Melodies in Marketing

Just came back from my first trip to Qingdao, China. Qingdao is at the southern tip of the Shandong Peninsula. It is a famous coastal tourism city near Shanghai - also known for its Tsingtao Beer around the world

When I went, I had little idea of what to expect. I found a country that is undergoing change at a rate that is surely unparalleled. The Qingdao skyline resembles that of an American city; I caught glimpses of old China but that is all they were.

The high level of foreign investment was striking. The sheer number of people was something that has left a large impression. When this is coupled with the nation’s determination to develop, it is apparent why China will become the world’s largest economy. The highlight of the trip was spending time with the people who were not just kind, but fun loving with a rich sense of humor.

The visit was a huge success and carried a very steep learning curve for me personally. It involved a mixture of meeting suppliers and forming professional relationships on which to build, spending time with the company’s purchasing and outsourcing departments (both on and off-premise), seeing and learning about the production processes, learning about Chinese business customs, and lastly traveling about Qingdao and the surrounding area in order to develop an understanding of China and gain an insight into what doing business here might involve. Qingdao, which is on the Pacific coast, will act as host for the sailing events in the 2008 Olympic Games.

During my stay I made it a habit of picking up the local English newspaper, which pragmatism gladly surprised me. I could not help but notice how seriously the Chinese government and the media were paying attention to what is said here in the US about “Made in China” products in general and the latest succession of well-publicized problems with its food products including contaminated toothpaste and imported fish that was found to have traces of illegal antibiotics.

These are serious matters, no doubt about it. But there is nothing happening in China today that is fundamentally different from what has happened or is still happening in other countries - including the US. Remember the peanut butter contaminated with salmonella and E. coli contaminated spinach few months ago?

In many of its sectors, China’s booming economy is one of the most cutthroat in the world: Factories pare margins to the bone in order to beat out their neighbors for orders and market share, and they eliminate as many costs as possible. Bad ingredients are substituted for good ones if they are cheaper and non-apparent.

Even some of China’s best and most responsible companies, those with genuine ambitions to produce high-quality goods, are sometimes forced to choose between losing money, the Wal-Mart order or both.

Does this sound familiar? Of course it does. Go back and reread Upton Sinclair. Recall the sweatshops in New York’s garment district or what sparked the creation of the Food and Drug Administration and, not so long ago in ‘72, the Consumer Product Safety Commission.

This country is now furiously engaged in a remarkable frenzy of self-examination and criticism. As China looks at itself in the mirror and prepares to face the world’s markets, consumer expectations and demands are only slowly beginning to have an impact on product quality and safety. Truly blatant crimes of corruption and official misconduct may lead to highly visible executions, such as the ones we’ve witnessed in the last couple of weeks, but these punishments will have only a limited deterrent effect.

Real and widespread change in the Chinese regulatory environment will come from two much more important developments. First, the better Chinese companies with Western customers and international ambitions for their own products and brands, will band together and plead for better and more effective regulations. They will be joined by the Western companies with operations in China whose managers wonder about the quality of the ingredients that they use. These managers after all, are already under scrutiny by their regulators and customers outside China. Both the Chinese and the Western companies want and need a level playing field where the worst of the price-bound competitors no longer can play with an unfair advantage.

Second, the Chinese government will step in with rules and regulations that will be enforceable…and that in fact will be enforced.

Chinese and Western companies with huge Chinese operations face two challenges today. They need to manage and communicate their way through a series of crises - related to product safety, public health, environmental quality, labor practices and a host of other public issues - that are just now beginning and that likely will continue to challenge them. At the same time, they need to learn quickly how to help shape the new regulatory directions that the government is bound to take, how to help educate government officials about which rules will work and which will not and how to make the kinds of strategic bets about regulatory policies and their own investments that either will allow them to adapt quickly and prosper - or that will condemn them to a quick demise.

The U.S. Congress in 2002 passed the Bioterrorism Preparedness Act, designed in part to improve food safety. It includes new rules on how all domestic and foreign food facilities must register with the FDA – and give notice for any shipments of human or animal food.

Yet the FDA is able to inspect only 0.7 percent of all imported food products, down from 1.1 percent the previous year. In 2006, that means the FDA inspected just 20,662 shipments out of more than 8.9 million that arrived in US ports – employing about 1,750 food inspectors for ports and domestic food-production plants.

This only shows that the tasks at hand are much more complicated than our respected congressmen believe. The U.S. government and congress should be much more mindful of what they say and communicate to their constituency, since lashing out against the Chinese will only further alienate the US-Sino relationship. This is an issue facing governments globally and projected to increase with the growth of global commerce. A more careful and beneficial approach would be an international standardization of Food safety regulations and ongoing bilateral collaboration for faster and more flexible solutions.

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