Inkwell: Authors and Artists

    
I try real hard to eat locally, but I was just browsing around my
kitchen and some of the things that contain mystery food ingredients
are things that it's pretty hard to avoid and *impossible* to source
locally, like ibuprofen and vitamins and my lactase pills. There are
also condiments and sauces which we aren't likely to find the time to
make from scratch in this lifetime, and things which don't grow
locally: coffee and  chocolate and spices, not to mention citrus and
olives and avocados and wheat... we try to buy organic on those, but
still. (it's *possible* to grow grain here in New England, but it
hasn't hit local retail...yet...some folks are working on it)

But meanwhile, for most of us, there are tons of these mystery
chemicals in our foods and pharmaceuticals, and there doesn't seem to
be any way to tell where it comes from. There are laws about saying
where the finished product comes from but I haven't ever seen anyone
identify where the *ingredients* come from!
  

    
New iphone, eh?

http://fakesteve.blogspot.com/2009/07/im-really-thinking-maybe-i-shouldnt.html


I'm really enjoying the book so far; I find your observations about
cultural gaps plausible and not even a tiny bit patronising. (The
Turkish shoe example is a possible exception, but it's funny and is a
good lesson in humility.)

As someone who has lived on four continents I also found your
ruminations on 'home' and travel to and from China to be spot on.
  

    
Barry - Thanks for the compliment. And thanks for mentioning what was
memorable, even if it was for the wrong reason. It is interesting to
learn what portions have made an impression.

The Turkish shoe story was told to me by someone else, as I indicated.
It was one of the few episodes in the book that I did not personally
experience. In addition to being amusing on its own, the episode helped
to show that I was not the only person in South China who was fighting
quality failures, and that there is even a network of gossiping
traders who swap stories such as this one back and forth. 

Thanks for mentioning the chapter in which I traveled home from China.
Someone who gave me advice on an early draft of the book thought that
it was out of place. 
  

    
Betsy - You reminded me of a point of I've made in the past. When it
comes to food products, Americans are more suspicious of large
companies. In China, it's nearly the opposite. 

Chinese who want to be assured of higher quality will purchase from
large companies, which tend to have a reputation and a brand that is
worth protecting. In the United States, we are more likely to trust the
small, local brand, because we believe that these local companies are
more likely to provide a quality food product. 

In China, small operators may have less to lose and they tend to be
hidden. As a result, they have proven more willing to manipulate
quality levels in order to increase profitability. In the case of
melamine-tainted milk, we got to see how fragmented the industry is,
how the big-name companies rely on a large number of small diary
farmers. 
  

    
Paul, could you comment on why you think some other countries, e.g.
Japan seem to stress quality.  In the case of Japan, their auto
industry  took advantage of low emphasis on quality in the US auto
industry.

Have other countries followed a similar path as China in the past?  If
so, did they eventually come around to better quality?
  

    
Hello Robert - 

Japan is often compared with China, and so there are a few comments to
make there. While Japan struggled with a reputation for producing
low-quality products in the 1950s and 1960s, it has generally come from
a longer tradition of consistency in product quality. An example of
this is the silk trade. From something I wrote in 2007.  

"Quality does not always rise over time, as China's own history shows.
At the end of the 19th century, the West rushed to buy China's
beautiful silk products. Demand quickly expanded, and new players moved
into the market. As competition intensified, manufacturers began to
cut corners on quality, and silk products out of China soon gained a
reputation as inferior goods. By the beginning of the 20th century,
traders were already looking elsewhere, and Japan, which had been
building a reputation for delivering a more consistently high-quality
product, became an attractive alternative. By 1930, Japan was exporting
twice as much silk as China."

I think that we are experiencing the same phenomenon in this decade. A
large number of players have rushed the playing field, and there has
been no attempt to standardize products, or to provide meaningful
guides that might assure quality levels. The system has been breaking
down over time. This has been happening in some sectors anyway,
especially in those where the markets are especially fragmented. 

