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WEEE Revisions close to being implemented.

by on Oct.25, 2010, under Asia Business, China Manufacturing Blog, General News

Articulo en Español . 文章简体中文 . 文章繁體中文

On September 8, 2010 the European Parliament’s ENVI Committee (Committee for the Environment, Public Health, and Food Safety) released its final report on changes that it wished to see in the recast of the Directive on waste electrical and electronic equipment (WEEE).

Two recommendations that will affect manufacturers are that the WEEE directive should now apply to all electrical and electronic devices that are not expressly excluded. Since the exclusions are only for large immobile plant based systems or large commercial installations, this directive will now cover almost every consumer item and household device on the market today.

The second item that affects us is that the directive requires that all municipalities will endeavor to recoup the costs of separating this waste from normal household waste, managing and disposing of it in the appropriate manner, from the polluters. In this case the polluters are defined as the manufacturers, importers, and retailers, not the end-user. Thus we can see that some sort of duty or fee will be levied on almost all consumer/ household devices in the near future.

Considering the tough markets that we are in at the moment, we must now take into account a possible increase in the costs of goods and what that will mean to volumes and market share in the European Union.

Author M. Charlin

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Are the Chinese to blame for the U.S. recession?

by on Oct.18, 2010, under China, General News

Articulo en Español文章简体中文文章繁體中文

In a word NO.

Much has been said in the media lately about how the Chinese have undervalued their currency and that it is causing the extended recession in the U.S. and to a lesser extent in Europe. This is untrue. Yes the low value of the Chinese currency does not help the balance of trade and it stops the U.S. and Europe from exporting to China as their products are too expensive. However up until recently both trade block were only giving this imbalance lip service as the low Yuan allowed large companies in these trade blocs to manufacture products cheaply and sell them for good profits in the U.S. and Europe. It is only when the economies in both areas almost collapsed that the hue and cry about the exchange rate reached the level it has now. One must also realize that the U.S. is going through an election cycle so anything that can be blamed for the unemployment and bad economy is going to be front page news especially if it is something external and not the politicians’ fault.

So let us examine why this imbalance has occurred. China wanted to fast track its economy and traditionally the way to do this for countries outside of Europe and North America was to create an export economy. The best way to do this is to provide a cheap place to manufacture goods. One component of this is a cheap currency. To keep its competitive advantage against its rivals in the area China pegged its currency to the US, its major export market. Thus the exchange rate would be stable and companies could move manufacturing costs to China with confidence in the stability of the exchange rate. This worked fine until the China economy grew to that of a second tier nation and above. At this point the trade imbalances started to bite but were not a huge problem. China then would allow the currency to move in small increments and over time to smooth some of these imbalances out while maintaining a competitive advantage.

When the economic crash hit in 2007 the U.S. and Europe (mainly caused by the financial institutions in those countries anyway) found it difficult to trade out of the recession. Why? Well because the single largest market that was not severely affected was that of China. Since the Yuan was pegged to the dollar, when the dollar dropped in value so did the Yuan making it hard for U.S. businesses to export to China; and also, it did not create a climate where jobs could be brought back to the U.S. as it was still cheaper to use Chinese manufacturing. Thereby the hue and cry about the exchange rate. However one must look at would have happened had the exchange rate been free to float as most U.S. and European politicians have been screaming for.

China rode out the recession by ramping up internal spending on infrastructure. It did not shift its economy to internal markets. China is still primarily and exporter. So if the exchange rate suddenly ballooned to where other wanted it what would have been the result? Well the exports would no longer be cheap and exporters would find it difficult to sell their products. Manufacturing would move to other cheaper countries. The industry would shrink probably alarmingly and the associated unemployment problem would have no real alternative industries to go to. In effect the recession would have been brought to China in a big way. Suddenly ALL major markets would be in recession. There would not be a market for U.S. or European goods as most of these entail some sort of consumer requirement. The Chinese spend less than most industrialized people on themselves, they are superior savers. If suddenly the wealth of jobs and opportunities dries up then they would most likely stop spending and save even more. Thus, no more internal market either.  The Chinese, by allowing their currency to appreciate in a slow and controlled manner, are trying to slowly move their economy off a pure export footing and to a more balance one without destroying the export business first.  It is not something that can be done quickly as it requires a change in mentality from its people as well as its business leaders. They have to want to spend.

