Round Table Discussion: The State of Chinese Quality

Quality Digest CEO Jeff Dewar, publisher Mike Richman, and editor in chief Dirk Dusharme discuss the historical and political underpinnings of Chinese product quality

Quality Digest

June 7, 2018

There is a lot going on in trade relations between the United States and China recently. Sanctions and threats of sanctions, then sanctions withdrawn. There has also been a great deal of finger pointing and accusations from both sides, all while those most affected by sanctions—you and me—are rarely heard from. From steel workers to dock workers to soybean farmers, everyone is affected when great powers collide. But one thing is certain: It’s a global economy, and like it or not, kick and scream all you like, we are in it up to our ears.

Amidst all the noise, there hasn’t been a lot of talk about the quality of the products themselves. What is the current status of the quality of Chinese goods? What does “Made in China” mean today? What were the drivers for past quality, and what are the drivers for current quality? Do we want those products or not?

From May 29, 2018, to May 31, 2018, Quality Digest discussed those topics and looked at trade with China from an historical, economic, and political viewpoint, all under the umbrella of quality. You can link out to all those articles using the navigation to the right.

In addition, Quality Digest CEO Jeff Dewar, publisher Mike Richman, and editor in chief Dirk Dusharme recently recorded a roundtable video discussing what they learned in this deep dive into Made In China: From Scary Bad to Scary Good.

[Abridged edited transcript]

Mike Richman: Hi everybody I’m Mike Richman, publisher of Quality Digest. I’m joined today by our CEO, Jeff Dewar, and our editor in chief, Dirk Dusharme.

We’re going to tell you about an interesting special report about the U.S.-China relationship. A lot of complexities in that relationship. Historical, social, economic of course, trade, are all involved in this one. And this little roundtable today is really to give you an idea of what the topics are that we’re discussing. We’re going to start with Jeff.

Now Jeff, you were up in in Seattle, where you’re located, of course. Right in your back yard was the latest ASQ World Conference, where they had a Chinese delegation. So you had an opportunity in your article to report from that conference and what you learned there. So what did you learn?

Jeff Dewar: Well, it was pretty cool. It was framed as the first annual quality summit. And the title of this was the “Sino-U.S. Quality Summit.” It was a one-day, April 30, 2018, gathering of about a hundred people. There were several very high-level Chinese executives. For example, the chairman and president of Xiamen Airlines was there, several other chairmen, vice presidents were about the lowest that we saw. Along with Google and Boeing and a number of other folks from the American side.

[1:45]
What [ASQ] is trying to do is each year put on this global summit that involves different industries and sectors, different nations. So they chose China because obviously it’s in the news. And it was an interesting thing because we the trade delegation from the Trump administration led by Steve Mnuchin over in China during the same time that the Chinese were over here for this quality summit. So there was definitely some crossover and definitely a buzz in the room in terms of some of the questions that were asked in the way the Chinese presented things.

What we typically saw was the Chinese presenting a lot of their ideas about quality that they’ve learned from the West, what they’ve learned from China, from Japan. And really showing, specific to their particular company, what their view of quality was.

Now the one remarkable thing that we heard several times during the day was they like the Silicon Valley style of quality improvement. Very rapid innovation. Find out what’s wrong, what doesn’t really work for the customers, and make very rapid improvements to it. As opposed to designing in quality from the very beginning and mistake-proofing everything and design-proofing everything in a much more long, drawn-out process. I found that sort of the high point of the day in terms of the philosophical point that they were coming across with in regard to quality.

[3:25]
Dirk Dusharme:
So Jeff, you just said something kind of interesting there. Are you saying they’re not showing an interest in designing in quality or designing for quality? That they’re further down the road from that?

JD: No, that’s still very much part of it, but they put what I would consider a disproportionate emphasis on this sort of Silicon Valley style of quality improvement. So I don’t think they were in any way discarding the tried-and-true techniques of quality management. They were trying to take it to the next step and say that there is something that maybe we can do to increase the effectiveness in the way we approach quality built on these tried-and-true principles.

