August 16, 2007
BrainTrust Query: Is a ‘Made in China’ backlash coming?
By Arthur Rosenberg, senior editor, Chain Store Guide, and Matt Werhner, research editor, Chain Store Guide
The other day, a national business news show focused on the recent product recalls Mattel has been responsible for through its Fisher Price Division. One international recall covered nearly 1.5 million toys.
The discussion narrowed to explore the dangers of lead content in products imported from China, which is the primary, though not exclusive, concern of the recalls. At one point, a guest expert specifically warned of the dangers of unbranded products of Chinese origin designed for children that are available at dollar stores.
The news anchor replied that Fisher-Price was a popular premium brand with a long, established reputation in terms of design suitability for children. She went on to note that Fisher-Price products are generally available only in higher-end stores. The guest expert then backed off but later reasserted his caution, especially of unbranded products originating in China.
The latest recall, announced earlier this week, is part of a worldwide action covering more than 18 million toys based on concerns for lead paint content. Other toy recalls involved tiny magnets, which can shed. If swallowed could these could prove fatal.
Now, The New York Times is reporting that laboratory tests have shown certain vinyl baby bibs, made in China and sold at Toys ‘R’ Us stores, appear to be contaminated with lead.
Discussion Questions: With regard to product safety, do dollar stores face a greater risk than most retailers, due to their connection to private label and non-branded merchandise of Chinese origin? Will this news produce long-term or permanent changes in the attitudes of U.S. consumers toward products made in China?
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I live in a stable Chicago neighborhood whose population is nearly evenly split among low, medium and high income residents. As a result, the retail scene is also varied from every national dollar store chain to mom and pop stores to high-end boutiques. Trust me, dollar store patrons are not likely to know about or understand the hazards of lead paint on children’s toys. They are too busy worrying about how to pay for increased gas, electric and grocery bills to care. Any backlash against Chinese goods will have to come from higher up the economic ladder from parents with time on their hands.
As in most things, this issue ultimately goes back to the consumer.
For years, the consumer has demonstrated a propensity to buy the lowest price product regardless of apparent quality. Wal-Mart has driven other competitors out of business based on the low-price premise. Dollar stores have created a whole new outlet. Manufacturers have been forced to adapt by outsourcing production to China.
Now comes the stark reality that product quality has fallen below any acceptable standards. Consumers are shocked at the poor stewardship of the retailers and manufacturers.
Until the consumer is willing to pay more attention to quality and less to price, this problem will continue. In Europe, consumers are more concerned with quality goods. They choose to have less, but better quality merchandise. The American consumer must learn to value quality over quantity.
China has become America’s workshop. I think the risk is “peanut buttered” across all retailers. Where are all those high-end soft goods made, for example?
I remember a time when the label “Made in Japan” was synonymous with low priced, inferior quality goods. They worked their way out of it and so can China.
I believe there will be a backlash regarding Chinese-made goods in the U.S. There already has been. The problem is–where else can manufacturers and retailers go to get the same goods, at the same price but a higher quality?
In the long run, China will have to police itself. The U.S. Congress certainly isn’t going to do anything about it. Remember, they are putting their own people in danger, as well as those who buy their products overseas. The Chinese, whose incomes are on the rise, will not put up with it forever. Furthermore, if China wants to play on the world stage, it can’t afford the negative press. The executions and “suicides” aren’t going to help.
The problem is that in China today, the government is controlled and policies are set by business interests. Difficult to police yourself when you are the criminal.
“China” as a single monolithic entity for production, does not really exist. Within China there is an array of production sources, many of which have instituted and committed to best practices in quality control. Concurrently, many have virtually no commitment to quality control.
Recent events have begun to shine light on a dirty little secret. Quality and product safety come at a cost. For some importers and some manufacturers, “don’t ask, don’t tell” has been the operating parameter. This is particularly true for low price point or low margin items. Lead-free ink and non-toxic plastics cost more than the unacceptable alternative. The initial step in controlling this problem is in the details of the product development specification. It is impossible to impose quality standards if they don’t exist in the first place.