The issue is explored in my book, which I hope you will get a chance
to read. China's own quality situation has been affected in part by a
"counterfeit culture," one that has suppliers taking special pride in
their ability to pass off lower-quality items as higher-quality ones. 

Part of the risk that is specific to China is that we are not often in
a position to know what it is that suppliers are doing to products.
Case in point: look at bad drywall from China. Months into the
investigation, and investigators still don't know what has caused the
problem exactly. Legislators in this country have created political
solutions to compensate drywall victims even before we have learned
what it was about the drywall that was making homeowners sick. 
  

    
Learning about the history and current relevance of China's
"counterfeit culture" is probably my best take-away from the book so
far.

The English word "counterfeit" is utterly pejorative to my ears and
it's difficult for me to imagine that "respectable counterfeit" isn't
oxymoronic everywhere.
  

    
Hi Barry. Interesting to hear you say that... 
  

    
Paul, I'm still curious as to why you believe that manufacturers have
more market power than importers. From what I've read, especially
about Walmart, manufacturers compete furiously for export business,
and are constantly worried about an importer switching suppliers.  And
what I've learned from my cousin the sandal & shoe importer is that while
there is indeed what you call "quality fade", it's relatively simple
and straighforward to find someone else to make the goods at a better
price or with a better quality record - in his case simply sending 
finished articles to agents in China with the instruction "copy this".
(That said, he said he has been through quite a number of suppliers
before setting on ones that appear to be reliable.) 
  

    
Hi Michael - Thanks for the follow-up question. The book attempts to
describe balance of power issues that exist between Chinese suppliers
and American importers. 

First off, in the short term, consider that most suppliers in China
require to be paid in full before they ship out any merchandise. This
certainly has an impact on the short-term as importers who find they
are stuck with problem merchandise. Chinese suppliers are not in the
habit of taking back bad product, or in providing cash refunds. It is
ironic, but just about the *only* way to get a factory to correct the
situation is for the factory to provide a discount on future orders. In
other words, there is almost an incentive in place for manufacturers
to delivery small errors (especially if they believe that a customer
may switch suppliers in near future). 

On the issue of how easy it is to switch suppliers, bear in mind that
it is much more difficult in some industries. If you are, for example,
producing an item which requires that molds be created, there is an
expense there. In many cases there is a learning curve. It takes time
for a supplier to learn about a particular product, to get the
packaging right. This is less true of products that are designed by the
manufacturer, but much of what we see out of China involves a foreign
importer instructing a Chinese supplier on what to produce. 

There are so many reasons to stick with an existing supplier
relationship that it would be hard to detail all of them here, but
consider this one: A supplier may have an opportunity to counterfeit
its customer's branded product. That supplier may have sensitive
information regarding its customer's competitors and customer base. The
only thing that may keep that supplier from acting unethically (i.e.,
selling to the importer's competitors or going around the importer to
sell to its customers) may be the promise of continued business. It's
game theory. Once an importer says "bye-bye," the supplier may act in
ways that it might not otherwise have done. 

More than anything, though, there is a learning curve. It takes months
to set up any manufacturing relationship. Doesn't matter what product
we're talking about. You have to get to know people, there is a human
element involved. Especially with language and cultural barriers, it
takes time for people to know what you want and need in a business
project. And no matter whether the project is going well or poorly,
there is always risk in switching to another supplier. In the book, I
suggested that these manufacturing relationships are like marriages.
Even when things get a little rough, it makes more sense to work things
out than to take a chance on finding a better partner.  

Also, I'm not sure if this is well understood or not, but there is not
a single "China price." The cost of items out of China are all over
the place. If you are making an item for $1.00 and you have problems
with a factory, you may be tempted to move orders to a factory that is
charging $1.25. Now, how foolish would you feel if you had just as many
problems and were now paying an additional 25% on top of everything
else? On the flip side, some importers will be tempted to move orders
to a factory that offers savings. Most importers would prefer to stick
with the supplier they know, however. Hope that helps to answer the
question.
  

    

> My biggest worry, personally, is food.

