Poorly Made in China? A Technology Perspective
If the final product is advanced technology (either hardware or software), does that mitigate the risk of manufacturing style quality issues in China?
I recently read a book called Poorly Made in China, which reflects upon the author’s life in China as a middleman between Western importers/wholesalers and Chinese manufacturers (for basic goods like shampoos), just as China was opening up to the rest of the world and developing its reputation and supply chain capabilities. Through a series of fascinating and hugely entertaining stories based on his own experiences, he highlights the incentives and behaviours that manufacturers used with their clients that led to products being “poorly made” for a given price or led to issues around intellectual property protection. It’s really worth reading the book but here are some of the main issues that were highlighted:
Changing product inputs to substitute for cheaper alternatives at the last minute without telling the client, even if this leads to serious defects occurring that could ruin the client. This might not appear for multiple production cycles since the changes can be incremental and small.
Raising prices at the last minute and then expecting some level of input cost compensation to maintain prices at an agreed level.
Selling clones of products in markets that the client does not sell in. For example, agreeing to work with a US wholesaler at a very attractive price point to learn how to make the products.
It got me thinking about the nature of technology and whether more advanced technology products made in China will be affected by the same issues. At the same time, it seems that given the overall economic slowdown that China is having, especially with the impact of Coronavirus and trade war tariffs, these types of behaviours are manifesting themselves again. Chinese contract manufacturers are again taking a short term view in terms of maximising revenues.
Is advanced technology fundamentally different to manufacturing the types of goods typically made in China?
Yes! Within advanced technology, there is a distinction to be made between hardware and software. I’m writing mainly from the perspective of B2B software as an apples to apples comparison since we are implicitly comparing this to manufactured goods produced in China that are then sold to an intermediary before hitting the shelves for the end-user.
Software products generally tend to have the following characteristics that make them different from physical manufactured products:
They embed themselves into their user’s workflow and are very difficult to switch out of if what they are being used for is meaningful enough. Customers know this so are highly critical of onboarding these types of products.
It’s not really possible to hide defects for too long before it starts showing up in the user experience. Corners cut in the software development process to save time will become apparent fairly quickly.
If too much “technical debt” is accrued (i.e. poorly written or unfit for purpose code), then it is much more difficult to upgrade or modify the underlying product’s infrastructure and code while it is being used live in the business (since most useful software is used for mission-critical use cases).
Development of software is highly complex and cannot be automated (yet) - there’s a massive degree of people organisation and artistry, as well as technical skill required.
Advanced hardware is usually complex by design and involves long lead times to set up the infrastructure required to manufacture it. It needs skilled personnel and it usually requires a high degree of training and after-sales support. Think about medical devices, semiconductors, aircraft engines and so forth.
So what?
If China moves towards a paradigm of going up the value chain and especially if it wishes to export advanced tech and software then it will be critical that the same types of behaviours are not repeated. Users and customers will be much more thorough in their due diligence. Structurally, it will not be possible to take a short term view, even if Chinese companies want to.
Even if it is possible to copy a software product and sell it, the rate of change of user expectations means that a Chinese company will need a high degree of R&D investment to keep up; something that is at odds with a short term outlook.
Which is ultimately good news; “poorly made in China” won’t be possible in the future!