Are dollar stores more likely to experience quality and safety problems? Not necessarily. I know of at least one dollar store chain which implements at least as strong quality control procedures and factor evaluation processes as upscale department stores do. The importers (which includes most retailers) at highest risk are those without effective factory portfolio management processes and without objective quality control procedures. As a generalization, this tends to be those oriented toward the lower end of the retail price point spectrum.
This is far too complex an issue to give justice to in this space. At the end of the day, the problem lies here, in the land of plenty. Quality and safety are possible no matter where the point of manufacture is. They require commitment, a brand promise backed with integrity, and a social value which places the best interests of the consumer over short term profit.
On the whole issue of China I am cautioning with my manufacture clients to take prudent actions without over-reacting or taking foolish actions:
1. If your products, components, or ingredients come from China, you need to take prudent action immediately to fully investigate your sources, and their sources, the best you can.
2. Resist the temptation to add any words or phrases to your packaging. I have had calls from companies asking me if it’s a good idea to write, “Not Made in China” on the front of the packages. The answer is decisively, NO!
3. If your products are made in China, you should let your retail customers know what steps you are taking to insure safety and compliance. If your products are not made in China, your retail partners will be interested to be reminded.
4. Keep in mind that at present the news and the accompanying stigma is with China. This situation could expand to other nations at any time. Conventional wisdom is that this is probably not just an issue in China. So, don’t make a big deal that your products are not made in China, per say, but simply be informative.
I have worked with a number of products and companies with Chinese production, and it should also be said that the majority of Chinese manufacturers are honest and they deal with and work with, other honest companies.
Based on my observations of my daughters-in-law and how they are raising their children I would guess that the high-end toy manufacturers might have possibly one chance to save their business given the recent problems with toys produced in China.
I would expect that Mattel/Fisher-Price will need to invest in some very special efforts towards reassuring these moms that their products are going to be put through very rigorous testing and production oversight if they are going to sell anything to these people.
I would also expect some consumer backlash against the lower priced toys imported from China that may dampen their appeal for some time to come. They might make some slight recovery during the Christmas season in light of the current economic conditions.
I will be most interested in learning what the major retailers are going to do to reassure their customers of safety in the toys purchased in their stores…namely Toys-R-Us, Wal-Mart, Target, and Kmart.
For the Dollar Store channel and others the news is not yet finished on this issue. Chinese imports have for many years provided retailers with greater margins and consumers with lower prices. Now it seems the question is, at what “real cost”? While trade with Asia as a whole is imperative to our economy, it does seem realistic that closer attention be paid to the issue of possible lead contamination especially where children are concerned.
It would be non-responsible for folks to assume that direct or in-direct importing will somehow cease. However it would be responsible for retailers, manufacturers, importers and consumers to not let this issue slip as the next big news story breaks. Most will agree, profit is important but is not the most important attribute of business or life.
Just my opinion.
Consumers’ trust in “Made in China” has been eroded over the past few months, not only by the Mattel recall but also by the widespread problems with pet food and other categories. (The “crash test” results on the Chery automobile are not reassuring.) The problem with a backlash is the lack of immediate options for consumers. The sourcing infrastructure of so many retailers and suppliers is dependent on Chinese production and it’s impossible to re-source these goods overnight. It’s not just a problem specific to dollar stores: Think of the national discounters and food stores rocked by problems with pet food sourcing. And think in particular about “household name” American brands like Mattel whose credibility just flew out the window; they probably have lots of company, whose problems just haven’t surfaced yet.
