The Story of 'Made in China'

Recent product recalls have exposed serious shortcomings in China's supervision systems for a range of products. Not every recall has been justified, as demonstrated by the Mattel debacle.

Toymaker Mattel has issued an extraordinary apology to China over the recall of Chinese-made toys.

''[T]he vast majority of those products recalled were the result of a design flaw in Mattel, not through the manufacturing flaw in China's manufacturers," acknowledged Thomas A. Debrowski, Mattel's executive vice president for world-wide operations, in a meeting with Chinese product safety chief Li Changjiang.

For years, "Made in China" was a byword for cheap. In the last few months, it has been used as a code for low quality. Yet, the story of "Made in China" is not just about China.


From "Made inJapan" . . .

Japanese companies are known for their high-quality products. But, before World War II, anything marked "Made in Japan" was poorly regarded.

Now, Japanese Sony is a model multinational, but this was not always the case. In his autobiography, Made in Japan, Akio Morita describes the barriers Sony had to overcome:

Most people in the United Statesand Europe, I learned, associated Japanwith paper umbrellas, kimonos, toys, and cheap trinkets. . . .In the early days we printed the line "Made in Japan" as small as possible, once too small for U.S.Customs, which made us make it bigger on one product.

Companies in other Asian countries have also followed this trajectory. When Byung-Chull Lee founded Samsung in Taegu, Korea in 1938, his first business was in trade export, selling dried Korean fish, vegetables and fruit to Manchuria and Beijing. Over time, the company moved from cost advantage to higher value-added through competitiveness and innovation.

The story of the leading multinationals in America and Europe follows the same pattern.

In most cases, the winning companies were initially unsophisticated but ambitious suppliers, which, over time, developed new capabilities and-often amidst technology transition-seized the opportunity, challenged the entrenched leaders and captured industry leadership.


To "Made inChina"

Industry leadership comes at the cost of years of investment, frustration and negative profits. Winners emerged after breaking free of old mindsets.

That's where the emerging Chinese multinationals, like Haier, are today. In the past, Haier-a manufacturer of general home appliances, home appliances, and audio and video products-dominated consumer electronics outlets only in China. Today, it has established foothold not just regionally but worldwide. Last year, its global revenue amounted to $14.3 billion and it had over 50,000 employees worldwide.

Haier was founded in 1984 when Zhang Ruimin took over a failing refrigerator factory in the port city of Qingdao (which will host 2008 Olympic sailing events). One of his most difficult obstacles was getting workers to understand Haier's commitment to quality. To get his message across, Zhang once pulled 75 refrigerators off the line, some for minor flaws such as scratches, and ordered his staff to smash them to bits.

"They finally understood that I wasn't going to sell just anything, like my competitors would", says Zhang Ruimin, chairman and CEO of Haier. "It had to be the best."

The quality wars of Haier and many other Chinese export powerhouses reflect the impending rise of Chinese innovation.


Safety and Quality through Competition

In the past few weeks, U.S. Treasury Secretary Henry Paulson has repeatedly warned U.S. lawmakers not to use the loss of jobs at home as a pretext for protectionist trade laws aimed at China.

Trade protectionism will only exacerbate U.S.-China friction. True change comes with global competition, responsive American multinationals in China and new quality-conscious Chinese multinationals.


Dan Steinbock serves in the India, China and America Institute. Focusing on issues of international business and international relations, he resides in the United States, China and Europe.