Calls to protect 'Made in China'

With product safety scares at the centre of discussions during recent China-US trade talks, Western retailers and Chinese manufacturers must act fast to protect the 'Made in China' label, said Karina Litvack, Head of Governance & Sustainable Investment (GSI) at F&C.

Consumers hunting for good value in the run-up to Christmas are also increasingly concerned about the safety of the toys and food they buy, and are likely to choose brands they believe to be 'safe'.

However, so far, despite recent scares in the US regarding the safety of certain products manufactured in China – including toys, toothpaste and petfood – consumer concern in Europe hasn't affected sales.

"Consumer confidence on this side of the pond hasn't really been dented by the safety scares we've seen in the US. But European importers and retailers need to be vigilant. It's really a case of 'There but for the grace of God.'. If they miss this chance to learn their lessons from the debacle in the US, they could see brand damage, while China's long-term competitiveness could suffer," said Litvack. She believes Chinese manufacturers and Western retailers have to invest now in better controls to avoid long-term damage to their business.

"It's basic KYC: Chinese manufacturers should focus on 'Knowing Your Customer' and tighten up on quality and safety controls to protect consumer confidence in the 'Made in China' label," Litvack warns. "Likewise, European retailers should tighten up their KYS – 'Know Your Supplier' – by closely monitoring product safety risks and performance. And European manufacturers with their own plants in China need to be sure that the controls they think they have actually work."

This means that European high street retailers will need to invest in better tracing and monitoring of product safety right the way through the supply chain, rather than counting on their suppliers to do it for them. This also means checking anti-corruption controls to prevent fraud in factory inspections, and introducing fail-safe mechanisms like confidential hotlines (a.k.a. whistleblower lines) for factory employees so they can sound the alert and prevent problems from spreading. This also has to flow through into supplier contracts, buyer practices and incentives, and public communication, so that investors and consumers can be reassured.

Safety concerns have already had an impact on both companies and the Chinese government. Mattel, for instance, has upgraded its product safety systems, while the Chinese government has indicated its plans to step up safety and 'name and shame' companies with poor safety practices.

"Chinese manufacturers are being squeezed: they are facing rising raw material costs, yet at the same time consumers expect continued low prices and Western buyers are unwilling to pay more to their suppliers. This could increase the temptation to cut corners – but that could prove very costly in the longer run. Companies that act now and focus on guaranteeing the safety and quality of the goods they produce and sell will win out in the end" Litvack said.