U.S. companies rushed to China and other developing countries to produce low-cost goods for price-conscious U.S. consumers, saving money through lower overseas labor and material costs.
Now they are paying the price in “the year of the recall.”
Retailers and manufacturers are reeling from major recalls of Chinese-made goods this year, from tires to seafood to toothpaste to toys.
In the latest recall, Mattel Inc. said last week it was recalling several hundred thousand toys worldwide, including Barbie doll accessories and Fisher-Price toys, because of high lead levels. It was the third recall by the toy maker in recent weeks.
More than 60 percent of the recalls announced this year by the Consumer Product Safety Commission involved Chinese goods, and all 40 toy recalls were in connection with products made in China. About 80 percent of toys sold in the U.S. are imported from China.
When it announced last month that it was recalling almost 19 million toys made in China, Mattel said it would take a $29 million charge to cover the cost.
While that is unlikely to affect the bottom line — Mattel earned $592.9 million on sales of $5.65 billion last year — analysts expect the recalls to hurt the company’s sales. And class-action lawsuits against the company already have been filed.
BMO Capital Markets analyst Gerrick Johnson, in an August report, adjusted his estimates of the company’s revenue downward by $25 million this year and by $40 million in 2008, according to Business Week.
Pulling the toys and other items from store shelves cost retailers millions of dollars, with expenses ranging from increased labor costs and not being able to sell the items to replacing them on the shelves with something else and lost shoppers.
Retailers that choose not to remove recalled products risk losing customers, and the lifetime cost of losing a customer is “tremendous,” according to Joanna Kennedy, who works for Tomax, a Salt Lake City firm that provides labor scheduling, price management and other types of software for stores.
In addition, cascading reports of problems with Chinese imports could drive consumers away from the “Made in China” label. If retailers cannot adapt to that shift, they could lose customers, she said.
Customers who pull away from Chinese-made goods are likely to pay more, driving up their own costs.
In a recent Associated Press-Ipsos poll, 71 percent of respondents said U.S. consumers deserve some of the blame for the current wave of recalls and food warnings because they insist on buying low-cost items.
“If we find something for $1 instead of $1.10, it’s like a herd instinct, we’ll all trot over there,” Carol Mason, 59, a retired telephone company office manager in Butler, Ala., told the Associated Press. “Well, the lowest price is not always the best if you want a quality product.”
Increased wariness about Chinese products may be the most visible consequence of the current scare.
Patty Lovera, assistant director of Food & Water Watch, a group that works to stop what it sees as corporate control of food and water, said the crisis has been something of a wake-up call. She said consumers are becoming frustrated at the lack of information they receive while shopping for food.
“There’s a kind of a sense of paralysis” because customers don’t know where food is coming from, she said.
Former Food and Drug Administration associate commissioner William K. Hubbard said the problem posed by the imports is that they generally are an “insidious” threat, posing long-term risks, rather than immediate dangers.
Drugs in seafood, lead in food and toys and industrial chemicals in imports from China and other developing countries are not the sorts of contaminants that will kill a 5-year-old overnight, but they may give him cancer when he’s 10, 15 or 20, Mr. Hubbard said.
He said public anxiety is increasing over dangerous imports, but “the ordinary consumer doesn’t know what to do.”
In the case of a recall, he said, people can throw out or return the recalled product, but he said people often ask what they can do to protect themselves from hazardous imports.
“And I say, ‘Darn little,” because you don’t know, in most cases, where the food is coming from,” and even country-of-origin labeling wouldn’t cover ingredients like melamine, wheat gluten and ascorbic acid, he said.
Importers also may must take steps.
Mark H. Allenbaugh, president of M.A.G. Manufacturing in Irvine, Calif., had to travel to China in 2004 to deal with a quality-control problem with the Chinese-made “Kleer Drain” compressed-air drain opener.
Just as Home Depot was interested in giving his product a national test, Mr. Allenbaugh received a shipment of almost 5,000 units with defective threads.
When he traveled to China because of the problem, Mr. Allenbaugh discovered that not one but several factories were subcontracting and that they were not coordinating. Different factories were making the male and female threads, he said, but the factory making the male threads thought the specifications were mistaken and made the threads larger than requested without telling M.A.G. or the other companies involved. Mr. Allenbaugh spent a week training the manufacturers on how to make the product and opened a liaison office in Guangzhou staffed with his own engineers and sourcing analysts.
Mr. Allenbaugh cautioned that it is a mistake to try to paint China as the villain in such cases.
“If anybody is the bad guy, it’s the importers not working more closely with their Chinese partners, or their sources, their factories over there,” he said.
Mr. Hubbard deemed it somewhat unfair to single out China because it is not alone in exporting dangerous products — other developing countries also lack the kind of safety standards and regulatory infrastructure enforced in the U.S.
Chinese imports to the U.S. totaled $288 billion last year, a figure surpassed only by Canadian products.
China is not being unfairly singled out, according to Bob Baugh, executive director of the AFL-CIO Industrial Union Council.
Mr. Baugh said that as a major exporter, China is responsible for the quality of its products.
“The ‘Made in China’ label had better mean something good rather than something to be afraid of,” he said.