Does China’s recent quality missteps create opportunities for others?

Recent recalls of Chinese-made product have both consumers and companies that outsource manufacturing worried. Are products made in China inferior? Why are we seeing so many quality problems? Who is at fault? Does this provide opportunities for other geographic regions to gain market share in the growing electronics outsourcing business?

China is the world’s fourth largest manufacturing country, and Made in China is stamped on almost every product the North American consumer purchases. China’s Ministry of Information Industry reports its electronics sector recorded 17% year-on-year revenue growth in the first four months of 2007. In the same period, factories in China produced 185 million mobile phones, 39 million PCs and 4.3 million LCD TVs.¹

Recent product recalls include 1.5 million wooden railway toys manufactured with lead paint, 1.2 million space heaters with electrical cords that overheat, 255,000 tool bench toys for kids with choking hazards, 97,000 halogen table lamps with a short circuit that can cause a fire, 68,000 lounge chairs that collapse, and 450,000 tires missing the gum strip that keeps the steel belts from separating.² How ironic that a country implementing some of the strictest RoHS legislation is the same that exports toys with lead-based paint!

Many factors contribute to product quality issues: poor design specifications, the substitution of inferior materials, and the omission of key materials or steps. One theory is that Chinese workers and companies may lack the commitment to quality because they are not accustomed to thinking long-term. High factory turnover rates exacerbate the problem. The inability to understand complex manufacturing processes and the importance of process control, or maintaining a reputation for high-quality products, are also issues. Greed may, too, be a factor. Companies that outsource production or purchase goods made in China can be guilty of looking to make a quick buck by not sufficiently inspecting the supplier facility or not caring about the quality of the product. In both cases, a focus on short-term profits is the problem.

This does not mean some Chinese companies are not capable of making quality products, of course. There is a great disparity among companies making the same products in China. Corporate management, engineering talent and process control vary greatly. One example is the assembly of bare die for chip-on-board applications. In one factory, the workers were trained extensively by Japanese engineers in quality control, worked in cleanrooms and wore appropriate cleanroom attire. Not far away, another company ran a CoB operation with open windows and no cleanrooms, gowns or even facemasks. One can only imagine the difference in yields.

The first step in improving the situation is to recognize the problem. Years ago many products made in Japan were considered inferior. Japanese companies adopted Deming’s teachings on quality and, combined with better attention to detail, became known for high-quality manufacturing, a few recent slipups (laptop battery recalls, camera module manufacturing) notwithstanding. Quality problems can occur anywhere, but it is the response that determines a country’s manufacturing sector’s direction.

India heating up. India is building its electronics-manufacturing sector. Factories are increasingly turning out TVs, appliances and mobile phones. The country is an exporter of a vast range of electronic components and products for segments including display technologies, entertainment electronics, optical storage devices, passive and electromechanical components, and telecommunications equipment.³ Major EMS providers such as Flextronics, Jabil, Celestica and Foxconn have located plants there and some are expanding. At least 22 Japanese companies, including Suzuki, Honda, Sony, Matsushita and Mitsubishi have announced plans to invest.⁴

India does well manufacturing specialized engineering-intensive parts. These products are made in short production runs to customer specifications. It has been estimated that three-quarters of Indian manufacturing output involve a large element of customized or engineering-intensive production. The estimate for China is about one-quarter. India may not become a high-volume supplier of electronics components like China and Taiwan, but it can be a value-added supplier for complex and convergent technologies. It also has the potential to grow as China’s facilities suffer from quality problems.

A future hot spot? A recent Circuits Assembly article pointed out Vietnam’s potential as Intel announced plans to invest $1 billion in an assembly and test facility in Ho Chi Minh City.⁵ Many EMS companies are planning to establish operations, including Foxconn and Compal. Jabil launched its operations in June. iSuppli predicts that contract manufacturing in Vietnam will grow to as much as $1.8 billion by 2011 (from $36 million in 2006), making it the fastest-growing sector in the region.⁶ If China’s problems persist, this figure could grow.

References

1. Asia Pulse, Beijing, May 29, 2007.    
2. D. Welch, “Importer’s Worst Nightmare,” Business Week, July 23, 2007, pp. 46-48.
3. T. Lenihan and E. J. Vardaman, “India: The Next Stop for Package Assembly and Manufacturing," August 2007.
4. Appliancemagazine.com, July 6, 2007.
5. J. Craft, “Manufacturing in Vietnam,” Circuits Assembly, September 2006, pp. 42-48.
6. F. Balfour, “From Catfish to Computers,” Business Week, July 9, 2007.

E. Jan Vardaman is president of TechSearch International, Austin, TX; jan@TechSearchInc.com. Her column appears bimonthly.