Chinese Culture and Product Recalls

I’ve been writing about risks of chinese sourcing as it relates to the private label trend in Facing the Forces of Change®: Lead the Way in the Supply Chain. But to be honest, I don’t fully understand the cultural gap between the U.S. and China.

So, I invited guest blogger Dr. Benjamin Olshin of S2R to provide some cross-cultural business insight for Distribution Trends readers. Dr. Olshin is an expert on international geopolitics and its impact on management. He has conducted research and advised executives all over the world. Check out HinterNet, his just-launched blog in which he will be examining the business impacts of foreign policy, international affairs, and culture. Dr. Olshin is a fantastic speaker and educator, so please send him an email if you want to know more.

Adam
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The Link between Chinese Culture and Product Recalls
by Benjamin B. Olshin, Ph.D.

Pet food, toothpaste, and now toys — tainted products coming out of China are not only making American consumers nervous, but there are reverberations back home, too…It’s even led to safety talks between China and the U.S.

The recent tragedies do not foretell of a change in Chinese practices, at least not in the short term, despite a CCTV report today that China’s Head of the General Administration of Quality Supervision, Inspection, and Quarantine is moving to improve the product quality of Chinese exports. A quick check of the site of China’s official news agency, Xinhua today barely revealed a mention of the problem. So, it’s no time for rejoicing.

Americans don’t quite understand where these scandalous manufacturing practices come from — that is, why do the Chinese do this kind of thing? — and why they’ll be more such scandals in the future.

Singapore and Taiwan are exporters of products that are considered of the highest quality. As I see it, two important cultural factors explain why the mainland Chinese manufacturers have been engaging in these dangerous practices.

One factor is expediency. In greatly simplified terms, the Chinese are pragmatic and are less concerned with abstract principles — and those principles include manufacturing standards. Expediency means cranking out products as quickly and cheaply as possible. In the Chinese mind, the negative consequences of such practices can always be dealt with later. Pragmatism means that to the Chinese those consequences, in fact, don’t really exist at the present time.

Closely connected with this principle of expediency is the Chinese expression, cha bu duo jiu hao le, translated as “so-so is good enough”. Unfortunately, in China this expression sometimes becomes a manufacturing principle.

The second factor behind these scandals of low-quality, tainted goods is much more complicated, so I’ll just give the short version here: China never had an Industrial Revolution. The West’s move into mass manufacturing was a long process by which technology, standards and ethics developed over two centuries.

Sure, places like Japan took a shortcut on the road to industrialization, but they also consciously imported Western models of management, not just the technology. Taiwan based its industrial model to a great extent on the Japanese model, and Singapore had the influence of both the Japanese model and the British. But even Taiwan has had some bumps on the road to quality manufacturing, and you can check out a critique I wrote back in 1996 on this subject, entitled “Teaching Concepts of Quality,” available on my website and on my blog. Mainland China started most of its major industrialization in the Communist era, when the emphasis was much more on beating the West than on quality or safety.

Nowadays, the emphasis is no longer ideological — it’s monetary — but the bad habits remain the same.

Opportunity and Risk

Albert Einstein once said: "In the middle of difficulity lies opportunity." Keep that quote in mind while you read three interesting new articles on the controversial private label trend.

#1: Are Brands Dead?

This article provides a succinct overview of the new book Private Label Strategy, which I highly recommend. Here’s my interpretation on their advice to distribution intermediaries about when private labels add value:

• In a category that is dominated by one or two brands, with little price competition. See the following quote on page 25 of Lead the Way in the Supply Chain: “Large manufacturers have relabeled generic accessory products for many years, thus capturing extraordinary gross margins from accessory sales. We sell what are, in essence, the exact same things more economically.”
  
• When the wholesaler-distributors can obtain a dramatically lower priced product by re-engineering the value chain. Global sourcing is the most prominent example of this reengineering. China has emerged as the most important source of imported products for wholesaler-distributors with private labels.


• Introducing new products and concepts that are not offered by brand manufacturers. For example, the case study on page 28 of Lead the Way in the Supply Chain discusses how Arbill Safety Products offers a better quality product in selected product lines than the manufacturer-branded products on the market.

#2: Opportunity is Not Without Risk

The NAW released this superb summary of the product liability issues associated with private label products. As the brief points out, it may be difficult for a wholesaler-distributor to involve a foreign supplier as a co-defendant in any litigation, especially if the foreign company has no legal presence in the U.S. All wholesale distribution executives should discuss this article with their own company’s attorneys to understand the issues.

#3: Head of China toy company kills self

I'm sad to report that the risks of chinese sourcing can also have a personal impact. The head of a Chinese manufacturer whose lead-tainted Sesame Street toys were the center of a massive U.S. recall reportedly killed himself. (Hat tip to Spend Matters.)