Insider dishes the dirt on China's manufacturing schemes Special

Paul Midler is blowing the whistle on China's production industry. His new book Poorly Made in China reveals how factory owners leverage their power over importers and why "quality fade" continues to be a major problem. In a Chinese hotel, Paul Midler, who works as a go-between between U.S. importers and Chinese manufacturers, discovered that the toilet wasn't working. It was a five-star hotel, among the finest in the region. Hotel staffers checked out the problem and tried to convince Midler the toilet did indeed work, even though it wasn't flushing any water. With the toilet still faulty, the front desk manager asked Midler if he could simply accept the situation. Accept the situation? As Midler recounted, "This was another move that I was familiar with from my work in the factories. There was hardly a mess that needed fixing that someone did not first attempt to get the importer to accept. The appeal was always an emotional one, and when it was directed at me, the suggestion was that I let it slide 'for the sake of our relationship.'" He added: "China might be modernizing...but the basic mechanics of getting anything done were still a challenge." This insight is one of many anecdotes Midler includes in his recent book, Poorly Made in China. It is a travelogue-investigative probe about a part of China we've all gleaned from headlines: its cheap manufacturing industry. U.S. importers pay Chinese factories to make inexpensive goods, from shampoo to door handles to envelopes. Thing is, the West doesn't understand how the East operates, Midler stresses. He should know -- for decades, he's been the middleman for importers and factory owners, trying to smooth over the many rough patches that crop up in this tense business relationship. The book explains the position of each partner: American importers want quick turnarounds on their samples, hoping for no surprises or unannounced tweaks. Chinese factory owners are hungry for business to boost their country's global rank, but their customer service reputation is shoddy: they raise prices unexpectedly, and replace ingredients without notifying anyone. Also, Midler says "factory owners were aggressive more than anything else, and perhaps even a bit cruel."

Courtesy Paul Midler A staffer at a Chinese factory smiles for the camera image:54806:1::0

Midler addresses the issue of "quality fade," one of the hottest topics to come out of China's manufacturing game. Everyone remembers the lead-in-toy scandal of 2007, and we continue to hear about product recalls for stuff made in China. Midler says he has seen products gradually degrade in quality, but not enough in one go to alert the importer. He writes in the book: "Factories did not see an attention to quality as something that would improve their business prospects, but merely as a barrier to increased profitability." The West isn't faultless, though. Importers realize that improved quality raised their costs. A relationship can grow difficult if the two sides butt heads over quality. Some importers simply shut up and zip orders off without a second thought.

Courtesy Paul Midler File photo: Factory workers in China. image:54807:6::0

In an interview with DigitalJournal.com, Midler says he wants the book to dispel several myths about China. First, all workers aren't toiling in sweatshops. In fact, employees are genuinely happy with their jobs, even if they only get two days off a month. "The sweatshop myth is exaggerated by journalists who pop in for a few days and want to write a sad story of suffering Chinese workers," he says. He also points out the myth of importers taking advantage of poor China. Hogwash, Midler pronounces. "The factory owner has leverage, and there are few legal protections in the Chinese environment." Additionally, the factory offers discounts on huge orders, but looks to the long-term in order to find profit margins down the road. It's all about making the customer happy -- at first. Riffing off the common philosophical question, Midler wonders, "If an importer was cheated and didn't know better, did it really happen?" He explains the problem of quality fade and recalls, saying that for every major Mattel case making headlines there are dozens of recalls not making the news. For some quality problems, it might not a blaring safety issue. "A drawer handle supposed to be made from stainless steel doesn't include enough nickel, but is anybody harmed with that?" Midler sees the manufacturer-importer relationship as an allegory between the the relationship between U.S. and China. He writes: "American politicians and business leaders rushed headlong into greater levels of interdependency with China, a nation whose reliability is questionable." As long as U.S. relies on Chinese manufacturing, Midler's insights will continue to be valuable advice for any Western company hoping to make a buck off the East.