DD: Coming from my research it seemed like a lot of the larger Chinese companies are borrowing from the West or are working with Western companies in terms of learning various types of quality techniques. You know, whether it’s lean or Toyota Production System, or that sort of thing. That in a sense, the same things are going on with them as what went on with Japan. Except it’s not personality driven; it’s not a Deming or a Juran or Taiichi Ohno. It’s Ford coming in and saying, “Hey, here’s what we’re doing.” Or Qualcomm comes in and says, “Hey, here’s what we’re doing.” Is that kind of your feeling of how quality is progressing?

[5:05]
JD: Absolutely. I didn’t hear [the name] Juran during the day. But certainly Deming was referenced. The Toyota Production System was mentioned, the Japanese take. It was interesting, instead of putting labels on it with regard to gurus or labels of particular kinds of programs, they sort of nationalized it in the sense that they referred to the American way, the Western way, the Japanese way. But that all makes sense to me.

You know, it doesn’t seem in any way that they’re losing the teachings of Deming by looking at it in that way. That was right for the era he came from. He taught a lot of stuff that had been going on in the United States. I listened to Deming talk, and people weren’t listening to him in the states, but he found a very enthusiastic audience in Japan. You know he’s known as the father of modern productivity in Japan. The Deming prize and so forth. We don’t really see that so much in the way that the Chinese were talking. But that might just be because we’re now in a different era.

MR: But one thing that jumped out at me when I was reading your piece, Jeff, was that there kind of was this lurking cult of personality that was hanging over a lot of the addresses from the Chinese delegation, and that was their President Xi.

[6:48]
JD: I must have heard his name 25 times during the day at least, from all the different presenters. In a very reverential way. “This is what President Xi has said we need to focus on,” or, “President Xi has indicated this is the first priority.” And so forth.

So I made the remark in my piece that this is not something that you would have heard from American speakers, American executives, or from our political leaders. You know, my father was on the initial team of examiners for the Malcolm Baldrige National Quality Award back in 1988. And President Reagan oversaw many of the ceremonies. And it was never, “President Reagan said this,” and, “President Reagan has made quality a priority, and this is a strategic initiative.” You wouldn’t have seen the kind of frequency of quotations by the president or any political leader by the Americans. So there’s clearly a very nationalistic sense that is surrounding this on the part of the Chinese.

DD: Well, quality is basically being mandated. I mean, essentially China is trying to rebrand “Made in China.” They don’t like the idea that “Made in China” in the past has meant, you know, shoddy, it’s going to fall apart, it’s going to explode, it’s going to kill you, or whatever. They are really making a concerted effort to change that whole idea so that “Made in China” is, “Hey, that’s a positive. Things made in China are awesome.”

[8:49]
MR: Well, it’s interesting you say that Dirk, because your piece talked about this very explicitly. This idea that “Made in Japan” was once considered to be....

DD: Yes! Cheap transistor radios… yeah.

MR: But things do change, and really your piece was very much down the fairway of quality. Jeff and I talked a lot in our respective articles about the background, the history of these things, and why we came to where we are. You very much dealt with the quality of Chinese products, where the quality of Chinese manufacturing has come from, and where it is now. So how did you come up with that angle?

DD: They all tie together because if you look at the historical background, particularly once you get to Mao and the Cultural Revolution, you’ll see how that ties in. And then of course, we open up trade later. You look at the effect, particularly of the Cultural Revolution, and what effect it obviously had on the populace. I don’t think I’m exaggerating too much when I say it basically drove them into the ground.

[9:48]
And now they’re coming out of this; they’re trying to join free trade, essentially. You’ve got all this cheap labor, you’ve got a little bit of money coming in, and you’ve got this situation where the growth of the country in terms of manufacturing far outgrew the capabilities, the quality capabilities, of the people who are making those parts. And at the same time you had a group of people making stuff that they’ve never even owned before. You’ve got these people right out of the Mao era, the Cultural Revolution, making things that they never had in the past. If there’s a quality issue with something, they literally are going, “Why are you complaining about the paint on this toy? I didn’t even have a toy.” Literally not knowing what are you talking about. “What’s the issue with the paint? I don’t understand what you’re talking about, there’s something wrong with the paint. It looks painted to me. And, my gosh, I never even had one of these things.” Right?

