Coping with 'Made in China' Scandals

Global companies must ensure, in China and around the world, that their products meet safety and quality standards and that their brands are protected

By Mark C. Goodman and LaRhonda Brown-Barrett

When access to China became a reality, international enterprises with famous brands lined up to take advantage of the resources and market China had to offer. Doing business in and with China allowed many of these companies to expand their businesses and increase their profits to unprecedented levels. This growth and expansion came at considerable cost for some. Issues with the quality and safety of some Chinese products and ingredients have impacted the profits and the goodwill of brands that had taken decades to build. Companies like Mattel (MAT), Nestlé, Procter & Gamble (PG), and Mars have already realized such an impact as a result of lead contamination in "Made in China" toys and melamine contamination in Chinese-made pet food and milk products.

Because of these incidents, varying standards in manufacturing processes conducted thousands of miles away can no longer simply be chalked up to cultural differences. As companies become more and more aware of the risks associated with Chinese manufacturing and sourcing, the responsibilities of all involved with the production and sale of a product around the world become more intertwined. Global enterprises need to take an active and protective role in ensuring that products associated with their brands meet their safety and quality standards and that their goodwill and good names are protected, not just in China but around the world.

As has been well-publicized by now, in 2007, Chinese wheat gluten and rice protein contaminated with melamine resulted in the largest pet food recall in U.S. history. The fallout included more than 100 class actions in the U.S. and Canada and a devastating blow to consumer confidence in the pet food industry, a $6 billion business that includes virtually every major U.S. supermarket chain. The next year melamine added to raw milk to boost protein readings led to at least five infant deaths and more than 50,000 cases of melamine-related illnesses in China. Reputable news sources reported that the figures for infant deaths and kidney-related illnesses could be much higher than originally reported based on later updates from Chinese authorities. The incident led to product recalls throughout Asia, including products sold under famous international brands.

Brand Risk

These scandals most likely won't be the last. Even if they were, though, consumer confidence will likely require a fair amount of time to recover from such repeated blows to the "Made in China" brand, as well as to brands that were never previously associated with China in the minds of most consumers. The growth in international trade and the possibility of negative brand impact underscore the significance of dealing with the challenges of using suppliers and supplies from developing countries to meet growing consumer demand for high-quality, low-cost products.

The frequency of such crises and the strength of public reaction have made several considerations clear. It's critical to have comprehensive strategies for understanding and managing operations, production, economic development, and relationships with key stakeholders and consumers in the countries where operations are taking place. Multinational corporations can consider the following practices to address the risks raised by doing business in developing countries.

From a pragmatic point of view, a global corporation's long-term success working with or operating in a developing country like China necessitates a broader, more activist ethic: sustaining a successful foreign operation by consistently and sincerely recognizing and striving to meet the changing needs and expectations of the host country, its agenda for development, and consumers wherever in the world they are located.

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