My wife and I have switched to mostly food that is not packaged because
it's typically healthier than processed food.
  

    
Paul, thanks for your earlier answers.  A few more questions, all
related:

You mention that the legal system doesn't really afford much help in
case of problems with a manufacturer, but I didn't get a good sense as
to WHY NOT.  Is there no contract law in China?  It just too expensive
to litigate versus taking the loss?  Are courts simply not sympathetic
to foreign importers?  In an extreme case (you pay $1,000,000 up front
for your order and you get nothing at all, ever) -- are you simply out
the money?  What's to keep factories from pulling tricks that?   Do
importers EVER take manufacturers to court?
  

    
LOTS of great questions! i'll save mine for later....
  

    
Thanks, Paul, extremely interesting. I wonder why Chinese
manufacturers have been able to enforce cash-sale terms for so long -
especially given the existence of letter-of-credit and other third
party funding mechanisms.  You'd think an entrepreneurial company in
China would try to gain market share with net 30 terms - or are there
barriers to credit transactions?  

On the legal side I know that commercial litigation does exist in
China (it was one of my CLE courses a couple of years ago) but it
sounds like foreigners are at a serious disadvantage in Chinese civil
courts.  
  

    
Hello David - 

First, to repeat your question: 

"You mention that the legal system doesn't really afford much help in
case of problems with a manufacturer, but I didn't get a good sense as
to WHY NOT...In an extreme case (you pay $1,000,000 up front
for your order and you get nothing at all, ever) -- are you simply out
the money? What's to keep factories from pulling tricks that? Do
importers EVER take manufacturers to court?" 

"Poorly Made in China" touched on this contradiction, and it is
curious. How can it be that so many industrialists behave unethically,
and yet the instances of outright fraud are rare? In the beginning of
the book, I suggested that the perception of China as a safe option led
many importers to move orders there. Fraud isn't common, but the
"nibble" is.   
  

    
Hi Michael - There are many reasons why some suppliers take cash over
credit. One reason is a cultural inclination towards cash in China.
Other reasons have to do with trust. While a letter of credit is
guaranteed by a bank, there are a number of reasons why a bank might
not release funds. For example, if it were discovered that there was
something wrong with the shipment, the importer could instruct his bank
not to transfer funds. Chinese suppliers can be extremely risk averse,
and given that so many of them are sitting on top of quality issues,
many do not want to risk it. There are other reasons. Some importers
may not actually have the ability to raise the credit line. And of
course there is the issue of cash flow. A manufacturer might prefer to
see funds on March 1st instead of June 1st. The 30 days term starts
from the time that the goods arrive in the US warehouse, and it may
take another 30 days to get the goods to the customer. Between the 60
day wait and the associated risk, a lot of Chinese suppliers will
choose to go with cash. I'll leave the legal questions to lawyers,
though I will add that I believe cost, time and unpredictability are
the main factors. 
  

    
> I'll leave the legal questions to lawyers, though I will add that 
> I believe cost, time and unpredictability are the main factors. 

Believe me, that's not unique to litigation in China! :-)
  

    
Michael - 

I would not support the notion that the legal system in China is on a
par with what you will find in the United States, or in many other,
modern Western nations. While I can't find one favorite piece, I have a
couple of quick links that you may wish to look over on the subject of
"legal reform" in China... 

http://blogs.telegraph.co.uk/news/malcolmmoore/100003658/a-step-backward-for-l
aw-in-china/

http://www.cfr.org/publication/10063/chinas_legal_reform_at_the_crossroads.htm
l

Here is a question worth thinking about, perhaps. Can a country's
legal system fail the public on political matters, while remaining
robust and accountable on the economic side? Many are critical of
China's legal system when it comes to political guarantees and
freedoms, but then they will suggest that everything when it comes to
the law's ability to handle commerce issues. That doesn't jibe. 
  

