The new quality movement
For many years, global competition is based on price. In order to keep price low, companies must find lower cost labor since the price of raw materials is the same regardless where you build the product. Outsourcing is the activities of relocate factories to low cost labor countries to keep price low. However, with low cost product, the quality is also being compromised and low cost is now associated with low quality. A new industry report on quality from outsourced products in China reveals a situation where over 65% of these products do not meet quality standard. A manager said: “We brought our equipments to China, trained workers to follow our process and standard. The first year, everything was good but as time passes, the quality changed from high to low and we did not know why. After intensive investigation, we learned that they have completely modified our process and replaced our standard materials with cheaper materials to make extra money. This short term thinking is unacceptable in global business; it ruined our reputation and brand names. Recently, one of the largest issues is the use of Chinese construction materials in the U.S where over half million houses were built and within few years the walls began to grew molds and emitted toxic chemical. Investigation revealed that all materials were treated by toxic chemical glue that can cause cancer in human. The construction company that outsourced these materials building to China was sued by homeowners as they have to move out of their house as they were inhabitable due to these construction materials. Another issue is about foods imported from China that have been treated with unknown chemical to keep them look good but could also cause severe cancer disease. Some countries have ordered a ban on certain imported food products from China.
A senior executive explains: “In today’s competitive environment, ignoring the quality issue is to commit corporate suicide”. That is one reason that many companies are moving their factories back home instead of outsource. A Wall Street analyst declares: “Outsourcing is dead, by 2015; most companies will build products at home.” According to industry reports, thousands of U.S. companies have decided that the focus on quality is essential for their long term survival and growth, and have quickly relocated their works back home. In Europe, many large companies have embraced the relocation with equal favor. There has been increasing recognition by European governments of the role of quality can play in the development of commerce and industry. In the U.K, the department of Trade and Industry has stressed that in practice the quality of the product, the Chief Executive Officer (CEO) must take on this responsibility himself.
The sudden interest in quality is not new but it has been emerged due to the poor quality control associated with outsourcing. The evidence suggests that every global company which intend to prosper, have no option but to incorporate quality as a major part of their strategy. During 1950s, Japanese manufacturing were known for cheap products, it took an U.S professor Edward Deming to explain to Japanese owners that by focus on quality, they could take on and beat U.S companies by supplying reliable products instead of lower prices. The wisdom of Dr. Deming changed everything in Japan. Dr. Deming wrote: “I told the Japanese that they could capture the world market in five years just by follow a “Total Quality approach” and if they continue the sloppy way, their economy would never recover. And they all listened.” A senior executive later explained: “Two hundreds of us get together and discuss on what Dr. Deming said. In our culture, consensus is everything. If we do it, everybody must do it together so we do not have some do and some don’t. In the end, we all agreed that for the “Made in Japan” brand, we all must follow his advice.” All executives from Honda, Toyota, Sony, Matsushita, JVC, Hitachi, and Komatsu ordered their companies to use the “Total Quality” approach. Within few years, these companies all seized major shares of their international market and Japan’s economy prospered to the second most powerful economy in the world.
From 1974 to 1990, Japanese watches manufacturers such as Seiko, Casio, and Citizen increased their share of the world market from 9% to 78% and destroyed most watch manufacturers, except the few top luxury brands such as Movado, Cartier and Rolex. From 1980 to 2010, Japanese electronics manufacturers such as Sony, JVC, Hitachi, Panasonic and Sanyo controlled and held 72% of electronics devices market such as TV, Radio, and Video. In 1970 Japanese car manufacturers such as Toyota, Honda, Nissan, and Mazda only accounted for 2% of the world market but today they have 78% as Toyota become the largest car manufacture in the world. Not only have the Japanese increased their share in world market but in every case, its performance is considered as of the highest quality with the highest customer satisfaction. Today Japan goes further and have over 60% of the world market in Ship building, Microwave ovens, Copier machines, Pianos, leathers, and Robotics. The interesting fact was after most of their industry focus on raising quality, they also found that costs came down also which increase profits for all companies.
Today Singapore, S. Korea, and Taiwan take the lesson of Japan and apply it to their industries with significant results. However, this lesson is not well learned in other low cost countries and in this global competitive environment, if you do not change, your competitors will. What might have been acceptable twenty years, ten or even five ago may no longer be acceptable to today’s customers. In this global recession, customers are very careful on what they spend and they are expecting high quality standard in the products they buy. A Wall street analyst explained: “Most people are willing to pay more for quality products than cheap and throw away products. A recent poll indicated that people would pay 120% more for a pair of good shoes, 75% more for furniture, 66% more for television and 42% more for a car as long as they perceive it to be of high quality product. Part of that have something to do with people, in general, more highly educated and living in a faster pace than before. They will not tolerate the waste time from products that do not deliver what they promise. Global companies must keep up with this trend as today with the Internet, news can go out fast and with social network, bad news even go faster and brand names can be ruined quickly. In this Information age, quality is essential for success.”
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
