Businesses weigh the costs and benefits, in the wake of product recalls and bans.
By Mina Kimes, FSB contributor
When Amber McCrocklin launched Paws Aboard, she followed a pattern familiar to thousands of small-business owners. McCrocklin, now 35, had created a line of gear for pet owners who like to take their dogs on their boats. She started by handcrafting boat ladders, life jackets, and waterproof leashes with the help of a local engineer.
When the orders began pouring in, McCrocklin decided to shift operations to China, which could trim costs by half and give her time to design more products to expand Paws Aboard (pawsaboard.com). On the recommendation of another Indianapolis business owner, she hired an engineer in Shenzhen to redesign the products for mass production and let him find a factory to do the work.
“It worked for the guy who recommended it, so I wasn’t really worried,” she says. She immediately cranked up production fivefold and saw her profit margin double.Then the problems started. The clasps on her life jackets were breaking, the shipments were late, her contact in China was unresponsive. McCrocklin’s patience finally expired when she opened a container of 3,000 leashes-all defective. “The colors were completely reversed, and the logos were all upside down,” she says. The factory would not make good on the order, and McCrocklin didn’t want her clients, retailers and online stores, to see the shoddy work. “I’m not sure if I’ll ever be able to sell these,” she says.
A bad batch of leashes may seem trivial compared with the potentially deadly output of Chinese factories that has paraded across the headlines-including 1.5 million toy trains coated with lead paint and 60 million containers of toxic pet food. In July the Food and Drug Administration banned shrimp and four species of contaminated farm-raised fish from China.
Suddenly, outsourcing to China-standard procedure for thousands of entrepreneurs-looks a lot more complicated. Now businesses must factor in the true cost of obtaining their products at the world-beating “China price.” After the recalls, says Andrew Bartolini, an expert on global sourcing at Aberdeen Group, a research firm in Boston (aberdeen.com), “there’s an understanding that low costs come with risks.”
http://money.cnn.com/2007/07/26/magazines/fsb/china_sourcing.fsb/index.htm