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China Products: Quality Costs Extra

By Dan Harris and Steve Dickinson

Paul Midler's always excellent China Games blog just did an interesting post, entitled, "Survey: Testing Affects Price," on the correlation between price and quality in China. The post is on how prices quoted for Williams Loft, a distributor of mattress products, rose after Williams Loft made clear it would be verifying quality:

The company [Williams Loft] sent out requests for quotation (RFQ) to twelve suppliers in China. Each was given the exact same set of specifications. The company did nothing with the quotes, but went back to the same factories six weeks later. On the follow-up, they mentioned in passing that they would be verifying quality through a testing agency. Guess what the impact was of mentioning a third-party tester: Ten out of twelve factories immediately moved to raise prices by an average of 20%. Why would a factory raise its prices after learning that customer would be checking quality?

The answer to Paul's question is that, at least to a certain extent, the initial quotes were based on a different product. The initial quotes were probably issued based on a belief that Williams Loft was not terribly serious about quality; the second sets of quotes were based on the assumption that Williams Loft meant what it said. Now I know this sounds funny, but this sort of thing runs rampant in certain industries. For example, in the fish business, many companies order ten kilogram boxes of fish, but with a wink and a nod, the Chinese supplier provides nine kilogram boxes. I have a client who, unwilling to go along with this artifice, makes very clear to its Chinese suppliers that it truly wants ten kilograms of fish in its ten kilogram boxes. Not surprisingly, the price is about 10% higher. The lesson to be learned here is that if you are serious about quality, you must tell your Chinese supplier of this again and again. One of the things we always advise our clients is to be sure to put all quality specifications in writing, in excruciating detail. Assume nothing and reveal and be clear of everything.

Full post as published by China Law Blog on March 30, 2008 (boomark / email).