Numerous news stories this past month have focused on concerns about the quality and safety of certain Chinese exports. In this opinion piece, Paul Midler, founder and president of China Advantage, a services  firm  that  provides  outsourcing and supply chain management to U.S. and European companies, discusses what he calls “quality fade” in China, which he defines as “the deliberate and secretive habit of widening prof- it margins through a reduction in the quality of materials.” Recent media reports detailing a series of  quality problems with Chinese-made exports — pet food tainted with prohibited chemicals, toys covered with lead paint and tires that fall apart at high speed — have understandably alarmed the American public and resulted in a  number  of  international  product  recalls.  But  supply  chain  professionals  not  directly affected by these recalls remain unusually calm. “Everything will be all right,” said one U.S. importer on a buying mission to China. “As the country continues to develop, the quality of  its products will naturally rise.” It’s the sort of  comment that sounds logical, but is not necessarily true. Quality does not always rise over time, as China’s own history shows. At the end of  the 19th century, the West rushed to buy China’s beautiful silk products.  Demand quickly expanded,  and new players  moved  into  the  market.  As  competition  intensified,  manufacturers  began  to  cut corners  on  quality,  and  silk  products  out  of  China  soon  gained  a  reputation  as  inferior goods. By the beginning of  the 20th century, traders were already looking elsewhere, and Japan, which had been building a reputation for delivering a more consistently high-qual- ity product, became an attractive alternative. By 1930, Japan was exporting twice as much silk as China. One of  the problems facing China is that manufacturers continue to engage in a practice I call “quality fade.” This is the deliberate and secret habit of widening profit margins through a  reduction in the quality of  materials.  Importers usually never notice what’s happening; downward changes are subtle but progressive. The initial production sample is fine, but with each successive production run, a bit more of  the necessary inputs are missing. What  is  maddening  to  importers  is  that  quality  fade  often  occurs  in  the  last  place  an importer thinks to check. One American company had been importing a line of  health and beauty care products for over a year when the cardboard boxes that held its product sud- denly started collapsing under their own weight. There was no logical explanation for the collapse except quality fade, and the supplier in this case blamed sub-suppliers for replac- ing an acceptable cardboard box with ones that were inferior. THE CASE OF THE MISSING ALUMINUM Some quality issues are not all that serious, but others are downright frightening. One of ‘Quality Fade’: China’s Great Business Challenge Published: July 25, 2007 in Knowledge@Wharton