China Business Blog and Podcast

Yesterday the Wall Street Journal ran a front-page story about the difficultly of tracking down the source of contaminated foods in China. “Often, U.S. officials trace problems with food imports only within American borders, due partly to limited resources.” So they know a product came from China, but it’s very difficult to determine specifically where the contaminated products were introduced into the supply chain.

Technomic Asia’s Kent Kedl reminds readers of the WSJ article of the need to take responsibility for vetting suppliers and sources in China (and elsewhere, of course):

Industry analysts say many U.S. companies save money by sourcing in China but are reluctant to spend on vetting supply chains. “You can’t just throw the [orders] over the Great Wall and hope it comes back good,” says Kent D. Kedl, general manager for Technomic Asia, a consulting firm in Shanghai that advises U.S. and European clients. He says companies “need people camped out” in China.

Another person quoted in the article, Clara Shih, president of Best Buy Produce International, adds: “People in this country don’t really care [about food quality] as long as it’s cheap.”

M.P. McQueen and Jane Spencer write in the Wall Street Journal about the recent recall of Aqua Dots, a toy that has been found to contain a chemical that mimics the effects of the so-called date-rape drug.

The article says several recent recalls of Chinese goods have involved product substitution. Technomic Asia’s Kent Kedl says:

…product substitution is a common problem when dealing with Chinese factories. He cites problems including companies that substitute low-quality screws or fasteners.

“It could be because the Chinese company doesn’t know any better, or may be trying to cut corners and use cheaper product,” he said.

Read more at the wsj.com (registration/subscription might be required).

Don Lee and Abigail Goldman of the Los Angeles Times wrote yesterday about the steps that will likely be taken to improve the quality and safety of products manufactured in China. Bottom line, they report: Higher quality will result in higher prices.

For years, American consumers have enjoyed falling prices for goods made in China thanks to relentless cost cutting by retailers such as Wal-Mart and Target.

But the spate of product recalls in recent months — Mattel announced another last week — has exposed deep fault lines in Chinese manufacturing. Manufacturers and analysts say some of the quality breakdowns are a result of financially strapped factories substituting materials or taking other shortcuts to cover higher operating costs.

Among the China consultants and other experts quoted is Technomic Asia’s own Kent Kedl. Read the full article from the LA Times.

Technomic Asia’s own Kent Kedl is quoted in an article from Reuters today. The article discusses how China’s product-quality headaches might actually help the country in the long run by “pushing its companies to make higher-quality goods that consume less energy, produce less pollution and command fatter profit margins.”

Also, see the China Law Blog for more discussion on “The Meaning of Made in China.”

Time magazine’s Austin Ramzy writes today about the suicide of one of Lee Der Industrial’s co-owners after his company was identified as one of the manufacturers of toys recalled by Mattel. He goes on to write about the impact the greater product-safety issue is having on China’s manufacturing market:

With its export-driven economic growth on the line, the Chinese government has taken aggressive steps to safeguard the reputation of its goods. [...] The measures are “a combination of window dressing and substance,” says Steve Ganster, the managing director of Technomic Asia, a Shanghai-based consultancy.

“The window dressing is important politically, but I think there will be true substance that, like anything in China, will trickle down and have an effect in the bigger market.” But until that effect takes place, the drumbeat of product recalls looks set to continue: on Tuesday, reports emerged that Mattel would announce another toy recall, over lead-based paint traced to a different Chinese manufacturer.

Read the full article on Time’s Web site.

“Never mind cheap. Now ‘Made in China’ makes you think of suicides, executions, product recalls and export bans.” So writes Reinhardt Krause in his recent article for Investor’s Business Daily.

U.S. companies that do business in China are scrambling to better police their suppliers’ production lines. While rogue suppliers have tainted China’s image, sometimes its factories just struggle to be up to snuff.

“China is still very early in its industrial development and sins of omission are probably more likely than (purposeful) sins of commission,” said Kent Kedl, general manager of Technomic Asia, which advises companies sourcing out of China.

Read the full article from IBD via Yahoo.

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China has been hitting the news again recently, and this time it is over quality issues from products manufactured in China. It started with pet food, and then moved on to tires, toothpaste and now some toys are suspected of having lead paint on them.

To those of us that have been hanging around China for awhile, there is nothing “new” about quality issues in China supply.

There have always been quality issues in manufacturing here and the successful supply chain managers assume that they are going to have to check nearly everything and make provision for that. However, what is “new” is that U.S. and European buyers are waking up to the fact that there are quality issues and that, I suppose, makes it important.

I was quoted in a Reuters news story about this a few days ago, which you can read here.

Chemical Business magazine’s Aug. 6 cover story takes on the recent spike in concern over the safety of products manufactured in China.

“In the wake of these quality scandals, the Chinese government is making new commitments to increasing regulations as well as better enforcement,” says Kent Kedl, general manager of Shanghai consultancy Technomic Asia. “The recent execution of a former drug and food safety chief, Zheng Xiaoyu is a signal to both other suppliers and to the international community that China is concerned about the growing number of safety quality cases.”

The writer, Doris DeGuzman, also highlight’s Technomic Asia’s “three practical steps for foreign companies dealing with Chinese suppliers.” See the full article for more.

Technomic Asia’s Kent Kedl was quoted in two recent Reuters news service articles on Western reaction to safety concerns over products manufactured in China.

The first, by Kirby Chien on July 12, discusses China’s regulatory environment in the wake of recent product safety concerns.

The lack of consistent and stable regulations enforced evenly throughout the vast country opens the door for unethical executives looking to cut costs and improve margins.

“There is product substitution, poor manufacturing methods, poor storage and a myriad of other problems that can result,” said Kent Kedl, the Shanghai head of Technomic Asia. Kedl’s company is a consultancy that helps firms such as chemical maker DuPont and Sara Lee to import into and source from China. New Chinese companies pop up literally overnight, trying to take advantage of new opportunities, but often lack proper supervision.

“Last year they were planting soy beans, and this year they are doing chemical processing,” said Kedl. “They can get loans and backing quickly but don’t have the proper level of expertise and sophistication,” he said.

And the most recent Reuters article discusses Mattel’s recall of 1.5 million Chinese-made toys worldwide because their paint may contain too much lead.

The recall comes amid heightened concern worldwide about the safety of China’s exports. Many of the previous problem products have involved smaller manufacturers, but now a major company in a sensitive sector has been hit.

“Nobody wants to face that PR nightmare,” said Kent Kedl, the Shanghai head of Technomic Asia, which advises companies sourcing out of China. “But the reality is that things slip through the cracks. And the cracks are a little bit bigger here in China.”

Read the full news story from Reuters.