So the Chinese are being responsible in their economic policies. Of course mainly to themselves but that is normal for all countries. Still, they do recognize the need to allow the Yuan to appreciate but, they will not be bullied into letting it skyrocket to the detriment of their own people and eventually the global marketplace. The histrionics about them being the boogey men are just that, the wild ramblings of people who do not know better or politicians wanting to blame anyone and anything rather than themselves.

 Author: M. Charlin
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China hopes social safety net will push its citizens to consume more, save less

by on Oct.01, 2010, under China, General News

I just came across this headline from one of the sections of the Washington Post. It got me thinking about a few other things that have been in the news lately about China trying to reduce the price of Real Estate and stop a bubble forming. The article with the above headline basically puts forward that the Chinese government is trying to encourage its citizens to spend. One of the ways it is doing this is to provide pensions, Health insurance and other welfare payments so that the poor or average citizen does not feel that they need to save every penny for future needs or in case of an emergency.

The key reason Chinese save so much and consume so little, experts say, is because without dependable government payments, they need to sock away money for the future — for medical emergencies, for children’s educational expenses, as a guarantee against a job loss or to help elderly parents.

“When a person has no medical insurance, unemployment insurance or endowment insurance, how can that person dare spend all their money?” said Tang Jun, a sociology researcher with the China Academy of Social Sciences. “The Chinese people are a nationality that likes saving money. . . . Ordinary people will only feel relieved about consuming if they don’t have to worry about not having money when they get old and not having money to go to the hospital.”

By Keith B. Richburg, Washington Post Staff Writer, Wednesday, July 14, 2010
Full article can be found here: http://www.washingtonpost.com/wp-dyn/content/article/2010/07/13/AR2010071305773.html?nav=emailpage

The underlying reason for the pensions etc. is not altruism on the part of the Chinese government. It is part of the economic planning process. Officials realize that Europe and the U.S.A. are not going to be able to consume the large output of Chinese manufacturers. In fact the anemic if not actual reversal in Consumer activity in these markets means that China has to look elsewhere for areas to market it’s good if it wants to maintain the current growth rate in its economy. The biggest untapped market at the moment for China’s goods is its own people. However historically the Chinese have been almost pathological savers and rarely will splurge on consumer items. This is changing in the cities and with some of the young but with a large percentage of its population still living in rural areas, away from the centers of new economic activity the consumer lifestyle has not reached the levels needed to sustain the economy. By providing social safety nets the Chinese government hopes to reduce the fears of its people with regards to future hardships and thus encourage them to spend on things now. The age of consumerism will go hand in hand with the social programs designed to alleviate worry and provide for those unable to provide for themselves.

Many in the U.S.A. should perhaps take note of this trend. At this time of economic hardship and recession there has been talk of reducing the social programs designed to help people at the low end of society’s spectrum and those who cannot find jobs. I have seen some journalists opine that the sense of entitlement that these social programs encourage is the cause of many of the problems we see in society today. Maybe they have a point and we have indeed gone too far in that direction. However one must take into account what would happen if those programs went away. People would have to plan for future needs, save their money, become fiscally responsible. No bad thing you might say. Well unfortunately as can be seen in China’s predicament this means that the rampant consumerism that drives the economy now would become a thing of the past. People would become more judicial in how they spent their money and thus the economy would in fact shrink to a new norm and growth would no longer be as fast as it was before. The U.S. economy which is based on consumerism would need to adapt and quickly. Many might see this as the way of the future. If so I wonder if it will be a thought out planned transition or a complete hands off approach. My guess is that it will be a comedy of errors and short term attempts to keep things as they are that will eventually give rise to a new economic paradigm.

