Quality and Value Chains

Whenever I visited India, I wondered why the average quality of locally-made consumer goods is low. (Conversely, I wondered why the quality of goods made and/or distributed in America is high.) I’m talking about small things like the quality of the seal between a container and its lid, the color and weight of writing paper, or the fidelity of a logo or celebrity face rendered on a billboard.

There was never a shortage of ingenuity or innovation in India. I saw new product designs at every visit. Most were improvements in utility, energy efficiency or cost. Some weren’t, but the presence of these seemed to show that diversity was welcomed and free market enterprise flourished. However, due to poor quality, the operation of these products was degraded. They failed to withstand the sunlight, heat, humidity, rain, and pollution. They broke easily, sometimes in ways that were unsafe.

When I asked Indians about this, there were a couple of pat answers. One was to blame the government for not imposing and enforcing standards, especially for safety. Another was contempt for the manufacturers or the average factory worker. They were uneducated, lazy, lacked pride in their product, or simply had no commitment to quality.

Since my last visit I have adopted a new perspective, attempting to answer such questions by understanding the economic systems at play and the assumptions about business and psychology that apply—or fail to. I also have seen where my own employer focuses on quality and where it doesn’t, and why. When we look at the situation from the system perspective (“Individuals don’t produce outcomes. Systems produce outcomes.”) we see that poor quality has less to do with regulation, personal pride or commitment and more to do with purchasing power, competition, and infrastructure. I have realized that the answer to the question, “Why do Indians produce so many poor-quality consumer goods?” is simply

“Because they can.”

During my lifetime, India has had a vast population with a certain level of purchasing power. This level was (and still is, at least on average, per-capita) significantly lower than US purchasing power. As a result of international trade agreements meant to protect fledgling Indian enterprises, there were barriers to access high quality foreign goods. Awareness was also limited: if a foreign company could not hope to sell in India, then why would it bother advertising there? The result was that if an Indian manufacturer produced an item at the right price point, there was a good chance it could find a large number of buyers. This explains the proliferation of product designs.

As far as product quality was concerned, it suffered for two reasons: first, quality is perceived by immature businesses to cost money and in fact does require investment. In an otherwise rational attempt to cut costs, businesses may have chosen to sacrifice quality. Second and more importantly, the parameters of quality are defined by the consumer. Due in part to protectionist trade agreements, the vast majority of Indian consumers were unaware of what improvements in quality could mean. They lacked access to alternatives priced reasonably for their purchasing power. So, they continued to buy. When the consumer is buying without complaint, it is hard to blame the business for assuming that quality is good. It is more likely to invest in other areas. Only visitors could complain that the quality of Indian consumer goods was low, because they were accustomed to high foreign standards.

It may seem that I am not giving the Indian consumer enough credit for understanding what improvements in quality are possible. However, this is not a concern that is at the forefront of any consumer’s mind. Indeed, during my visits to India, I rapidly become accustomed to the level of quality and am surprised by the differences when I return to the US. Furthermore, as a consumer, I wish I could choose to pay a lower price for things like low-quality packaging. Do I really want to pay for a high quality seal between a container for stickers and its lid? Do I really want my drill bits a hard plastic shell?

In the US, I have observed a decline in the average quality of consumer goods as the source of most of these goods has shifted to China. The recent spate of recalls of Chinese-manufactured toys for lead contamination is the most stark evidence of corner-cutting in quality standards. Yet, consumers only seem to change their purchasing habits if personal safety is at stake.

Quality confers a competitive advantage and should therefore go up in highly competitive markets. But I think Indian regulations stifled domestic and international competition in a desire to maintain high levels of continuous employment.

This is not to say that top-quality goods could not be found in India. They could, at high prices accessible to a wealthy minority. However, the scale of such businesses was small. To enlarge their scale required an industrial infrastructure that took time to build up. This suggests that large-scale production of high-quality goods requires long value chains, specialization, division of labor.

In turn, these are founded upon infrastructure and logistics. Quality of components may be improved by outsourcing their development, but if delivery is unreliable, then a company may rationally sacrifice quality for the reliable delivery of internally-developed components.

Tags: Business, Design, Economics

Updated at: 14 March 2008 12:03 AM

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