    
In 2005 I was hoping to take advantage of a unique opportunity to
see that firsthand -- an exchange program where a group of U.S.
lawyers would tour China and meet with Chinese lawyers and judges,
with the idea of the Americans learning about the Chinese legal system
(and, of course, doing a bunch of tourist stuff) and the Chinese
learning about the American legal system, particularly commercial
law. It was sponsored by an international legal foundation
and was eligible for CLE credit (that's how these things work). 

Unfortunately I couldn't make the travel work into my schedule, so I
didn't go on the trip, but did take the 1-day class in San Francisco
that I mentioned above.  One of the things that the Chinese were
fascinated with, both positively and negatively, was the enormous cost
of litigation in the U.S.  While the growing number of commercial
lawyers in China are trying to emulate the U.S. system, their clients
are turning instead to alternative dispute resolution (ADR), with
arbitration and mediation instead of full-on litigation in government
courts.  Informal ADR is closer to the Chinese tradition in any case,
for everything from auto & bicycle accidents to workers' comp and
domestic relations.

(Sorry for the digression, but there's clearly a whole 'nother book
there... !)
  

    
Thanks again, Michael. You are right, it is interesting. Quick
administrative note to all: I will be away on Sunday and so won't be
posting for the next 24 hours. Thanks to everyone who has participated.
I'm new to this, but am enjoying it so far. China is important, and
anything that increases thought and discussion on this subject has
value... 

 
 
  

    
Have fun, Paul! For when you're back on Monday... you talked about
some of the cultural things in China that feed into quality fade. Can
you elaborate, and how does this differ from other Asian countries?
  

    
Thanks again, Cynthia. 

About the last part of your question, let me address that one more
specifically. You know, in the wake of so many product recalls of
China-made goods (and following my assertions that we have a "China
problem" here), many apologists have come out to say that it has
happened before. "What's happening in China is nothing new," they
proclaim.

The biggest comparison is made with Japan in the 50s and 60s. It's a
weak link. Bear in mind that at no time during the post-war era did
Japan ever deliver so many product recalls, certainly none that
threatened consumer safety to the extent that we have seen out of
China. Melamine-tainted milk is the most egregious case, and what made
it so was the large number of individuals on the China side who were
involved (and never mind the numbers who knew about it but said
nothing). That the toxic substitute was added to milk that ultimately
went to feed babies makes the event unconscionable. On the
ethical-unethical scale, it's about as low as one can go, but never
mind. 

Now, consider what's happening in China on a broader scale. I'm not
sure if the average reader here is aware, but there are quite literally
thousands of foreigners in China (i.e., permanently living as well as
an even greater number that swoop in on a periodic basis), who are in
the country to check on merchandise quality. The irony is, of course,
that all of the factories have their own quality control teams. And, in
many cases, these facilities are also properly (as opposed to
illegitimately) certified by ISO.  

If ever there was a major indicator of a problem with China, Inc.,
this was it -- that huge numbers of people are hired and paid to do the
job that manufacturers are either unable or unwilling to do for
themselves. An entire industry of third-party inspectors has cropped up
around this market need. 

Energy would be well placed answering the following questions: Why
can't Chinese manufacturers do the job themselves? Why do they require
so much oversight?

One final, related point, the U.S. Food and Drug Administration has
for the first time in its history established offices in an overseas
market. FDA has set up shop in China, as well as in India (though one
suspects that the Indian offices were established in order to make the
China case appear less dramatic). China is delivering the majority of
quality failures in the United States, and FDA must be seen as doing
something. 
 
  

    
it's true that there isn't much lower than poisoning infant formula.
do you see a widespread thing like that happening in vietnam or
thailand?
  

    
> Energy would be well placed answering the following questions: Why
>  can't Chinese manufacturers do the job themselves? Why do they
> require so much oversight?

But I thought you answered that question: because there is no
financial or legal incentive to do so.  Is there more to it than that?

Unless there is, the only remaining questions are how to change the
world so that there IS a financial or legal incentive to provide
quality product.
  

    

What is it about the Chinese psyche, or perhaps the human psyche in 
general, that needs a financial or legal incentive to do what's right?