Supplier Risk and Brand China

There’s reputedly a curse in China: “May you live in interesting times”.

It’s certainly been an interesting time for any company that relies on Chinese goods. The press has worked hard to give the impression that products from China are sub-standard, and protectionist moves are afoot. Certainly China’s association with the low quality low price items found in dollar stores hasn’t helped it gain the image of a supplier of high quality goods.¹

It’s not really possible for the average person to tell whether the allegations are fair or not: many will adopt the precautionary principle and simply avoid Chinese goods, (at least as far as foodstuff and children’s toys are concerned).

China is, of course, not only the most populous country in the world, but the world’s third largest exporter. It’s increasingly difficult to find consumer goods that aren’t manufactured in China. It therefore stands to reason that if there is a problem with a consumer good, the chances are that it was manufactured in China.²

The problem with China is that it has become Brand China™, with individual companies in China indistinguishable to outside eyes. The average person will never know or care that Mattel’s lead-painted toys originated at the Lee Der toy company, or that the problem apparently originated with paint supplied by one of Lee Der’s suppliers.³

Nor will they realize that often the Chinese company is merely supplying what was specified: Mattel should be praised for admitting that design errors and not manufacturing faults were the reason behind a recall on certain items containing magnets. It is unfortunate that this has been interpreted as a sop to the Chinese government rather than an admission of a design error.

The problem remains that Brand China has been damaged, and consumer reaction and protectionist moves may be the result.

If we import goods or components from China, what can we do about this?

Some strategies to consider:

• If you produce toys, a Guaranteed and Tested Lead-Free Paint sticker and a suitable PR campaign might counter the impression that all toys from China are suspect. It’s surprised me that I haven’t seen this: I can only assume manufacturers are hoping in vain that consumers don’t see that “Made in China” label on the box. ( They will. They are actively looking for it.)
• Be prepared to second-source items in different countries to counter waves of protectionism. Even if China is the lowest cost producer, it may make sense to diversify sources in case of future trade barriers.
• Consider whether to identify the actual manufacturer on the box. While not identifying the manufacturer confers many advantages, it also means that either you or the country of origin must be prepared to take the full blame for any manufacturing problem.
• Have a plan in place to cope with a product recall, however unlikely you perceive that to be. Will it be laptop batteries? Inflammatory dishwashers? Exploding capacitors? No matter what testing you do, a substandard component of faulty design may be included in your product.

Above all, realize that however good your suppliers are, when they are agglomerated into Brand China™ any threat to Brand China™ is a threat to your reputation. You can’t protect that brand. You should plan accordingly.

¹ As economists like to point out, somebody has to be the producer of low quality items if there is a demand for them.

² If 90% of taxis in a town are green and all taxi drivers are equally careless, if you have a collision with a taxi there is a 90% chance it will be green. That’s simple probability, not a problem with green taxi drivers.

³ I do wonder if somebody somewhere simply forgot to specify lead-free paint. While lead-free paint may be the norm in North America, it isn’t the norm everywhere.

Michael Z. Bell
26 September, 2007

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© Albion Research Ltd. 2008