I heard the following argument several times: “it is not the Chinese factory’s fault if they produced poor quality, if the buyer pushed the price to a point where costs were not even covered.” My feeling is that, in such cases, responsibility is shared.
On the buyer’s side
When you think about it, importers are risking dollars to earn pennies, so they should avoid playing games. A few buyers do it systematically and consciously, in which case they really deserve to receive goods that can’t be used or resold.
But, in most cases, importers push prices down because they don’t understand the risks they are running. It is an education problem.
Let’s take an example. A product costs $1.00 to manufacture. The supplier would accept to sell it for $1.05, but they ask for $1.20. The reason is that they expect buyers to negotiate the price down.
A first purchaser likes the product and buys it for $1.20 per piece. She missed an opportunity of 15c of margin per piece, but she will probably get good service and fair quality.
A second purchaser is more aggressive, and asks for 70c per piece, “take it or leave it”. After some discussion, the supplier agrees to the price. Why? Because they will make it for 50c and they will screw that buyer, who will have lost everything (not just 15c/pc) on this order.
On the supplier’s side
In the above example, a honest manufacturer should make the product for $1.00, whatever the price negotiated with the buyer, right? And they should reject all low-ball prices, right? Well, it is not that simple.
A Chinese factory has intense pressure to grow up fast. Every day they hear stories of other manufacturers that achieved impressive growth with aggressive tactics. The temptation to do the same is very strong to play the same game.
So importers should not count on a supplier’s ethical standards. Again, that’s mostly a lack of awareness.
But does it mean that a factory that takes shortcuts on the bill of materials and/or on the workmanship of the products is not at fault? Of course it is. There is no debate about it, in my mind.
But let’s forget about who is guilty. This concept is not helpful. What matters is how to avoid purchasing goods of substandard quality. The real problem is that many buyers do not take measures to keep the responsibility on their supplier’s shoulders.
But, the situation is clearly the same. There is some blame for the supplier, but purchasing people know what their current cost is, and when a supplier bid is “too good to be true” you need to have actual production samples and do some digging.
The case of Mattel a couple years ago is an example. The original production samples were okay for the toys, but the company could not sustain their selling price and not substitute somewhere. In this case, paint.
And there is a consistent practice in China that factories use “retained samples” from original qualified batches to cover themselves later when they substitute raw materials.
The rule is that you must be constantly observant, and never think that your interest as the customer is anywhere near as important as the interest of the company to make a profit.
Hi Trent, thanks for the comment. Very true!