Quality fade is the behavior of progressively degrading the quality of products to earn more money. In doing this some Chinese manufacturers, over time, will gradually decrease the quality of the goods they manufacture by using cheaper materials, thereby increasing their profit margins.
I’ve toured quite a few manufacturing plants while I’ve been in China. Many of these plants are honestly run, and provide high quality goods to the buyer. However, there are also many manufacturing plants that don’t adhere to these high standards and resort to quality fade.
The mindset of the manager or owner of a Chinese factory involved in quality fade is in stark contrast to the owners and managers of a Western factory. In the West, factory owners and managers continually try to improve their efficiency so as to increase their profitability. The more efficient they become, the more money they make. In addition, the cheaper the labor, overhead, and cost of materials, the greater their profitability. In this cost cutting and improvement the quality of the materials used in the manufacture of goods, as well as the goods themselves, is constant.
In contrast, in China, quality fade factory owners take their efforts to increase profitability one step further. Once their product meets the buyer’s specifications they tend to focus on cutting costs by using lower quality, and therefore cheaper materials that may have an adverse effect on the quality of the end product. For instance, cheaper chemicals may be utilized in the manufacturing process and formulas may be altered by substituting cheaper substances for more expensive chemicals. These, and other short cuts, can materially impact the quality of the product produced. Moreover, quality fade doesn’t occur immediately, but is gradually implemented over a period of time so that the decrease in quality from order to order is almost imperceptible. The way most buyers find out about quality fade is when they’ve received their merchandise and discover the flaws.
One of the primary reasons that quality fade exists is that Chinese factories are typically paid before their goods are shipped. Therefore, cutting a few corners makes them even more money. In addition, they know it’s not easy for a foreigner to take a Chinese company into a Chinese court and prevail. It can be expensive and, even with a perfect Chinese contract in place, the foreigner will still have to obtain a verdict and, if they win, get that verdict enforced to get their money back. Depending on the company’s local influence, such as employing a great number of locals, enforcement of a verdict can be very difficult, if not impossible. Chinese companies know this and they also know that the government is unlikely to take action against them. The only time the government is likely to become involved is when the problem of quality fade affects domestic tranquility, such as the story you’ve probably read about where babies were sickened, and some died, by melamine tainted milk. When the news of what happened was exposed, domestically and internationally, the government was quick to act.
In addition, don’t look to the US government for help. The Chinese Embassy doesn’t get involved in civil disputes. They’ll tell you to get a lawyer and wish you good luck.
Chinese companies, for their part, know they’re the global low cost manufacturer and have an infrastructure that most other countries can’t duplicate. As a result, they have no issue with quality fade, especially with companies which have short-term or limited production contracts. If a Chinese manufacturer knows that this is the only order you’re probably going to place with them, then quality fade is likely to be far more prevalent. However, if they know that you’re a longer term buyer, and that you’ll require contract manufacturing on a continual basis, then quality fade is far less likely to occur.
There are a number of ways companies have used to limit or prevent quality fade. To start, a company should specify in their contract the quality of the substances, materials, and other components that are to be used in the manufacturing process. This should be as technical and as specific as possible in order to avoid any ambiguity. Once that’s in place, the company should have their own quality control staff do a raw material and outsourced parts inspection. In the event the company doesn’t have the resources or requisite quality control staff, professional third party companies can utilized for these tasks. In addition, buyers can conduct factory audits, pre-production monitoring, production monitoring, and pre-shipment inspection to ensure the quality of their product.
I should also mention that some Chinese manufacturers have been using a novel approach to create greater profits, irrespective of the size of the company placing the order. In this approach some factories give favorable pricing, in an effort to attract foreign companies whose products have intellectual property protection. However, some Chinese manufacturers will then take this same product off their manufacturing line, irrespective of the intellectual property protection, and sell knock-offs of these products in countries which have weak intellectual property enforcement. In many instances, even if the company discovers their manufacturer is the source of these knock-offs and terminates the manufacturing contract, the Chinese company will continue to sell and even export the knock-offs, as China is one of the countries which has weak intellectual property protection.
Alan Refkin
If you are currently not receiving my newsletters or blogs and would like to, please sign up at http://thornhillcapital.info, or visit my corporate web site at www.thornhillcapital.net, which will also give you access to past editions of my blog’s and newsletters. I would also be pleased to answer any questions you may have by contacting me at info@thornhillcapital.net