Saturday, February 25, 2012
Book Review: Poorly Made in China
Poorly Made in China: An Insider's Account of the Tactics Behind China's Production Game
I just finished Poorly Made in China and wanted to highlight some of my key takeaways in the book. The book recently made The Economist's Book of the year list (Book review - The Economist). Paul Midler has lived in China for over 15 years and worked as an outsourcing consultant for small-to-mid-sized companies on a range of products. He wrote the book because he was shocked at what he saw. The book was written as a response to the string of 2007 Chinese quality scandals (yes, it even it's own Wikipedia page; and 2008, and then there's Chinese Drywall). It took him a year and a half to finish, so it sort of had a quiet launch, until The Economist picked up on it.
The book is not an overview of the 2007 quality scandals. He references them only briefly. Some interesting notes: the infamous Mattel lead paint toys case involved a Chinese factory owner who had worked for Fisher Price for 15 years and had an estimated net worth of ~900 million USD. It was a symptom of what Midler refers to as "Quality Fade."
Here's an article he wrote in 2007 (that also served as the seed for the book) about quality fade: Dealing With China's 'Quality Fade' - Forbes.com
Some of the other takeaways:
* The reason China does so well initially attracting business is: #1 very, very low crime rate (at least for Westerners), #2 low initial price point (although subject to rises over time), #3 zero regulation (want to discharge wastes from a galvanizing operation directly into the sewer? No problem!), #4 ease of access (a business traveler can get a cheap ticket over there, then stay in very inexpensive hotels, and come back to the US for less than he budgeted; comparable trips to Mexico or Dominican Republic are extremely costly due to security constraints).
* Chinese factories deliver low prices because they'll sell at-cost to US markets, then sell knockoffs of the same products to Latin America, Mid-East, etc. for double/triple the price they're selling it to the US (generally "borrowing" the intellectual property/design/etc. in the process).
* Chinese factories are described as 'almost mid-evil' level of technology. The average factory is a series of long tables, with lines of stools (generally without backs, made from scrap wood) with massive amounts of human labor substituting for what machines would do in the West. I've been to a few US factories and it's amazing the level of technology you'll see; so long as it lowers the marginal cost and there's enough volume, you'll see lines of the most expensive computer-controlled CNC machines. The only machinery in Chinese factories is generally worn-out, obsolete equipment from the West.
* China is not THE lowest cost producer. Vietnam generally beats them out on labor costs.
* There's a bias out there that "Made in America" is too expensive, while "Made in China" guarantees you're getting a good deal (at least on price). Say you want to buy bolts. A Chinese factory quotes you 68 cents/ea.. You think you're getting a good deal. If you go to a US factory and they quote you 68 cents and "Made in America", people think they can get it cheaper elsewhere. A US manufacturer, thanks to automation, mechanization, and superior methods, might actually be the less expensive manufacturer, while a Chinese manufacturer may only meet that price point while sacrificing something (namely, quality).
* A lot of the business-people in China, especially among the lower-to-mid-size companies are incredibly naive. Those are the best stories in the book. A Chinese factory was making 'private-label' beauty products for an un-named CVS/Walgreens/etc. and the 'CVS' buyer kept complaining they were getting 'screwed out of pH'. The pH was on the lower end tolerance range (~6 in a ~6-7.5 range). Meanwhile, the factory was doing all sorts of other substitutions behind their back that they weren't even checking. Upon being challenged, the 'CVS' buyer didn't even know what pH was, much less have the idea to test for bacterial contamination of the lots of body wash, shampoo, etc. that were coming into their store by the shipload. Because they didn't know how to make anything, they had no idea how a manufacturer could screw them over. The Chinese product had a "not tested on animals" label, primarily because there was no testing done whatsoever!
One of the things I enjoyed about the book is it's a business book, but there's very little 'business' in it; it's mostly about relationships and Chinese culture. That's also this reviewer's take. Some of the cultural nuances were remarkably like America, in a way.
Also worth a look: Paul Midler's Blog. Especially the older entries.
Also of note: Dumping China for America - CNN Money
On a personal note: one of the reasons I've become interested in this book is I've gotten into valve procurement in a big way. The valve business is very, very competitive and a valve you bought 10-15 years ago that used to made in the USA with a good reputation for quality is now either 'assembled in the USA' (with Chinese-made parts) or wholly-made in China due to commercial pressure. I was at a meeting when we went through valves and name after name was "made in China" (partly or completely), I asked 'is there anyone who isn't?', the older engineer looks over at me and says, "yeah, Company Z. Their valves are made in India" Me: "Um..."
Now, we try do as much as possible to test the valves and to screen out the worst offenders, but the whole process has left me with some uneasy feelings. The valve salesman won't be around when the project starts up. I will and the operators will work next to these valves for years to come.
Note that Paul Midler ends his book with a GUARANTEE of further Chinese quality scandals.
NOTE- Some edits for spelling and clarity.
UPDATE- I've been spreading the word:
Made in China