More Questions on Globalization's Quality/Cost Trade-Offs

Ann All

A lot of stories on globalization are of the glowingly positive, "The World Is Flat" variety, implying that Western companies can cut prices, speed product cycles and gain access to specialized skills without missing a beat by moving some business functions to offshore locations. The truth is more nuanced, of course. Time zones, cultural differences and management shortcomings can cause problems, some of them serious.


Two years ago, China was in the news because of a series of recalls of products manufactured there, including toys, dog food and toothpaste. Though China has become a popular global choice for producing goods, some experts say its manufacturing processes and technologies haven't yet caught up to the standards of many Western countries. Others say some Chinese companies deliberately cut corners to boost their own profits.


China's customers share some blame. Some appear more willing to risk poor quality -- or even dangerous -- products than the more immediate loss of competitive advantage they could suffer by cracking down on their suppliers. The author of a Knowledge@Wharton article I cited, a businessman with 15 years of experience in China, wrote:

The chance of a product failure is usually remote, but the penalty for late delivery is an almost certain loss of business.

Most articles on China, including the Knowledge@Wharton one, mention keeping close tabs on quality control, something that many of the companies that send work there apparently have failed to do. As supply chains become more dispersed, governance becomes more difficult.This is seen in other countries as well, as Boeing's experiences with its Dreamliner 787 show.


China's star has continued to rise, even as new product problems come to light and the issues mentioned above persist. A Wall Street Journal piece about the Chinese-manufactured drywall that is apparently sickening U.S. homeowners mentions China's "lack of adequate financial and legal redress that contributes to product-safety scandals in the first place. ... lack of access to the courts for victims, official corruption, lax supervision, excessive price competition and a host of other factors that give incentives to unscrupulous manufacturers to cut corners and imperil lives."


Questions are emerging about the role of Shanghai Zhenhua Port Machinery Corporation (ZPMC), touted as one of China's top 20 globally competitive companies, in the problems that shut down San Francisco's Bay Bridge. Inspectors found problems in 65 percent of ZPMC-produced girders in January. One inspector said ZPMC failed to produce most of the quality-control documentation required under its contract. Problems persisted throuhgout the spring. After the city's Metropolitan Transportation Commission manager Steve Heminger and other officials met in Shanghai with ZPMC in August, Heminger issued a statement, "The simple message is, quality needs to improve." Wrote SFGate.com's Yobie Benjamin:

The question of quality is not race-baiting China. A single snapped bracket is my impetus to ask all the unpopular questions. It's not whether a single bracket is made in the US or China. The bracket reminded me that Bay Bridge was being forged overseas while the US steel industry is struggling. For me, it raised questions about the relentless pursuit of "free trade" over US jobs and industry: cheap and unregulated overseas labor over highly regulated and fair wage American labor.

China is trying to move up the manufacturing value chain by introducing more labor and environmental regulations. And China is rapidly moving from an export-driven model to one based on internal consumption, writes Shaun Rein in Forbes.


Will Western companies continue to invest in China, to produce goods for domestic sale and also to tap into China's burgeoning consumer market? Or as China's cost of production rises, will they move work to lower-cost (and less regulated) countries like Vietnam and Sri Lanka? Or in a real wild card, will they consider long-term investments that could pay off in enhanced U.S. manufacturing competitiveness? Like those posed by Benjamin, these questions are not necessarily popular and are difficult to answer as well.

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Add Comment      Leave a comment on this blog post
Nov 10, 2009 12:31 PM David Broderick David Broderick  says:

The key item with any outsourced (or offshored) work is what business practices will be followed to create the product or service.  Most of the problems that occur are due to poor practices, either caused by no oversight, or no set expectations.

For the  US to survive and thrive in a global economy, work should not just move to the lowest cost resource.  As Ann highlights in the first paragraph, there is a lot of positive things that can happen, but if a company does not take responsibility for the "quality" processes and oversight, then there will be major problems.

You can not fault Western companies when trying to lower their cost of good sold by moving work to a lower cost country, like China.  However, you can hold them accountable for doing it correctly with increased visibility.  For the US firms, we need to create roles that specialize in outsourcing/offshoring transition and quality control.  This will help us leverage lower costs in other countries, but also create high paying roles in the US specifically designed to ensure our products and services live up to our original standards.


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