COMMENTARY
Commentary:  Know Your Foreign Partner
June 29, 2007
Christopher Bjorke, AFP

Shoddy products have put China in the spotlight. Foreign companies should be careful not to be harmed by association.

It started with bad pet food, tainted by melamine used to fatten up animals. Then came news of cold medicine made with the poison diethylene glycol killing around 100 in Panama. There have been recalls of toys covered with lead paint and tires that come apart, and also toothpaste, sold in the United States and containing a common ingredient in antifreeze.

All these products came from China.

So many of the goods we consume now originate, in whole or in part, from factories in China. For companies, more and more of their supply chains include China at some point. And because no one wants to brush their teeth with antifreeze or kill their dog with the wrong pet food, for companies doing business in China, being associated with a tainted ingredient or shoddy component can be as deadly as so much diethylene glycol.

The emperor is far away

China has been driven by a boom in low-cost labor that benefits consumers who pay less for goods, companies who spend less on production and Chinese workers who can earn more in a factory than in impoverished rural villages. But some of the biggest beneficiaries have been the entrepreneurs responsible for the factories that churn out cheap goods and who make up much of the country's growing middle class and nouveau riche.

These producers have been helped by China's still-weak central control and the stubborn corruption that lingers in its society. "The mountains are high and the emperor is far away" is a traditional Chinese saying that often gets interpreted as "pay off the right people and see what you get away with." This combined with the desire to keep costs low and prices high can make for fishy end products.

China's weak enforcement allows corruption to be a part of doing business. Even the county's auditor general, popularly known as "Iron Face," for his dour appearance and untouchable reputation, has said that corruption could persist for decades.

The government has taken steps to crack down on shady producers with a number of publicized actions. Authorities announced that they recently shut down 180 food plants for violations, and in May, gave the former head of the Chinese Food and Drug Administration a death sentence for corruption, moves that show the government's seriousness, if not its leniency.

Foreign companies that use outside producers in China can look back on the lesson they should have learned dealing intellectual property issues. Just as doing business with the wrong company can lead to brands being counterfeited, working with an unscrupulous manufacturer can lead to tainted products and damaged reputations. In other words, know your foreign partners.

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