Is "Made in China" a bad thing?

My friend Pete has decided to avoid (as much as possible) purchasing items made in "that bad place". He is jokingly referring to items made in China. It is becoming increasingly difficult to find items that are not made in China, from tools, to toys, to household appliances, exercise equipment and other day to day items. Lots of the items we purchase are coming from China. More and more it seems. Let me be perfectly clear in case any of you are having a bad day and are tempted to infer things that aren't here. I am not talking about "people" I am talking about "products" and business practices. China is the location of origin specified on the products under discussion. Ethnicity is not under discussion here.

Quality
My friend's objections to buying goods imported from China have to do with safety and quality. In his opinion there have been too many cases of low quality controls resulting in a measurable health hazzard. The list of problems includes deaths from bad pet food, melamine contamination in human food, and lead paint in toys. But clearly those examples don't mean every product is defective. Just because a product is from China doesn't mean it is poor quality. In many cases products we would consider to be of high quality are manufactured in China. Apple's "iphone" and "ipod" are manufactured in China. So while the design may be North American, the manufacture and assembly is handled by companies in China. Several dimensions of quality must be considered;

• Design (is it similar but inherently flawed?) 
• Materials (are half the parts not galvanized to protect against rust?) 
• Workmanship (is it slapped together or carefully built) 
• Documentation (Are the instructions intelligible, well translated, useful?) 
• Environmental (are toxic or banned materials used in the product or its manufacture?) 

Comparison with Japan
There was a time when products from Japan (like the tin wind-up toys that were popular in Canada) were considered "junk". Now Japanese quality is considered among the top in the world. Following World War 2 Edward Demming and others introduced statistical process control. A number of Japanese manufacturers applied his techniques widely and experienced theretofore unheard of levels of quality and productivity. The improved quality combined with the lowered cost created new international demand for Japanese products. Japan even began exporting expertise with programs like the Toyota Production System. The point should be made that significant improvement of quality came through deliberate action, not a "natural" process of industrial maturation.

Cost
How can a product that is manufactured overseas, AND SHIPPED here cost less than a product built here with no shipping? I don't get it. I understand that shipping a 40ft container to the US from China costs about $8,000US.  How could the production cost be so significantly lower that after shipping and import taxes the companies involved are actually saving money? Could it be that manufacturers in China understand how reducing margins a little wins them the contract over North American manufacturers who "can't be bothered" to make a product unless they make $x.xx per item?

Overpriced wall-tap example
At my local Home Depot store I found an orange plastic wall tap (a plug expander) for grounded plugs. Home Depot wants $6.98 + tax, but the Dollar(.25) store down the street wants $1.25. We are talking about a block of orange plastic with metal wires embedded in it. There is no way it is WORTH $6.98 + tax. Given my limited knowledge of how injection molded plastic objects are created, and my understanding of how the dollar store and their suppliers insist on making a profit (not a loss) on every sale, it is safe to bet that the cost of materials, manufacturing and shipping for the orange wall tap are less than $1.25. So if getting the wall tap made and shipped to the store is less than $1.25, why is Home Depot charging us an extra $5.73?
I have a theory and it has to do with markup. Assuming both stores want a 100% retail markup the cost for each becomes $2.88 and $0.625. Lets assume HD goes through an extra "distributor" who also has 100% markup. Now we're looking at $1.44 and $0.625. If the North American Manufacturer needs to make $1.00 per item and has a $0.44 "cost", we start to see how the manufacturer in China still has $0.185 of room per item for profit and shipping. So thats my theory, I'm sure you have your own which I welcome in the comments section.

Labour practices
Does the low cost for some products made in China necessarily mean that the people making them are being treated unfairly? Sometimes this is the case. In 2006, the Mail on Sunday alleged that sweatshop conditions existed in factories in China, where the contract manufacturers, Foxconn and Inventec operate the factories that produce the iPod. The article stated that one iPod factory, for instance, had over 200,000 workers that lived and worked in the factory, with workers regularly doing more than 60 hours of labor per week. The article also reported that workers made around $100 per month were required to live on the premises and pay for rent and food from the company. Living expenses (required to keep the job) generally took up a little over half of the worker's earnings.[154][155][156] Immediately after the allegations, Apple launched a full investigation and worked with their manufacturers to ensure that conditions were acceptable to Apple.[157]

The standard for "fair treatment" needs to be both acceptable to the people designing and purchasing the products. (Nothing to hide) as well as acceptable to the people performing the work and running the companies. Working for $x per day may sound awful in North America where the cost of a house is very high. Folks in other nations may be thankful for $x per day and could conceivably be raising their standard of living at those wages. So we can't have an overly paternal response where we need to control, nor an overly naive response where we leave the manufacturer to their own devices. The discussion of what is "fair treatment" is a larger discussion better handled separately, but I'd be cheating you if I didn't draw attention to the issue. 

Assuming the question of "fair treatment" is defined reasonably. If an offshore manufacturer can offer better prices by "mistreating" their workers, they are being unethical. If a company contracting work out to the manufacturer knows this, or turns a blind eye, they are acting unethically. Respecting the people involved must always come first. The response by Apple to ensure that the people assembling their products are treated ethically is commendable whatever the motivations. This blog has discussed "Fair Trade" products in the past. There is no reason this model couldn't work for manufactured goods as well.

