Sunday, September 19, 2010

The risks of conducting business in China

Paul Midler’s Poorly Made in China: An Insider's Account of the Tactics Behind China's Production Game is the most eye-opening business book I’ve read this year. If you’ve ever wondered what it is like to do business in China this book is for you. Midler who lived and worked in China for ten years writes of his experiences working as an intermediary between American importers and Chinese Manufacturers. His book provides valuable insight into what it is like to work with Chinese manufacturers while exposing the risks of conducting business in China. Here are some of the lessons provided:

Buyer beware –
What seems like a good deal may be nothing more than a no-money-down special. American importers arriving in China are wined and dined by potential suppliers then offered deals that seem too good to be true - because they are. Once the importer has committed to a particular supplier no tactic is off limits to the Chinese manufacturer who does whatever it takes to turn a profit. Tactics include copying designs and selling the knock-offs in secondary markets at higher margins, skimping on quality with cheaper materials in both the product and its packaging, raising prices at the last minute after it is too late to cancel an order or switch to another supplier. Since, China does not have a strong legal system in place that enforces contracts, the importer has no choice, but to accept whatever the manufacture doles out. They have no recourse and no leverage to insist the supplier improve.

By buying Chinese products Americans have traded safety and quality for price -
China does not have the same safety and quality standards Americans are accustomed to. There is no place in China to even report a safety issue, no place to leave an anonymous tip, and the media is controlled by China’s central government.

Chinese manufacturers manipulate quality through a large number of small variables. If a shortcoming is discovered in one area, other undetected shortcomings will still be in place, so they will still be able to make a profit. Manufacturers are more interested in covering up product safety challenges than addressing them. Factories slap on quality-control stickers that are meaningless. For example the “No Animal Testing” label on one of Midler’s supplier’s products was truthful - because no testing was being performed at all.

When testing is required, laboratories check only for specific substances and each test is costly. There’s no limit to the harmful substances that might have been introduced to a product, either accidentally or by changes to the product formula without the importer’s knowledge, so most importers look the other way hoping their customers won't notice:

In the end, the quality problems that the factory caused were not immediately life threatening, but they caused us to wonder. We were put in a constant state of never being quite sure of what it was that we were receiving. And as the importer, we should have known. We should have been in a position to know everything about our product - but we didn't. (pg. 128)
American importers are afraid to admit doing business in China is not as lucrative as it is portrayed -
Importers would be the last to admit to problems as they have to convince their retailers that they are doing a better job than others. Midler says
“To some extent, we deserve these problems because nobody wants to discuss it.”
By not disclosing the truth, additional American importers continue to move their manufacturing to China believing they have no choice if they are to remain completive.

Americans no longer prefer “Made in the USA”-
American consumers once preferred to see the Made in the USA tag, but there had been another shift in the marketplace. Somewhere along the line, made in China began to sound like a bargain. When an importer told a retail buyer than an item was quoted at 65 cents and made in the USA, the buyer figured it could be purchased somewhere cheaper. When the same product was quoted at 65 cents and was said to have been made in China the buyer figured it could not be found for any less. (pg. 172)

What is Midler’s prediction for China’s future?
China in recent years has been able to play catch up by copying other country’s technologies and business models.
No economy could ever win the race by merely catching the wind off another’s sail, and China has big ambitions for itself. (pg. 139)

When asked “You think China is going to crash.” Like “The rise and fall of China” Midler writes:

“More like the rise and stall,”

What went wrong? How did we get where we are today?
This decision to fling open wide the doors of trade with China- before we were ready, before China was ready, before we understood what we were getting into; an action motivated by our own greed - this decision more than anything else was the one thing related to China that was truly poorly made. (pg. 240)

A word of caution if you like happy endings, after disclosing all of the problems with doing business in China, Midler doesn’t provide a solution most likely because there isn’t one.

For me, I took a quick look around my home at some of the products I’ve purchased recently that failed to meet my expectations: the Tobi fabric steamer that gushes pools of water rather than steam onto my clothes was made in China, the iPod tunebase we had to send back to the manufacturer for complete replacement was made in China, the Pottery Barn Sausalito dinnerware I previously wrote about were made in China. In the future, I will be more cognizant than ever about where my purchases are manufactured and I will never purchase soap products from a Dollar Store.


  1. Sounds like a really fascinating book. I just started working at a trade magazine in the engineering/manufacturing sector, and issues with China and where goods are made come up pretty frequently, but I don't know much about it. This sounds like it could be a good book to learn more about it.

  2. Kim,
    Your job sounds interesting; I bet you have some great stories. Yes, the book would definitely be a good primer in doing business with China. I’m also looking forward to seeing how China is covered in some of the other non-fiction business books on my TBR list.

  3. Anonymous2:09 PM

    Hi. Your post is really interesting and scarily accurate too! My family had business dealings with China a few years ago. The experience was simply T.E.R.R.I.B.L.E! When China opened its doors to the world, claiming they are ready to accept the rest of the world and to be as competitive, I thought it would be a good opportunity for us in South East Asia. I thought we need not source from the Western countries considering the high exchange rate. But from that experience I've definitely learned my lesson that when it comes to quality and safety of products, China certainly lacks them!

  4. Thanks for sharing your family’s experience and perspective. The first step in figuring out what to do with the China debacle is to admit there is a problem. The more business horrors stories exposed the better.