[11:14]
So that was the background for poorly made in China, to quote the book, Poorly Made in China by Paul Midler (Wiley, 2011). He talks about it in there that you have all these products that are being poorly made, and Stanley Chao [author of Selling to China] points out that is partly because of the background of the people who made them.

And then you see this revolution take place, where all of a sudden there’s more income coming in. Particularly in urban areas, the Chinese start to come from making almost no money to being middle class and upper middle class. The middle class and upper middle classes are absolutely exploding in urban China.

So now they’ve got money. They don’t want to buy cheap products any more than anybody else does. This is part of one of the drivers for quality in China improving. And then as Jeff just pointed out, you’ve got it being mandated from the top, saying, “No, you’re going to start making quality products because we’ve got to improve this brand.” You know, that’s kind of the nuts and bolts of where poorly made in China came from and how we’re morphing, right now, into “Well Made in China,” driven by the middle class and upper middle class.

[12:41]
MR: Jeff, is that reflected in what you had heard from the Chinese delegates at ASQ?

JD: Yeah. With the exception of the history of poverty. That was really sort of absent. The Chinese very much presented themselves in the modern 2018 status that their economy is. And they sort of noticeably did not include any of the history of where they’ve come from. It was almost as though that they didn’t want that to be part of the discussion. “Here’s where we are today and it doesn’t matter where we came from.”

Which, of course, is what Henry Kissinger said. I put his analysis in the article. What they have done since the 1980s is truly an astonishing achievement. When he first went there during a secret visit in 1971, there were no skyscrapers, there were no automobiles, everyone wore the same clothes. It was just an amazing transformation in 20 years. He even said that if people would have told him that in 25 years you’d see these skyscrapers and these massive factories and all this, he would have thought they were out of their mind, to say that China would be that way in 25 years. But it’s how the Chinese very much present themselves in a sort of first-world sense today. At least at the summit we were at.

[14:16]

MR: Well, let’s talk about this before we move on: trend lines. I mean if you extrapolate that trend line from 1980 until now, and you bring it forward into the next 20 to 25 years....

DD: They’re kicking our butts. In my research nobody is doubting that very quickly China is going to surpass us in terms of quality of products in certain product areas, particularly high-tech. The U.S. and China are essentially neck-and-neck in terms of the quality of high-tech products. And they’re catching up on garments, they’re catching up across a lot of industries.

You got to remember the middle class in China is one of the... is the largest retail market in the world. And that is who China is serving right now. So their manufacturers want a piece of that largest retail market in the world. In order to capture it, they have to make a good product. And they want to make a good product because they want that market just as much as all the foreigners do.

[15:37]
JD: I think that, Dirk, what you say is so true, and it’s amplified when you look at the numbers. I’m really surprised in my research how ignorant many Americans, even some business people, are of the numbers involved. You know China has four times the population of the United States. And well over twice the population of the European Union (and that’s 28 different countries). China’s population is 10 times that of Russia. Right now it’s 1.4 billion people. So you start saying the majority of those people are moving into the middle class, the upper middle class, you’re talking about a gigantic market.

DD: We should say the urban Chinese are going to the middle class. There’s still a lot of poverty in China, still a lot of poor areas.

But still, even just the urban Chinese is the largest retail market in the world. They’re really poised to take over retail, and they’re catching up on quality in areas that you never would have thought of. If you want to read something interesting, check oout J.D. Power’s “Domestic and International Brand Vehicle Initial Quality Gap Continues to Narrow.” They’re like second and third. I mean Chinese cars, cars you’ve never even heard of, are matching head-for-head with the U.S. and Europeans and Japan.

MR: And Huawei.

