Monday, December 06, 2010

IP Dragon Book Review: Poorly Made In China

Paul Midler's book Poorly Made in China is remarkable. He not only wrote a first hand account of the challenges companies face when they manufacture their products in China, but did it in a lucid, literary style, something you would not expect given the prosaic character of the subject. How exciting can the production of soap and shampoo be, let alone read about it? Well, Mr Midler shares his travails, surprise, doubt, confusion and discovery in a way that you virtually experience it. He describes the factories so that you can almost smell the fumes, taste the paint. It helps that Mr Midler uses a first person narrative, but also the protaganists become real (even though all names of persons and companies have been changed, except for Mr Midler's), and to some extent it is not even impossible to identify with the culprits. The book gives ample illustrations of the infamous quality fade: manufacturers who start to use less and less of a certain ingredient, change some production method, all to save some money.

Counterfeit Culture is one of my favourite chapters. It includes an unforgettable scene about Bernie who is managing the China business for Johnson Carter and wants a breakdown of the ingredients King Chemical uses when it is manufacturing their soaps and shampoos and Sister, who is the co-owner of King Chemical: "Sister said that she was not compelled to provide a breakdown. The details were their trade secrets, she insisted.
This infuriated Bernie. "The product line came from my sample set. What trade secret? It's my fucking product!"

Mr Midler dryly determined: "the factory was claiming intellectual property rights over its copying methods."

In the same chapter Midler convincingly debunked the myth that Marco Polo ever went to China, how in a Confucian sense the manufacturer feels superior to its customers, how whistle blowers in China are not revered even though they become complicit in working at a factory that manufactures lethal products and he shows that poverty is not always the cause of quality fade. Mr Midler illustrated China's reference for counterfeit products over authenticity with the story of emperor Qianlong. When the emperor found out that a small jade cup was not made during the Ming Dynasty, but was made by the grandfather of the curator he praised the counterfeiter: "The emperor even had a special box commissioned for the jade cup, which he saw as a model of sorts, and on the box he had inscribed a kind of treatise on the art of counterfeiting."

Many Western importers seem all too willing to do business with Chinese suppliers who offer to manufacture their products against prices that are too cheap to even break even. And after they find out that their manufacturer uses stagecraft and trickeries, or manufacture in larger batches then they authorised (third shift counterfeiting), they often have invested so much time, effort and money to smoothen the relationship with this supplier, that they do not want to start all over again.

There is a nice saying in the book that the Western importers play checkers and the suppliers chess. Mr Midler means that the manufacturers are doing business in a non-linear way.

Many manufacturers lure importers of Western countries that abide by intellectual property rights laws to place orders, so that they get their hands on the design and marketing of their products. The manufacturers then produce more products than is authorised. This third shift surplus they trade with countries that do not observe intellectual property rules stringently. As Mr Midler put it: "Manufacturers that produced products using unique, original designs provided by importers, realized that they were perfectly positioned to take advantage of the situation by moving designs from one part of the world to the other, while earning a premium in the process. This was not customer segmentation, but an arbitrage opportunity."

And if these manufacturers have the know-how of a product, they sometimes do not even have to violate intellectual property rights to get new customers. Mr Midler explains that not only technology transfer takes place but also disintermediation; in that case, the supplier deals directly with the importers' retailers, thereby removing the importer from the business equation.

Disclaimer: Not reading this book about manufacturing in China is at your own risk.

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