Outsourcing can put companies out of touch

Topeka Capital-Journal, The, Aug 4, 2007

Turning a blind eye to product quality can be dangerous to your health. In June, the former head of China's food and drug agency became the ultimate object lesson: Zheng Xiaoyu, who ran the Chinese equivalent of the Food and Drug Administration for seven years, was executed for taking bribes and "dereliction of duty."

Chinese prosecutors maintained that under his watch a host of people in Panama died from cough medicine laced with toxins of Chinese origin and more than a dozen babies in China perished from milk powder with no nutritional value. His demise is another bombshell for global outsourcing.

The risk to Americans doesn't just come from goods imported here from China. Fifty-six percent of China's outsourcing came from orders placed by Japanese and Korean firms. Many of these products end up as components or finished goods sold in the U.S.

What happens in China matters to managers worldwide. Writing in The New York Times, David Leonhardt zeroed in on lead paint found in the popular "Thomas the Tank Engine" toy trains. A British company, HIT Entertainment, owns the brand and licenses it to a toy company in Shenzhen, China. Leonhardt reported on how HIT is trying to distance itself from the slipup, saying it's the Chinese manufacturer's problem. HIT is conducting a recall.

The enormity of outsourcing in places like Shenzhen can't be overlooked. In 20 years, that city's population has grown from 80,000 to 8 million. That makes it roughly the size of New York City!

In June, Fox News reported 60 percent of the product recalls announced by the Consumer Product Safety Commission this year come from one country: China. In recent months, the rogue's gallery of recall and contamination horror stories has been numbing:

n\u2002Contaminated pet food.

n\u2002Tainted toothpaste.

n\u2002Exploding and short-circuiting home appliances.

n\u2002Costume-jewelry items with an unacceptable lead content.

n\u2002Unsafe zippers or decorations on children's clothing that can come loose too easily.

n\u2002Unapproved chemical additives and antibiotics in seafood.

n\u2002Toys made for Fisher-Price because they used lead-based paint.

Many large U.S. companies - manufacturing or service - outsource offshore. The costs may be lower, but the risks can be lethal.

Here are some questions you should be asking to make sure your company is outsourcing safely:

n\u2002Have you identified the key product-safety risks when you outsource? Experts point out that even central authorities in countries like China may be fully committed to quality. However, regulators have their hands full.

n\u2002Do safety and production standards meet U.S. norms? The Associated Press recently reported a New Jersey company might need to recall nearly a half-million radial truck tires it imported from China. The reason? The bindings inside the tires might not hold.

n\u2002Do you have a reputable testing laboratory in the United States that regularly monitors your product? Often the original specs are met. Then the offshore producer starts sneaking in low- quality, sometimes dangerous ingredients.

Dicey products are the first half of the story. Unsavory practices are the second half. These can include using sweatshops and child labor. They can involve political strife, as with blood diamonds. If a deal sounds too good to be true, it probably is. Many a reputable company and celebrity endorser have been whacked on the backside because they didn't perform due diligence.

Just because some biggie in your industry trusts a resource, it's no automatic stamp of approval. According to the Times article, the Thomas train manufacturer in China also "makes toys for giants like Disney, Nickelodeon and Sesame Street."

When you buy into a deal, you buy into all sides of it. A supplier becomes part of your image food chain. It's easy to be swallowed up by your own false economies.

Harvey Mackay is the author

of The New York Times' No. 1 best-seller "Swim With the Sharks Without Being Eaten Alive."

United Feature Syndicate Inc.