DD: Oh yeah. Then in high-tech, you got Huawei smartphones. Which are like the leading, almost the lead, I think they’re second or third behind Apple and Samsung. Huawei is right on the heels of Apple and Samsung in terms of the quality of their phones, and they’re desirable phones, and they’re not cheap.

[17:28]
MR: You say China’s got an impoverished populace, which they do to a large measure. But even half of 1 percent of 1.4 billion people, there’s millions and millions and millions of consumers to buy this stuff, to buy high-tech cars.

DD: One thing I’m interested in. You covered the history of China from the beginning of time until now.

MR: Yes. I did. Sorry.

DD: So the fact that China is able to do what they’ve done in almost 40 years, the 1980s to now, almost 40 years, given their history, does it surprise you that they were able to ramp up that quickly?

MR: No. I mean because when you do look at the history of China over the course of millennia, you see that the Chinese were a dominant power. America in the post-World War II world pretty much just approximated the power that China had accumulated during the Dark Ages in Europe. Even before, when Rome was falling, China was already an ascendant power, and they were ascending for the next millennium. There’s compelling evidence that the Chinese actually discovered the west coast of America sometime during the 50 or 100 years before Columbus.

[18:48]
The Chinese power was such that there was always this cultural memory of dominance. Of economic dominance, of societal dominance, and military dominance. So that was slumbering. And the European nations that really dominated China in the 16th, 17th, 18th, 19th, and into the 20th century all knew it to a certain extent. They all talked about the sleeping giant, the latent power of the Chinese, of the Chinese culture.

So I’m not surprised by it, and I don’t think that the Chinese are surprised by it. The Chinese wanted to kind of obliterate this period of time where they were, you know, the conquered instead of the conquering. And that’s understandable. But I think that they aren’t at all hesitant to think back to the generations before that and look at what that they were, again before they really receded into a more of an inward focus. In the 16th century they really had receded from the rest of the world, just as the Europeans were really dominating.

DD: What I’m curious about is there is a lot going on right now in the news in terms of, you know, trade tariffs and are we or aren’t we, and how much are we going to, and in which products. The Chinese are piling on with that as well. How does all of that play out within the background of what we’ve just talked about? About the growing middle class, a large retail market, the exponential increase and the quality of Chinese goods. How does all that fit into the whole trade thing that we’re talking about right now?

[20:41]
JD: Whenever some of my colleagues say, “Well you don’t want to start a trade war,” my response is, just purely looking at the economics of it, “What do you think we’re in now?” It was also an elephant in the room at the Sino-U.S. Summit in Seattle. About the intellectual property infringement, the required transfer of technology, and you have to have a Chinese partner.

There are many horror stories of American companies going there, taking the risk of trying to get into the gigantic Chinese market. You have to have Chinese partners. They learned that you transfer your knowledge to them, and then within a matter of months they just go down the road and start their own company, and they don’t even need to deal with you. And they have all the contacts and so on to exploit their own native market. Companies are left literally with nothing; they just evaporate. Their technology’s gone, and the market opportunities are gone.

[21:51]
So you know there was always that issue. I think that the American side at the summit was very concerned about it, but nobody really talked about it directly. Everyone talked about it indirectly. Really from the standpoint of hoping that the Chinese were sufficiently developing their economy, they recognized that they would have to play fair, they spoke many times in platitudes about wanting to protect intellectual property. And one speaker said it very well. He said, “Let me say something about intellectual property protection. We Chinese people are and our companies are developing a lot of our own intellectual property, and that needs to be protected. So it’s not just about protecting the West’s IP. It’s also as we emerge and invent and innovate. We own the patents and the ideas and the concepts and we want that protected as well. Because we know that in an out-and-out trade war, it’s going to get very nasty with regard to IP theft both sides.”

MR: And another thing was the ZTE company. It’s well-established there was a link that ZTE was selling technology to Iran. So the American congress took actions to prevent that from happening. ZTE is pretty much on a kind of death watch right now. Although President Trump lately has come out and said that he wants to try to help them out if he can to save Chinese jobs. Imagine that.

[23:50]
DD: Well, except that there is the flip side to that. If the companies here in the United States can’t sell to ZTE, it also impacts American jobs.

