Sunday, 29 July 2007

China and the concept of "Quality Fade"

China Law blog have written an excellent review piece on the topic of "quality fade" - the idea that, for specific deals, the Chinese exporter will begin to decrease the quality of the goods supplied (by using cheaper inputs) so that margins are improved.

The definition given by Paul Midler is: "The deliberate and secretive habit of widening profit margins through a reduction in the quality of materials."

This is a cost of outsourcing and of course it is in some respects, the price the West has to pay if it wants cheap imports.

I have done some work on the relative quality of Chinese imports and exports looking at Chinese imports and exports of the same goods (intra-industry trade) with China's East Asian neighbours. The preliminary results suggest that Singapore and Malaysia have been increasing the quality of their exports to China more rapidly that China has been increasing the quality of their exports to these countries. This fits with the quality fade story but is very much a macro perspective and as has been pointed out, the absolute quality of China's goods are increasing in the main it is only for specific deals where "quality fade" becomes a problem.

I believe this is an interesting idea and worthy of more detailed research. The linked to article contains a good discussion of the relevant issues. The original text also includes some good comments.

China Quality Control: Darkness Before The Dawn

Very thoughtful article on China product quality over at the Knowledge@Wharton site. The article is written by Paul Midler, founder and President of China Advantage, which provides China outsourcing and supply chain management services. Paul is a Wharton MBA graduate, who has been living and working in China off and on for the last 15 years.

The article is entitled "'Quality Fade': China's Great Business Challenge." Its thesis is that the current emphasis placed on importers in preventing quality problems is misplaced. Chinese suppliers that want to play games with their product are well positioned to do so and it is very difficult for Western importers to prevent. Midler defines "quality fade" as "the deliberate and secretive habit of widening profit margins through a reduction in the quality of materials" and he sees this as pervasive in China, with no end in sight.

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