Monday, June 18, 2007

Cheap, we're learning, also has a cost

A couple of years ago I met a guy who owned a manufacturing company. He told me he had two plants, in Indianapolis and China, that made his product. The price for making his doodads in Indianapolis? $4.50. The price in China? 40 cents.

This radical cost gap has caused the manufacture of many products to move from their home markets to China. The new book "Dragons At Your Door: How Chinese Cost Innovation Is Disrupting Global Competition" by Peter J. Williamson and Ming Zeng paints the picture clearly. Chinese manufacturers have a great cost advantage, and are applying it powerfully across industries.

And who could argue with my friend's logic? Would you pay $4.50 for something you could have for 40 cents?

Well, the downside is becoming clear. Along with the thousands of reputable firms in China that manufacture quality products, for their own sales or as private-label brands, there are many who are sloppy, shoddy or malignant--and their products are putting people at risk.

Exhibit A: animal food with a poisonous ingredient, traced back to a supplier in China.

Exhibit B: tainted drugs that killed people in Haiti and Panama, with Chinese suppliers on two different occasions using poisonous diethylene glycol--an antifreeze ingredient--instead of "its more expensive chemical cousin glycerin."

Exhibit C: the news, reported Friday, that certain Thomas the Tank Engine trains, made in a Chinese factory, were painted with lead-based paint.

"Don't ask, don't tell"ing on sourcing ingredients, shrugging at poor working conditions and tolerating disdain for intellectual property are all part of the same syndrome: cheaper is better. But when your standards fall, at some point there is a price to be paid.

The Government of China has the biggest responsibility to address this crisis. But so do the American and European companies who source products from China. It's time for them to get serious, demand high standards and concern for customers, uniformly, from all Chinese companies, even if it costs more. [And invest in quality control. Laissez-faire isn't getting it done.]

Otherwise maybe the future of that plant in Indianapolis isn't so dark.