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The New Bugaboo: Low Prices
By Paul Midler | August 22, 2007
Consider yourself in the following situation: You ask someone to run to the store to buy a candy bar, and you hand him more than enough cash. Keep the change, you tell him. The guy gets to the store and decides to shoplift the candy instead. Now, are you responsible for the person’s unethical actions?
In an article titled “China Pays Steep Price As Textile Exports Boom”, the Wall Street Journal suggested that companies like Wal-Mart, Nike and Liz Claiborne bear a responsibility for the unethical behavior of their suppliers. I had to read that one twice. The supplier is polluting, but the customer is to blame. No multinational ever suggested that its supplier pollute. That decision was made by the manufacturer, and if that supplier felt pressure from “ever-lower prices”, it could have simply asked for a higher price.
McClatchy Newspapers ran with “U.S. Businesses Share Blame For China Toy Recall” where their idea is also that the fault is ours. All those recalls, you see, were caused by companies that had the audacity – the nerve - to source products at a competitive cost. The idea that price pressure is to blame is very much appreciated by Chinese factories, by the way. No matter what they might be criticized for in the future, thanks to arguments like this one, they can say that the devil made them do it. Got caught cutting corners on quality? Found to be a major polluter? Treating workers poorly? “Wasn’t me,” they’ll insist. “It was those damn low prices!”
The name of the game is always to buy low and to sell for what you can get - it’s called “business”. Nothing new there, and neither are suppliers who cry poor. Not sure if everyone has heard the news, but China is in the midst of the biggest economic boom the world has ever known. It’s hard to sympathize with suppliers who say they have fallen on hard times after learning of the supplier in the Mattel case. The head of the company is worth over $1.1bn.
I love this next part: Those who suggest low prices are to blame are telling us that we can make all of our problems go away by paying the factories more. First, if you give more money to a supplier who has behaved unethically, isn’t that sending the wrong message? What would these people say about a CFO caught embezzling corporate funds? “The poor guy must have needed the money. Let’s give him a raise and see if the problem clears up on its own.” There is also a dubious assumption in there - that a supplier who has behaved unethically at $1.00 per unit is suddenly going to behave ethically now that he’s getting $1.10. Some of these China suppliers must be laughing at how the media is portraying their supposed plight.
I have a novel suggestion. Let’s look at unethical actions for what they are and not excuse bad behavior. It is not low prices that are to blame, in any case.
October 30th, 2007 at 9:47 pm
spot on!
October 30th, 2007 at 9:50 pm
Cheers for the feedback.
December 14th, 2007 at 3:38 am
Dear Paul,
Great article. I agree one cannot blame low prices, however, I think now that foreign companies know the risks they have an obligation to investigate too, but this is not spreading the responsibility thin, it adds another layer of responsibility.
Cheers,
IP Dragon
December 14th, 2007 at 12:33 pm
Paul,
I will agree with you on the fact. simply giving them more money is not a solution.
however, Price is an issue (one of many) that leads to breakdowns. Poll anyone in the textile industry and they will tell you that when they send a bid out to 20 suppliers, they are in effect creating a reverse auction and that puts pressure on suppliers.
Now, a good business man being different from a good manager will see that if they work their employees 20 hours a day to make the order (and not pay them for the overtime) than he can make a profit.
A good manager would say that the bid is not good business.
Additionally, the customer (i.e. the brands) do have a responsible role in this. After all, it is was their choice of supplier right? they are the ones that set the rules of the RFQ right? and ultimately, they are the ones who are setting the price guidance right?
there are multiple actors who share responsibility in this and by letting off the buyers, you are releasing the group with the most control off the hook.
R