Is Sourcing in China Safe?

Sourcing to China can be cost effective, but if something goes wrong, it could have a dramatic effect on your bottom line – and negatively impact customer opinion of your business.

Rebecca A. Morgan – 2007

Can we trust domestic producers and distributors to control quality with fervor equal to their pursuit of low wages? Cheap labor is the easy part; the quality thing is a much tougher nut to crack.

A product recall is a very visible and expensive sign of a serious quality problem. The life threatening potential of some problems long ago led American government and producers to develop recall and reverse distribution systems.

For the most part we’ve become good at figuring out which product is at risk, where it went, and executing the recall process with limited harm to life. But lately faith in American product-based businesses has been shaken by the apparent lack of due diligence in assuring low-wage Chinese suppliers meet the same standards as our own.

Recent recalls involve Chinese supplied tires, pet food ingredients, toothpaste, lead-paint coated children’s toys and jewelry, seafood, window blinds, and bicycles. While many domestic manufacturers and distributors sped to China in search of low cost sources, it appears that in some cases quality assurance may have taken a back seat.

Can your business work effectively with offshore suppliers? Foreign Tire Sales, a small company headquartered in New Jersey estimates its recall of Chinese sourced tires will cost about $20MM. According to U.S. law the tire importer, not the Chinese company that made the tires, is responsible for the recall.

It is important to realize that China is not the U.S. with cheaper labor and less restrictive laws. It is the product of its own history, a history very different from our own. We live in a nation of laws; much of the world does not. We have developed and legislated business ethics, which, by the way, someone in our country violates every day, different from those of other countries. Do not assume that Chinese businesses think or behave the same way yours does.

It would be wrong to conclude that Chinese manufactures cannot match the quality of G8 country producers, that low cost and high quality cannot yet coexist. With Chinese supplier stories front page news in this country, it is easy to overlook recalls issued by North American producers related to themselves or other American suppliers. Those stories suggest we should keep our superiority complex firmly in check while learning to work with offshore suppliers.

Ford recently announced recall of 3.6 million cars for faulty speed control devices that could cause fires, bringing their total for that defect over the last 12 years to about 19 million cars. I shouldn’t be surprised; I drove a Pinto while in graduate school in the mid ‘70s.

Ford is not unique. The National Highway Traffic Safety Administration (NHTSA) issues monthly vehicle recall reports. The June 2007 report is 11 pages long, including cars, trucks, buses, motorcycles, recreational vehicles and just about anything else that can legally roll along our highways.

Vehicles are not unique. In recent weeks aerosol cans and canned foods are among the several products recalled unrelated to Chinese suppliers. In 2007 recalls in our country have ranged from peanut butter to drug infusion pumps. The announced root causes also vary, from manufacturing mistakes and facilities maintenance problems, to deceitful employees — nothing Chinese about any of that.

American producers have long touted quality as the price of admission to the domestic marketplace. Competitive advantage would have to come from something more. Despite that knowledge, some companies have made and executed sourcing decisions that undermine assumptions about quality that they want customers to make.

The Chinese make a wide array of high quality and high tech products. As with us, they make mistakes, people don’t always do what they are supposed to do, and there’s always someone looking to make a fast buck. There are a lot of start-up businesses with employees new to manufacturing. Caveat emptor is a Latin phrase, not a Chinese one, but it makes sense to consider its meaning when sourcing in a country whose socio-economic-political environment is not well understood.

Whether you source domestically or offshore, always perform due diligence. It is naive to assume that every supplier in the world interprets quality standards the same way; that every country, company and person handles disputes the same way; or that quality can be considered a given. It is also naïve to assume that, just because it is in the U.S., a domestic source will meet your quality standards.

The savings from low wages can pale in comparison to the costs of a recall. The loss of customer trust can knock a company out completely. Those statements are true regardless of whether you source domestically, in China or anywhere else in the world.