Rodney Johnson - Without Warning

If I were a newspaper boy trying to hawk newspapers on a street corner in New York City, my mantra might be, “Extra. Extra. Read All About It. China’s Exports Off  26.4%.” Yes, that was the news yesterday. China’s exports off 26.4% in May, when compared to a year ago. Now many economists and other smart people will place this under the moniker, “It’s the economy stupid” umbrella. And this might be the case. However, I’m convinced that a bigger problem lies over the horizon, and this problem is “Quality.” This is China’s silent problem. A problem they are avoiding, since much of it lies in the Culturism silo.

Let’s go back a decade or so and why companies started their sourcing frenzy from China in the first place. This excerpt is from Paul Midler’s book, Poorly Made In China.

Concerns about business risk weighed heavily in the decision-making process. What importers needed to know before they moved their business to China was whether the economy was safe. One important contributing factor was a changing perception of China as a low-risk environment.

There were still economies in the world where an importer could wire-transfer funds and find that the recipient and the cash had both disappeared. Importers who came to China were reporting to others that this sort of thing did not happen. Factories delivered the goods, and outright fraud was more rare than in other corners of the world.

Compared with other economies, China came to be seen as a sanctuary. Latin America remained a place where kidnappings by professional criminals was common. In other countries, you could at least count on having your luggage stolen. Vietnam, which was just next door to China—and which had even lower labor costs—was one of those markets where such stories of petty theft were commonplace.

 The common perception on the street at the time was that “Made in China” was due to low manufacturing and labor costs. In reality, “Made in China” was a hybrid of sorts. Low manufacturing and labor costs. And, it was a low risk country from which to conduct business. This “low risk” perception enabled small to mid-size companies to suddenly enter the import - export marketplace with relative ease, and of course low risk.

Today, “Made is China” is still regarded as a place where low manufacturing and labor costs exist. It remains a low risk country from which to transact business and send business executives to. However, it is losing its low risk moniker when it comes to quality. And this is the Silent Problem that is beginning to face importers in the eye. And as the Chinese export market has waned, quality issues are increasing and becoming more visible. From my perspective, here’s why they’re becoming more prevalent. Chinese companies that are dependent on exports are finding it increasingly difficult to maintain financial stability as exports have waned. Therefore, they’ve been forced to cut corners where ever possible, leading to persistant quality problems for many importers. This may be viewed as short term thinking, yet is one where much of the Chinese culture lives.

And this is why China has a Silent Problem of immense proportion. And if it continues, it begins to change everything.