-quality" producer. Yup. Post World War II Japan’s "Made in Japan" label was a symbol of low quality product. Interestingly enough, a few Americans, such as Edwards Demming, whose ideas on statistical quality control processes were turned down by US automakers, were embraced by Japan and helped lay a foundation for Japan’s culture of quality. Realizing quality as a path to growth and market share, Japan took quality very seriously and took several steps to infuse their business culture with the attitude and tools to build quality into their companies and production lines. And you see it when you walk a Japanese production line in a Chinese factory. They are consistently impressive and it speaks very well of a factory if they are supplying a Japanese company with product. Today, while every country has the occasional issue with quality, Japan is widely considered a world leader.
Whether or not China will follow a similar path as Japan is unknown. Generally speaking, countries in Asia have slowly moved up the value chain in terms of the benefits they provide. Low development countries are generally entered into by companies looking for low-costs. These companies are willing to go through, or find out that they will need to go through, a number of challenges to get an effective supply chain going in these countries. Just read Gary Erickson’s tales of offshoring adventures from a few posts ago to get an idea. In the 1950’s, this was Japan. But as the value of Japan’s abilities grew, so did costs. Thus, Western companies moved operations to Taiwan, South Korea, Hong Kong, and Singapore. A few decades later, the same process occurred again, and China became the major low-cost destination that it is today, along with a few other Southeast Asian nations on a much smaller scale.
Will China follow the same path as other Asian countries and move up the value chain? They would certainly like to. Manufacturing commodity products comes with razor thin margins and cutthroat pricing competitions. There are two basic ways to get out of this business situation: 1) add to the value of the product you offer (ex. higher-quality products) or take on more valuable tasks for which customers will pay a premium (ex. R&D). 2) "Quality Fade". A very popular article written by Paul Midler and published by KnowledgeWharton explains quality fade very well. Quality fade is "the deliberate and secretive habit of widening profit margins through a reduction in the quality of materials". Thus far, many Chinese companies have taken the path of least resistance and employed the "quality fade" approach. Midler goes on to explain that one of the major reasons behind this is because many Chinese fear the window of opportunity to profit will close (via unpredictable, oppressive government actions), thus they focus on the short term. Their fears are not unfounded.
So far, China has responded to the outcry in the US over quality issues by citing the US’ own quality issues and holding that 99% of the products coming out of China do not have quality problems. There may be some truth to this. But the fact is, if China wants to continue moving towards higher premium products and services, they will have to seriously address their culture of quality. This will take a great deal of time and effort. Japan is a case in point. The next few years will be very telling in terms of their initiatives in this area. I don’t think it will be as easy or straightforward as the case of Japan. And I think this is just one of the major underlying issues that China will need to face to continue its march onto the world stage. In the meantime, Western companies now realize what is at stake and will need to act accordingly. China is still a good place to manufacture product, and now companies know the risks. Like Mattel, it’s time to start taking action.
