07.28.07

China’s Problem Not Branding

Posted in General Management at 3:05 by lnxwalt

James Robertson thinks that China has damaged its brand with its recently-reported quality problems.

There have been too many stories recently involving Chinese goods with problems - they could ask GM what that kind of inattention to detail does to a brand’s image.

China never had a reputation for quality. Their reputation has always been low-price and low-quality. All this is about is finding that the quality was lower than we led ourselves to believe, and that it is often intentionally so.

Think back to business school. There are a few major strategies for any business. One of the key decision points is whether to differentiate your products by features or to concentrate on lowering your costs of doing business. If you choose to compete based on lower costs, you have some options such as passing on lower prices to your customers in exchange for expected gains in market share or pricing similarly to your competitors so that you have higher margins on the same fraction of sales.

In general, companies buy goods from China because of the lower cost. This generally means that quality and other features are reduced, but the size of the cost cut makes it appear worthwhile. For the most part, this is an indictment of American business managers, that they are so devoted to cutting their costs that they refuse to consider the loss of quality. Think back to the 1980s, when American-owned businesses were struggling to rebuild their reputations for high-quality products. Everyone was searching for ways to be more “excellent”. They were sending delegations to Japan to learn from that nation’s companies how to make quality products.

What is the number one thing they learned about quality? Was it statistical process control? Was it pretending to accept “employee empowerment”? Was it that quality is not just the job of “QA”? How about this one: quality is best described as the variation (in performance, construction, appearance, etc) of the product output?

We spent quite a bit of time in college classes looking at statistical methods, as well as management theories and organizational adaptations. Really, as a company, you have more ability to enforce quality (by whatever measure you use) if you have two things: clear insight into the processes and ingredients being used and the authority and influence to change things that may not produce your intended level of quality.

How do you get these two things? Either (1) do it in-house, even if in-house means a company-owned and operated facility overseas; or (2) have it done for you by someone else in your own vicinity, where you can keep an eye on them and the work they do. If you go into a foreign country and have to give up control in order to be there, your future is in someone else’s hands. If you have your product made in a foreign country by a company there, you are depending upon a different set of laws, different history, different attitudes and ideas, because that company and its employees will live by whatever their society dictates, not what you expect or request. This is not in itself a bad thing, but when you voluntarily use ingredients or subassemblies from a country that is known for the low quality of its output, you shouldn’t use them in anything that is critical for your company.

If I start “Joe’s Cat Food, Inc,” then my products reflect on the image of the company. If I start buying ingredients from overseas companies that I cannot properly supervise, then those foreign suppliers have the ability to wreck my company’s reputation.

So, then, quality, or the likelihood of quality, increases when suppliers are nearby and under the same legal and social restraints. Quality likely decreases when suppliers are out of the area and under different legal and social restraints. That is, variations (as measured by statistical methods) are likely to be more frequent when your suppliers slash outsource partners are outside your own country.

I live in California. For the past three months, I have been working in New Jersey. In California, if I go out for lunch, there are certain standards for the food places (not that they all meet them, but the standard is still there). New Jersey has standards, but they are different than California’s standards. Not better, not worse, just different.

China has different standards. Labor standards. Financial reporting standards. Food standards. Drug standards. It isn’t that China is bad, just different.

SLOBs [Small, Locally-Owned Businesses] and OMBs [Owner-Managed Businesses] can reduce the variability of their output (and hence improve their quality) by looking closer to home for their suppliers. Larger businesses can still source all over the country and the world, if they select sources for their quality and features (and for the ability to oversee operations), rather than just price.

Permalink