Playing the game of situational advantage

PUBLISHED : Monday, 18 May, 2009, 12:00am
UPDATED : Monday, 18 May, 2009, 12:00am

It seemed like a straightforward idea at the time: enlist a factory in Shantou apparently desperate for business to produce soaps and shampoos at a bargain basement price, sell the output overseas through a personal network of retailers and watch the profits grow. What could go wrong?

The idea belonged to Bernie, the head of consumer products firm Johnson Carter. He had tried making his line of Galaxy Grape and Crazy Cherry bubble bath elsewhere with little luck and, like others before him, saw South China's accessible, low-cost manufacturing hub as an answer to his importing prayers.

Enter King Chemical, a Guangdong plastics company headed by Sister Zhen, a woman who plans to manoeuvre her firm up the value chain by supplying 'daily use' consumer items.

With the promise of bigger things to come, the two parties enter a marriage of commercial convenience.

The man in the middle was Paul Midler, a business graduate charged with trying to keep a grip on the lotions' quality controls and to mediate between the manufacturer and the importer. As Midler soon learned, the soap and shampoo project was to be his initiation into a marketplace where the producer, rather than the customer, was king.

His first hand, practical education in South China's export manufacturing sector is detailed in Poorly Made in China.

For a reasonably simple product, more than a few things went wrong with body wash. Fragrances were substituted, hygiene was compromised, bottles were not adequately filled and product packaging became increasingly flimsy. According to Midler, the 'quality fade' was symptomatic of a business environment in which suppliers routinely sought to eke out savings after the first few orders, safe in the knowledge that rejected shipments could be offloaded elsewhere and buyers could not resort to an arbitration system for damages or other sources for alternative supplies.

Despite the quality problems and temptations to wash their hands of each other, Bernie and Sister Zhen persist with their fluid partnership, bringing in ever-bigger orders and pumping out ever-greater quantities of their product. But, as King Chemical focused on the next order and Johnson Carter eyed a longer-term horizon, the two remained competing allies in a constant battle for the upper hand.

The relationship was all part of a game of 'situational advantage' in which the importer tried to source products for as close to cost as possible and the manufacturer tried to leverage off its exposure to intellectual property for other ends. It was a game that the producer usually won.

Midler's book is a response to anybody who has wondered why factories produce goods for next to nothing and how it is that US consumers can buy some products for half the price of people in the developing world.

It also gives context to the melamine-tainted milk and lead paint scandals.

One of Midler's key points is the inverse relationship between wealth and ethics in the manufacturing sector. He says it was only after a degree of success that manufacturers became more open to taking chances with standards.

But sometimes it feels like the absentee, overseas-based importers, were asking for it. As Midler says: 'China was apparently the place to be - it was just that you didn't actually want to be there.'

Samantha Kierath is a freelance writer