Author: M. Charlin
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QPI announces 4G Android mobile phone by end of 2010

by on Sep.29, 2010, under China Manufacturing Blog

Articulo en Español文章简体中文文章繁體中文

Quality Products International Ltd, in conjunction with one of its key mobile technology partners has development work underway for a 4G Android handset.

What is 4G?

The key differentiation of true 4G over 3G is “Super Wi-Fi” (Wi-Max – LTE) compatibility. Some people have been marketing various 3G extensions as 4G, one example is 3.9G. 3.9G is an interesting “stepping stone” product. It is compatible with 4G rather than 3G, however it does not meet the IMT Advance 4G requirements and falls short of what true 4G has to offer! The new 4G network infrastructure, offers data speed that is about 10 times faster than 3G. A nominal rate of 100Mbits while client is moving at high speeds up to 1Gbits while client is stationary. It will in fact be faster than many fixed connections. It has a promise of much wider range, with fewer dead spots, and better possibilities of extending into less populated areas.

2G & 3G Compatibility

True 3G and 4G are not cross compatible. As the 4G roll out will be massive undertaking for network providers, it may be some time before 4G has coverage in all areas or all countries current covered by 3G. As such QPI will launch a dual 3G – 4G phone. Users can take advantage of 4G where available and still utilize the standard GSM network just like and 2G & / or WiFi hotspots as with 3G devices

Quad Band

For maximum versatility we will offer Quad band, which allows full global roaming, in USA, Europe, Asia, Africa, India and Australia.

What features would you like!?

The development phase is the best time to incorporate new ideas. QPI is in the process of patenting some new and completely unique ideas that will show up in our 4G Android.

That said we would love to hear from users about what they want! If there are features that you love in your current phone and would miss if you transitioned, please tell us about them! If there is a feature that you wish for but have not found, please share it with us, if we can build it into this new product we shall do so.

See update. Announcement expected after CNY

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Foxconn says Emergencies are over!

by on Sep.16, 2010, under Asia Business, China, China QC Inspection Blog, General News

What a great headline! All is well in Foxconn and we can all get back to enjoying our little electronic toys and tools without having to worry about poor Chinese workers having to kill themselves in order to make a statement about working conditions.

OK I’ll admit sarcasm is not a good way to make a point but it is funny that this headline popped up a little after I wrote about the factory social audits that need to be done regularly. The problem is that only when you get down to the second half of the article in question is when you see what was done to fix the problem. Foxconn has doubled each workers wage over the past couple of months and at the same time it has reduced the amount of overtime hours from 80 hours per month to 36 hours per month. The funny thing is that previous to this announcement Foxconn professed to treat their workers better than anyone else and they had no cause to complain. Unfortunately 80 hours per month is more than double the international standard and is in fact more than double the amount allowed by Chinese law as well. So it seems that the workers were not being treated as well as they wished us to believe. Considering the problems that the company was having with its workers one might draw the conclusion that overtime was a requirement and not a request as is more common in the west (although one might think that is changing there too). In that case it is no wonder the poor workers were killing themselves. Sure they had all sorts of recreation facilities and activities but, if one is too tired to do anything except show up for work (since you have to work an extra 2 weeks every month just to keep your job), then what use are they?

Considering that the working conditions did not adhere to international standard nor local law, why did everyone say that the factories were fine? Of course there is a certain amount of ass covering in all this but one has to wonder if a proper third party social audit of the company and factories might have uncovered this a bit sooner and maybe headed off the problem to start with. Regular external audits of the factories and conditions should be part of any company’s strategy for doing business in China and the rest of S.E. Asia. QPI Ltd. Is well placed to help with such needs and is in an excellent position to provide independent audits of your manufacturing facilities.

For the full article in the China Daily online click here.

