Now Hear This!

Aug 16 2007 12:00AM | Permalink | Email this | Comments (32) |
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China is many things, and as you might expect in a country with a population of 1.3 billion people, not all of them are good.

The Mattel toy recall is only the latest in a long string of problems emanating from the world’s most populous country. Deadly dog food, shoddy workmanship in a broad range of products, counterfeiting and rampant theft of intellectual property—particularly in electronics—are just some of the problems that China has unleashed on global markets. There will be more, as China becomes more global and relies on exports as much as outsourced manufacturing to fuel its explosive growth.

All of this is an outgrowth of the consumer age. With consumers firmly in control and able to compare prices globally, pricing has become far more important than almost anything else, except maybe on hot new products such as the iPhone (at least during the first few months of their introduction). Large retailers such as Best Buy, Costco and Wal-Mart have recognized this phenomenon, creating their own brands and squeezing consumer electronics manufacturers and component makers to knock down their prices .

The result, as expected, is that things aren’t always made as well as they are by more experienced manufacturers and designers, with more margin available to get things right. The question is what can be done about it, and the answer is not much in the short term.

While consumers may come to look at “Made in China” as a stigma of shoddy workmanship, “Made in Japan” carried the same stigma back in the 1950s and 1960s. Unlike Japanese products, however, which were made by Japanese companies that were competing against products made by companies in other countries, China’s are integrated with every other major economic power on the plant. In fact, they’re inseparable. China’s woes are the woes of consumers around the globe, and they’re not going away.

That integration of businesses, caused largely by disaggregation of the supply chain, has made it impossible to pressure China to float its currency. The fact that China has funded the United States’ recent debt has only exacerbated that situation. In fact, the only thing that other nations can do to improve quality and eliminate problems is to work side by side with Chinese companies to raise their competitiveness.

To anti-globalization forces, this may seem like teaching the tiger to hunt. Sooner or later, when the tiger gets hungry, it eats the teacher. But first of all, it’s important to put the blame in the right place. If consumer electronics giants are outsourcing their products, it’s their responsibility to oversee all aspects of manufacturing and production. Just as Mattel has to take responsibility for potentially harmful toys, retailers have to make sure that everything in their stores is well made.

Second, while it’s easy to focus on the problems in the short term, there is enormous upside in the long term. China’s internal market has barely been touched. Of the 1.3 billion people, only an estimated 250 million people are actively involved in the economic revolution under way in places like Shenzhen, Shanghai and Beijing. That leaves a relatively untapped market of 1.1 billion people, and doing business harmoniously in a country this size should be an overriding economic imperative.

China is just the beginning, too. The country is beginning to offload some design and manufacturing to less-developed countries such as Vietnam, India, and Europe (Eastern and Western), which further expands the global market—not to mention the potential talent pool to design and create new products—for electronic components and all sorts of end devices that contain them.

To simply point a finger say that “Made in China” is a Chinese problem is wrong. It’s a problem for everyone that has outsourced production or design or whatever else they’ve offloaded to lower-cost regions. While the supply chain is disaggregated, the ownership of the problem has not. And that ownership, at least for most of the problems encountered by U.S. and European consumers, is not in China.