Thu, Jul 26th 2007 4:49pm
In recent months, there have been a spate of stories about defective or dangerous products being exported from China. These include everything from toy train sets to toothpaste laced with poison. The conventional thinking is that this poor quality control is the result of a rapidly growing economy outstripping the capabilities of regulators, but that these issues will inevitably correct themselves over time as the economy matures. Writing at Knowledge@Wharton, Paul Midler offers a slightly contrarian stance, arguing that poor quality control, or "quality fade" as he calls it, is actually to be expected from a maturing economy (via Evolving Excellence). Basically, the inattention to quality is a result of cutthroat price competition and the attendant margin pressures faced by exporters. It's well known that Chinese exporters don't enjoy good margins, so for commodity products (like a tube of toothpaste), substituting inferior ingredients may seem like the only way to make a buck. The effects are exacerbated by pressure to demonstrate a fast ROI on new infrastructure investments. The perverse consequence is that companies that have recently expanded their capacity often try to raise prices (or skimp in other areas), so as to rapidly justify the expansion, which turns the concept of economies of scale on its head. Ultimately, China is likely to end up like its neighbors (Japan, Korea, et. al.), which once were known for their inferior goods but eventually got their act together. But this transition won't happen overnight and in the meantime, market demands could get in the way.
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