MR: And there’s another flip side that even goes beyond that. In a trade war, you want to have some leverage and if you are forcing a company like ZTE, and forcing the Chinese government, to form their own component shop to supply ZTE and others across the world, then what’s going to happen to the American companies that rely on that business?

Which by the way is what “Made in China of 2025” is about: “We want to make our own stuff and be our own suppliers, but also be a net exporter of a lot of this stuff.” Do they want to sell it all over the world? They can, and the markets are there. Jeff, we know this when we look at the world economy. It’s not just China. You’ve been all over the world, and you could speak to this. You spent a lot of time in Africa. The Chinese are making a huge play in Africa right now. They look at it as a market that has some real potential for them.

[24:52]
JD: Oh, absolutely. They look at it as a supply base for raw materials. And of course connecting up Africa all the way through the Middle East. The Belt Road initiative. And also as Africa is developing in many places, that represents a tremendous opportunity. Many people have said that the Chinese very much view Africa as sort of their future export territory. They just put their first overseas military base on the horn of Africa.

MR: All right, we have a couple of minutes here. So Dirk, what’s your takeaway on this series that we’ve done and your piece in particular? What’s the message that you think is the most important thing that you want to communicate?

DD: It’s in the headline of my stories. “Made in China: From Scary Bad to Scary Good.”

Scary bad because initially, just go back 10 years to 2008 and the tainted milk scandal, where Chinese quality wasn’t just stuff necessarily falling apart in your hand, it was really, domestically in China, killing people. So, scary bad. But now they’ve advanced so quickly, particularly in the tech areas, it has gotten to the point where it’s scary good for those people who are competing against them. Because, you know, we competed against Japan, which is a tiny little country, and we got our butts kicked. And now we’re competing against China, which is gargantuan. I’m thinking, “This doesn’t look real rosy.”

[26:34]
JD: China is 11 times the size of Japan [in population], and their economy is about three times the size of Japan’s. It’s incredible.

MR: So Jeff, what’s your final takeaway on this in terms of the pieces that we’ve done? You’ve read them all now. What do you think about what we’re presenting and your piece of it, and what you saw when you went to the ASQ event?

JD: I think that as it sets into the popular press, the numbers and the progress and the size and the scale of the Chinese economy and the Chinese capabilities, and when you look at the initiative of China’s “Made in China 2025,” we’re talking about seven years. And you know where they’ve come just in the last, as you said 30 to 40 years.

So I think increasingly it’s going to scare the dickens out of a lot of people. Some of the interviews that I did were of Western executives who were not just rattled, but alarmed at what this represents. Because of the scale.

[27:51]
So it is going to be an interesting road. It’s going to spur innovation in many ways, as people will use this in the same way that they used Japan as the existential threat back in the 1980s. And that sparked this sort of quality revolution that we experienced. I think we’ll have other revolutions that will positively impact companies and therefore, of course, their customers. But at a larger level there is talk about the United States, along with Japan, along the European Union, cooperating much more. Not so much to contain China but to protect vested interests in industries that are well as established in the West.

MR: I think that we can we can learn a lot from the past. As Santayana said, “Those who forget the past are doomed to repeat it.” We have made mistakes in this country, certainly, when dealing with Japan in a post-World War world. And I think that the lessons that we’re trying to convey in looking at this series is to maybe help us understand where we’re at and where we’ve come from and where we’re going. There are some really big issues.

DD: I should mention that aside from articles from Jeff and Mike and me, we also have two other contributors. Laurel Thoennes did a nice write-up on “Made in China 2025” that provides a kind of synopsis of what it covers. And Ryan Day had a really interesting article where he interviewed several American small business owners and operators and shop floor people to get their perspective. These companies all dealt with China, either selling to China or getting materials from China, and what their experience was. You might be surprised at some of the quotes.

MR: Thanks again for all of you for listening in. On behalf of Jeff Dewar, CEO of Quality Digest, and Dirk Dusharme, our editor in chief. Thanks for joining us.

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