Author: M. Charlin

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Factory and Company Audits should be a regular event.

by on Aug.14, 2010, under Asia Business, China QC Inspection Blog, General News

A recent article from China started me thinking on how the Chinese economy will evolve in the coming years.  The article deals with the wages growth in the Chinese economy.

An income survey report, based on 5,866 enterprises in Beijing, Shanghai and Guangzhou,
released by
Zhaopin.com in July, shows that the average wage rise was 10.1 percent so
far this year, 1.9 percentage points higher than 2009.

The statistics from Zhaopin.com show that from 2006 to 2008 wages steadily increased, with
the rate peaking at 13.8 percent in 2008. However, because of the financial crisis in 2009 the
rate dropped 8.2 percent, its lowest rate during the last five years.

“Although they are up again in 2010, and higher than 2007, the rate still hasn’t reached the peak
of 2008,” said Zhao Lipeng, senior payment consultant with Zhaopin.com. “However, in Beijing
the speed of the rises slowed, but wages still increased in 2009,” he added.

Zhao thinks that the 2008 peak is likely to be reached again sometime next year, which means
that many employees will remain disappointed this year.

“Last year, many employees didn’t get a pay rise because of the financial crisis and their
expectation this year is as high as 21.8 percent,” Zhao told METRO.

“I am still waiting for a rise this year and I hope it will be more than 30 percent,” said Eric Hu,
a 25-year-old, who works for a consulting company in Beijing.

The report shows that the top three industries for wage rises in Beijing are finance, IT and
advertising. Labor-intensive industries, such as manufacturing and the service industry, have
the lowest rises.

By Wang Chen: Wages Rise but don’t meet expectations, China.org,
http://www.china.org.cn/business/2010-07/28/content_20588480.htm

So what does this have to do with your manufacturing in China?  Well you can see that costs are going up. Labour is probably the biggest cost savings in moving manufacturing to China in the first place. Now you are seeing an average increase of just under 10% in the cost base.  Admittedly this is substantially less in the manufacturing industry but the cost is still increasing.  What does bear watching is that the export industry is not growing at the same rate.  The economies of the United States and Europe do not show the growth necessary to fuel this increase from China.

What can fuel income growth? Two main  thrusts, growth in markets increasing scarcity and thus profit, or increasing productivity which reduces costs and increases profits.  Considering the technology already available for manufacturing in Asia the idea of increased productivity being able to absorb this cost increase by itself is not sustainable in my opinion.  At some point Chinese manufacturers will have to look at other markets/products  or fail.  Either that or suddenly costs to manufacture in China will start to increase to keep pace with increased labour costs.  It happened in Japan and Taiwan and it will happen here.

Some manufacturers will stoop to cutting corners, not just on materials but also in labour areas.  This is an area that is rarely checked once the initial audit or survey is performed.  This lack has caused problems in the past.  A large sportswear manufacturer in the U.S. attracted much bad publicity due to the conditions in the factories where the products were produced.  Initial investigations by the company found things above board but, as cost pressures increased, unsavory practices crept in until someone found out. This cost the company a great deal of lost goodwill and money in cleaning up the problem.

Since labour is such a large component of costs of production in most cases it is seen as an area where there is scope for savings.  A more modern example is the issues currently facing Foxconn in China.  It is not enough to pay your workers well but to also treat them well.  Treating your labour force as just parts in a machine will eventually cause them to crack.  In earlier times this may have been the cost of doing business not only in China but in the West as well.  Just think back to the early days of the industrial revolution and the factories using women and young children.  However in the modern age these practices even if practiced elsewhere on the planet will reflect badly and publicly on the companies involved.

A yearly audit or survey should be part of a company’s standard operating procedure to combat such cost cutting and also to keep abreast of changes.  QPI Ltd. Offers a number of cost effective Audit services to keep your company informed of your partners in Asia both at the factory floor and their current solvency.

Author:   M. Charlin

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