Fellow Techies – Firstly, may I wish everyone a very Happy, Healthy and Prosperous 2003.
Given the recent exchanges (well, OK last year! :-) ) on the issue of “Exported Manufacturing”, I received this from a friend and thought I would share it with you – You might even wish to pass it on to your Senior management.
I don’t believe this will be the only example we will encounter!
Chinese suppliers give U.S. firms fits
By Gabriel Kahn
The Wall Street Journal
December 26, 2002
At a sneaker factory in Yangjiang City in southern China, George Arnold tugged at insoles and inspected the stitching on a pair of New Balance shoes. Satisfied they were the real thing, he told factory managers he would wire $120,000 the next day for 6,500 pairs.
It was a sting. Arnold wasn't the North Carolina shoe buyer he claimed to be, but a private detective hired by New Balance Athletic Shoe Inc. to unmask a costly problem: deeply discounted New Balance-branded shoes showing up in stores from England to Australia.
For years, global brands have been fighting counterfeit operations in China that churn out cheap copies of everything from Gucci bags to automobile parts.
But the sneaker maker Arnold visited in September was no fly-by-night counterfeiter. It was run by Horace Chang, a Taiwanese businessman who was one of New Balance's top suppliers.
The rush to manufacture in China is backfiring on many U.S. clothing brands in an insidious new way: Their own suppliers are flooding the market with their goods, stealing sales and damaging their brands' cachet.
When shoes made by Chang suddenly began appearing in cut-rate shops for as little as $20, it enraged New Balance's legitimate retailers, which were trying to sell the same shoes for as much as $60.
New Balance, which had been trying to polish its image to compete with the likes of Adidas and Reebok, was being relegated to the bargain bin. Chang declined to be interviewed, but said in an e-mail that he still had a legitimate license to make New Balance products and that the firm "lied" to Chinese authorities when it argued otherwise.
As more companies move to take advantage of China's low-cost labor and high-quality manufacturing, many are finding they pay a steep price for doing so.
"Ten years ago, it was just knockoffs," says Stephen Vickers, a former Hong Kong police officer and now president of International Risk Ltd., a firm that does background checks on companies in China. Now, he says, "the No. 1 problem is collusion between your own staff and the manufacturer."
The problem is spreading to other big brand names. Unilever PLC recently discovered one of its suppliers in Shanghai had been manufacturing excess cases of soap and selling them directly to retailers.
Companies and governments have become more vocal in their objections to China's inability to curb the problem, which encompasses an ever-widening array of products, and lawsuits brought by foreign companies against counterfeit or unauthorized Chinese manufacturers are piling up in Chinese courts.
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Regards, Graham Naisbitt
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