Safety Vs. Price. Lessons from the Japanese in China

Wednesday, April 24, 2013 2:31

Some of the most difficult, and important, decisions a firm can make are about the balance between price and quality in China.  For many that I have worked with, there is an embedded trust gap in China, yet the pressure to drive costs is simply too powerful to overcome.  It is almost mind boggling at times, and the recent CNBC article Japanese Carmakers Turn to Chinese Parts for China Market I think does a great job of highlighting the struggle (and risk) to find that balance:

A few relevant passages:

Entering China a decade ago, Japan’s automakers relied heavily on parts from their affiliates, or “keiretsu” companies, which were often imported from Japan or elsewhere. To check costs, the automakers urged suppliers to shift production to China – and Honda and Nissan say they can now secure more than 90 percent of their car parts locally depending on brand. But even these parts made by “keiretsu” suppliers at Chinese plants are more expensive than those from Chinese manufacturers as they often rely on materials imported from Japan.

[...] The quality of Chinese-made car parts has improved as manufacturers gain experience, though many still fall short of those made by Japanese rivals, people in the industry say.

“During the trial stages in the lead-up to the Venucia launch, we had quite a few problems that were unthinkable,” Yamazaki said, recalling how sun visors wilted and parts were often delivered with the wrong labels

[...]“The carmakers will never admit that quality will drop, but it will. There’s no doubt about it,” said an executive at a main Japanese supplier to Toyota, Nissan and Honda, who didn’t want to be named as he is not authorised to speak to the media.

“Sure, they’re making suppliers provide samples and so on, but that’s not bullet-proof. Things like the endurance of an auto part are very hard to check unless you actually apply them in cars on the road.”

It is a process that in many ways reminds me of a conversation I had with an electronics executive several years back who said “I wish we could just trust our Chinese suppliers to do the right thing”, but knowing full well that what is needed by firms is a full blown investment in their quality control processes.

Lest the end up with melted car visors, deadly dog treats, lead painted dolls, or relabeled milk powders.

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