Confronting China's Quality Gap

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Consumers will continue to demand a smorgasbord of products, at all price levels, and they'll continue to abandon products that don't meet their expectations.

Low-cost goods will remain in high demand, but quality will count more than ever. And China and the other low-wage countries in Asia, Latin America, Eastern Europe, the Caribbean, and the Pacific will continue to produce a growing share of the world's manufacturing output.

U.S. businesses, consumers, and government agencies spent $1.84 trillion on imported goods last year, the Census Bureau reports, even in the midst of an economic downturn; the comparative figure in 2004 was nearly 20% less: $1.5 trillion. This trend is irreversible and recessions and recalls will not stop the process.

Corporate Responsibility

What we need to stop, however, is buck-passing and buying into the false belief that government is responsible for keeping consumers safe. Government safety agencies can help, to be sure. But the real responsibility lies in corporate board rooms and with managers along the supply chain. In market economies, it's their job to provide quality products at competitive prices. And it's their responsibility to protect their brands and reputations, and monitor and manage the products that bear their corporate logos and names.

It's easy enough to point fingers at shoddy manufacturers in China and other rapidly developing economies (RDEs). But frankly, when a business has quality problems, it has itself to blame. Just because a U.S.-based company's manufacturing facility or supplier is in China, thousands of miles from headquarters, doesn't mean the company isn't responsible for the quality of the factory's output. And the "Made in China" label also doesn't absolve retailers of their responsibilities.

While government has a role, executives need to understand that "the market"—which requires transparency and includes the free exchange of information about safety, efficacy, quality, and price, among other concerns—works. If there are quality or safety concerns about a company's products, the market will respond. I walked away from a certain company's substandard lock. Millions of others make similar choices every day.

If a company wishes to protect or recapture its reputation for quality products, it will do more than point fingers, issue apologies, and offer replacement products.

Problems are rarely somebody else's fault. It makes little difference who actually produces a given product; if your company's brand name is on that product, the quality problem is yours.

The lesson for global businesses is simple: You are responsible for the safety and quality of the products that carry your brand, wherever they may originate. You are responsible for testing products that carry your brand, and you are responsible too for certifying the accuracy of those tests. Don't blame your suppliers. Don't point your finger at "the Chinese," at CPSC, at AQSIQ, or at anybody else. They can't and shouldn't do your job for you.

What Managers Can Do

So what should executives and managers do to accept responsibility and fix the problem?

First, recognize that outsourcing from China and other low-cost countries, for all of its many benefits, also carries risks. One of the greatest of these is that quality will suffer, hurting your brand. You must guard against this at all times and invest in managers, training programs, equipment, and quality-control measures that make the words "Made in China to U.S. quality specifications" mean something.

Second, recognize the fact that safety and quality are your responsibility, not the CPSC's, not China's, not your suppliers'. Any products that have your brand name on them will be judged by consumers by the same quality standards regardless of where they come from: Mexico, China, Michigan, or Ohio. Consumers have expectations and many choices. If you let them down, they'll go elsewhere.

Third, recognize the fact that the Chinese, like the Japanese and South Koreans before them, will get very good at what they do—and will, as they advance in quality and technique, become your competitors. This is already happening in some industries. Remember, it wasn't that long ago that Sony (SNE) was seen as an upstart, and LG (LGLG:GR) and Samsung were unheard of. Today they are all global leaders, known for producing some of the highest-quality products in the world. Focusing on quality, then, helps keep you ahead of the competition, even as the competition advances.

Today's corporate executives need to have eyes and ears everywhere. They need to manage aggressively to eliminate unnecessary risks and reduce quality defects. They need to understand that investing in quality is investing in their company's future.

The era of the global supply chain is here. Live with it; manage it; take responsibility.

Harold L. Sirkin is a Chicago-based senior partner of The Boston Consulting Group and author, with James W. Hemerling and Arindam K. Bhattacharya, of GLOBALITY: Competing with Everyone from Everywhere for Everything (Business Plus, June, 2008).

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