The consumer is becoming increasingly aware and anxious over the sourcing of goods from China. However, there will be little done from a federal perspective to curb these risks as the U.S. and China economies are becoming increasingly co-dependent. The U.S. borrows more and more from them just so we can keep buying their cheap products, which is fueling their internal growth. Neither side will take any real measure for change (China’s concern over the dollar, and U.S. concern over these health risks). Further, it’s unlikely that China will taken any meaningful action to protect/improve its manufacturing processes.
Accordingly, it will be left to the American companies who source their product overseas to step up their quality control inspections to ensure safety. This will increase costs, but a higher cost is better than no sale.
China is capitalism run wild and is the best argument for government control that has ever been put forward. Ask any purveyor of intellectual property (Microsoft, Adobe, etc.) how much respect the Chinese have for their patents. Ask the pharmaceutical companies about the number of counterfeit drugs being produced in China and sold all over the world. Adulterated food (fish, shrimp, apple juice, etc.) have been common. Western manufacturers submit specifications forbidding leaded paint, but leaded paint gets used anyway.
If you ask any manufacturer of intellectual property, luxury products or any patented drug you will be told that China is the biggest threat to their corporate health that exists. In the case of the drugs, it could be the greatest threat to your health.
I think that there will absolutely be an impact on the toy industry and the retailers that rely heavily on that volume. The resulting product shortages (due to recalls) coupled with fear may lead consumers to alternate categories for gifting.
To me, the big question is how far the general backlash extends. Does it impact apparel, high tech? Do manufacturers and retailers with a significant China sourcing preference suffer the backlash as well? Who benefits? Domestic manufacturers? Other Western Hemisphere manufacturers? European? Middle Eastern? Etc.
Let me know what you think.
There will be minimal impact from this and little to no “backlash.” Fisher Price made a mistake in not properly qualifying their manufacturing partners and are paying the price as a result of this. Fisher Price did the right thing in notifying the public of the possible risk and is pursuing the proper steps to ensure that its products are handled and disposed of per this communication. However, this is no different than the thousands of recalls that are done for many products in the auto industry (each year) where many components are made in the USA. There is no anti-USA backlash, and it is accepted as part of the product safety development life cycle. Although the Fisher Price scenario represents poor planning, it really represents the lack of quality and process controls between Fisher Price and its manufacturing partners. This should be a standard among all global manufacturers and this case only amplifies the consequences. Caveat emptor still applies, even in today’s global market.
Most economists will probably agree that the lower prices at Wal-Mart have been responsible for our nations’ relatively low inflation rates over the last decade.
Wal-Mart’s distribution, technology, and pressure it places on the vendor community not to accept price increases, has allowed the American Consumer to maximize their dollar expenditures.
In my view, now is the time for Wal-Mart to take a front row seat in forcing vendors (including their own internal off-shore buying sourcing departments for private and control label goods) to be held accountable for quality control standards. If they can adopt this practice, it could pay dividends in re-building their image. Remember Mr. Sam Walton’s “buy America” campaign and what that accomplished for their image, sales and profits.
When Wal-Mart speaks, everyone listens.
“The problem is that in China today, the government is controlled and policies are set by business interests. Difficult to police yourself when you are the criminal.”
Isn’t the situation the same here? The reason our government won’t do anything to change the situation (like require inspections of merchandise upon arrival) is that no one can make a buck off of it.
The retailers don’t want their costs to go up, and they in turn influence our lawmakers.
I put the blame not on the governments, but on the companies that are willing to do anything for the almighty dollar.
“A Year Without ‘Made In China’” by Sara Bongiorni, is a national bestseller. So the backlash is major. Equally realistic: (1) don’t American producers (food, cars, rockets) recall things all the time? (2) how many Americans would pay the extra cost for goods only made domestically (if they could be found)? Even Perrier got recalled, and that’s a luxury product from a high-wage country (France). Is it possible that the negative publicity behind Chinese recalls is sometimes motivated by racism or jealousy or xenophobia or fears of unemployment?
