How Chinese Factories Cut Corners to Make Money - The Intrepid

Friday, May 15, 2009

How Chinese Factories Cut Corners to Make Money

Gritty Factory in China

China’s rock bottom prices and short production cycles don’t seem to leave much room for profit. So, how do Chinese factories make money? According to Paul Milder, the author of Poorly Made in China, Chinese manufacturers regularly improve their bottom line through a process known as "quality fade." Milder argues that many factories initially produce goods at a loss, then, over time, cut costs by replacing materials with cheaper substitutes. Many large manufacturing firms also forgo the benefits of economies of scale to produce products in smaller factories, where conditions and safety controls are harder to scrutinize. While third party quality control facilities are increasing being employed by Western companies to test Chinese products, nobody wants to be the one to blow the whistle—there’s just too much money at stake.

Proof of Milder’s thesis is everywhere, from the recent scandals concerning lead-lined toys to stories about contaminated pet food. The only question is, when will China get it's own version of Upton Sinclair's The Jungle—a 1906 account of the U.S. meatpacking industry's lax standards and corruption.

Photo by jcfh2001.

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