Outsourcing our Manufacturing Base

I've seen ships piled high with logs.  Logs bound to go overseas where they will be milled and transformed into consumer goods. I've wondered why we wouldn't build those consumer goods here and take the associated jobs and the associated profits.  Seems weird to me that someone can ship logs half way around the world because it is a better deal.  Maybe companies overseas pay a bit more for logs to keep the jobs and profits for the finished goods.  Here in British Columbia I keep hearing news about mills closing.  I see a risk if North American corporations decide to continue this trend of "outsourcing" their manufacturing.  We'll have fewer factories, fewer trained factory workers, less equipment, and less capacity for manufacturing.  To think a dark thought for a moment.  What happens in a widespread armed conflict that spans continents if North America has "outsourced" it's manufacturing capability.  Before we could produce equipment, we'd need to first plan and construct factories, source and deliver raw materials.  Maybe we're past that point and all the new wars will be fought with dollars.  Lets hope we don't make shortsighted decisions that shoot our feet off.

Conclusion

I think in looking at this issue we need to fight our way through a lot of stereotypes like the arrogance of assuming North American design is superior.  In a world where the true costs are not transparent its hard to know where the money is going or why choices are being made. The long and the short of it demands that we treat everyone with respect, and that we identify hidden costs that might not be apparent.  I think there is the potential for a global community driven project that aims to divulge the "True Cost" of the products we purchase on a daily basis.  As explored above some of the health and safety costs may not be worth paying even though the "sticker" (retail) price looks attractive.

Cheers,

Greg. 

The Value Proposition - Being content with the price you pay

I grew up in a world where the price on the price tag was the price you paid.  Being a shrewd consumer involved shopping around for the same product with a lower sticker price.  Although I did attend an auction or two in my childhood, that was an experience far removed from our weekly shopping trips.  I grew up learning that price was important, but quality was also important so the product would last and not need replacement or repair.  So sometimes paying a little more for better quality meant conserving money in the long run.  I want to pay the least and conserve my money for use elsewhere, but with a growing understanding of where our products come from, I won't knowingly choose a low price at the expense of others or the natural environment.  In this journey from fact to face negotiation, to automated Internet transactions and corporate marketing strategies, It is easy to lose sight of the people on the other sided of the transaction whose welfare must remain a part of the equation.

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In married life, the Internet has allowed us to compare prices without actually having to visit stores (much like the telephone allows), in fact we can compare prices without actually interacting with another person.  It feels like a safe anonymous inexpensive activity.  Ebay started introducing us to live on the wild side by bidding for things at "less than" the asking price.  Until recently this was the extent of our financial education until I met my friend Cindy at work and she introduced me to the idea of "asking for a better price".  "The worst they can say is no" she explained.  So in small ways I began to assert my desire for fairer prices.  Saving $200 on fees associated with buying a car, saving $15 off the price of a pair of shoes.  Spotting inconsequential defects and asking the cashier for a deduction.

Experience has eroded my confidence that retail prices accurately reflect value

I remember being shocked to observe retail markup first hand when i worked at the garden centre.  I saw two things that forever changed my view on pricing. 

1. The first was observing products coming in at a wholesale price and immediately being marked up to a retail price that was 2 times the wholesale.  The $4 items became $8 items, and the $40 items became $80 items.  I was alarmed that at the garden centre 1/2 of every price was basically profit.

2. The second was re-potting plants.  When a plant outgrew its 1 gallon pot, we would pull it out and place it in a 2 gallon pot surrounded with fresh dirt.  So on Friday the shrub was a 1 gallon plant for $4 and on Saturday it was a 2 gallon plant for $7.  In some cases the re-potting would only be half complete, and customers would pass over the 1 gallon shrubs to purchase a 2 gallon shrub (the plants were identical).

I think you will share some of the other experiences I've had; 

• Gas wars where 2 gas stations compete on price and the cost of a litre of fuel drops and drops to ridiculous prices (like 1cent for a litre).

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• Electronics where the retail price drops month after month, while other electronics like the Wii where the retail price remains constant for years.


• Recently crude oil prices plummeted while gasoline prices remained at record high levels for over a year.

Clearly the retail price is not a reflection of value in all cases.  The prices rise and fall despite constant demand and identical products.  The prices you see are not the direct result of a "market effect" but rather the contrived price of marketeers.  In some cases, nobody pays the same price, such as in the case of "yield management" where the airlines use complex formulas in their attempt to extract as much money as possible from each customer for a seat on the same plane.

Very recently on a trip to Mexico, I saw how a silver right for $80 could be purchased for $35.  How? by haggling.  A bead bracelet for $5 becomes 2 for $7 at a cost of $3.50 each.  Now there are the long faces and the sad stories of large families at home in need of money, but don't tear up, it is a game.  In the 5 minutes it took you to pay $7, you supplied 1/3 of the average Mexicans daily wage.  This whole process of haggling over prices felt uncomfortable to me.  As someone accustomed to paying sticker price.  I feel awkward haggling or arguing over price.  Because the "price tag" is what the man asked, I feel compelled to pay it.  After the face I am faced with the tension (maybe unhappiness) that results from having options in the price I pay.  My joy at "finding a good price" is robbed from me when I realize that I could have negotiated a "better price".  When I do haggle for a "better price" I wonder if I got he best price, or did I settle too high?

 

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The only solution I have found to this unhappiness with the prices I've paid is the value proposition.  What is the value of this to me and given this value am I content with the price I paid for this product.  For me the value proposition includes; the price I must pay, the quality of the product, the level of customer service I receive and the social impact of the product through its manufacture and associated labour and waste (explained clearly in "the story of stuff").    If I am content, then it does not matter that someone else got a better price or that the price dropped the next week.  I am content, I make my purchase and (unless there is a deal to refund my money when the price drops) I walk away secure that I made a choice and paid a price I was content with. 

I wish you success in leveraging the "value proposition" for your own peace of mind in purchasing.

Greg.