Why are we blaming China? Aren’t the U. S. retailers relentlessly asking for the lowest price from their suppliers, year after year, not only for toys, but also for a variety of consumer products? The U. S. retailers are in a “race to the bottom” so far as the price is concerned. Therefore, let us put the blame for “poor quality” where it belongs. It is simply a matter of economics 101, you get what you pay for.
Each new recall that hits the news increases the intensity of the backlash. Many Americans have shades of indignation they can rationalize. Fake Gucci’s? Wow! They look almost real: pirated CDs? Yawn. People dying from tainted medicines? Um, that was overseas somewhere, wasn’t it? But start messing with innocent pets and defenseless children and the line has been crossed. Both China and American corporations will pay a big price for this breach of trust. Backlash–you better believe it.
What continues to amaze me as all this unfolds is how so many savvy companies and brands which have spent decades and dollars building image and name recognition, could make choices in which those reputations were obliterated in the blink of an eye. This is a lesson for B-Schoolers that goes far beyond the China factor.
Although I feel very sorry for the poor consumers who are finally getting concerned about where everything on the shelves of retailers comes from and beginning to wonder why everything is so cheap (or why value = cheap rather than worth its price), I have no sympathy for widespread ignorance and naivity. What on earth do people expect? Why oh why are they surprised and how could so many people have let themselves remain disinterested for such a long time. Of course this was going to happen. And of course it is not "China’s" fault. What a huge generalisation that is. Most of the people producing goods from China and other Asian (and African and South American) countries are being paid ridiculously low wages and have little choice but to follow instructions. Just as many American consumers have little choice but to buy what retailers choose to sell. My point is that backlash is not likely to last primarily because there is so little choice. This piece in a British newspaper today is about a Chinese company buying its way into the supply chain that effects many of the country’s biggest retailers. Consumers will be buying more Chinese manufacturered goods in the high street than ever before.
BUT expecting/demanding that retailers increase inspections is unrealistic to say the least. This article in one of yesterday’s newspapers showed how difficult it is to monitor what is going on here with gangmasters and cheap immigrant labour. If it’s that easy to turn a blind eye when such practices are going on practically under their noses, however can they consistently and sufficiently monitor practices going on thousands of miles away? Wal-Mart today published its report on how ethically it trades and how well it keeps an eye on things, increasing the number of inspections etc. Even if consumers don’t believe everything they are told, what on earth can they do about it? My kids (now all grown up) loved Fisher Price toys and I believed that they were well made. Had to, didn’t I? Would I buy them today or tomorrow? Do I still trust Fisher Price? I’m really not sure.
The name of the game has been the retailer with the lowest price wins. Quality is great as long as it is the lowest price. So we have gone to the cheapest labor overseas and the lowest cost of ingredients too. Now we are shocked that we have compromised our children’s safety because that was not what we really wanted. Any child and their parents that has been harmed by these “savings” will not understand our logic. Now we must recognize and react to the mess that we have allowed to occur and try to make better decisions going forward. Placing the proper value on safety will surely raise prices and create opportunities for quality retailers. Unfortunately, most of our quality manufacturers have been forced out of business. Most likely, our short-term solution will be to insist that the Chinese and other overseas manufacturers start making quality products with their cheap labor.
I voted no. I guess I was thinking of a longer time frame than most of the other respondents. Chinese toys will be dangerous as long as someone’s paying for the spin. If automobile companies couldn’t convince us Japanese cars were flimsy no way is some American toy maker going to.
Made in China may take a hit for a while, but it will recover. I am old enough to remember when something that was made in Japan was considered sub-standard and wouldn’t last very long. Look how wrong we were!
I’ve always believed in “you get what you pay for”, this applies to wherever the origin of the goods are. Lack of regulations in China cause factories to alter ingredients and come up with “cheapest” prices regardless of consequences.
Importers and retailers need to take additional steps to promote quality-control measures on site, as well as join trade associations that work with Chinese authorities to help establish stronger in-country testing.