Quality Is Key To Chinese Consumer Electronics Survival
China has threatened to take on the Japanese and Koreans in the consumer electronics space, but there is one important factor standing in its way.
By Mike Wheeler
In the 1970s I grew up on a diet of US and European brands in the consumer electronics space. Anybody who was anybody had a Dutch manufactured Philips television while your sound system was either locally manufactured or came from Europe, too. Our household had a Cambridge amp and some Bose speakers made in the US. If you wanted quality, you bought European or American. Simple.
Then in the mid to late 70s Japanese manufacturers started flooding the market with gear – Pioneer, Sony, Sharp, Panasonic, Sanyo, Hitachi, JVC and Akai being at the forefront. Being mass produced, also meant cheaper than their European contemporaries, and with Japan being a lot closer to Australasia than Europe, this also meant low-cost shipping. However, the snobs amongst us thought there was nothing better than European excellence, and we were more than a little sceptical about the quality of goods coming out of Japan. To a degree we had good reason to be. Quality was an issue, but by the mid-1980s these issues had all but disappeared and soon the likes of Sony and Panasonic were becoming world leaders. Along with its car manufacturing, Japanese CE sector was booming.
By the late 1980s and 1990s South Korea had jumped on the bandwagon lead by Samsung and LG. They too, were perceived to have quality issues while people now trusted Japanese brands as being top of the range. However, it didn’t take long for Korean gear to meet quality standards that were acceptable and by the 1990s they were challenging Japan’s supremacy.
Fast forward 20 years and it’s the turn of China and Taiwan. For the best part of two decades China’s economy has roared along, growing at high single and low double-digit figures. Its huge middle class of 200 million plus people want all the bells and whistles that western culture has taken for granted over the past 60 years. However, now wanting to break into more lucrative overseas markets, China has had quality issues, too.
Whether it is fact or perception, there are a large number of consumers outside of China that look upon its goods and services as inferior. It isn’t helped that – up until now at least – that brands like Hisense, BenQ, TCL Electronics and Huawei have been priced at the lower end of the market. And let’s not also forget the big four in CE market in Australia – Panasonic, Sony, LG and Samsung (with Toshiba not too far behind) – have invested a lot of money in research and development and quality assurance so they have every intention of not only keeping market share, but making it as hard as possible for newbies to get a foot hold.
But that might all be about to change. The beginning of this decade has seen a virtual media blitz by Chinese CE companies – whether it be the Great Wall cars or Huawei handsets – that is starting to hit our shores. Just this week TCL announced that it was putting to market 4K televisions under the $5000 mark. Who are TCL? We had to look it up too, and were surprised to find that they claim to be the world’s third largest manufacturer of televisions. Having been founded in 1981 as at state-owned enterprise, the company has slowly started elbowing its way into western markets having been a big player in China.
But quality assurance has been their main sticking point, compounded by the underlying corruption that is part of Chinese culture. A report in the Economist in 2009 pointed out that the biggest problem in China is what is called ‘quality fade’ within Chinese factories, which are producing products for western companies. Quality fade is whereby once a contract has been secured, the manufacturer will make a product to specifications but then try and cut costs in ways that can result in an inferior product. They’ll do this because the initial quote was to get the work, not make money. However, once they have the contract secured, they still need to make a dollar, thus the shortcuts and the inherent problems that arise when doing so.
Another report, this one from Time magazine in 2011, pointed out that while China had all but grabbed the low end manufacturing jobs such as those in the rag trade and toy production, it doesn’t yet have the population with the expertise to produce quality gear in the hi-tech space. Although as Huawei are showing, that could be about to change.
If China is serious about becoming the next Japan or Korea, then not only does it have to train its workers on quality assurance, but it will also have to become competitive with the Japanese and US manufacturing sectors. The wage gap is closing, and if you give a consumer a choice between a Japanese brand and Chinese brand with a similar price point, the former will win out 90 percent of the time. For Chinese CE manufacturers, this might be some time off, because with more stringent standards, comes a higher retail price; a price that the rising Chinese middle class may yet to be able to afford thus the need to penetrate into overseas markets.
If China does get it right, and western customers start trusting its brands, then they will join the Asian network of Consumer Electronics brands that have become the norm in most Australian homes. Then it’ll be its turn to look over its shoulders at the next generation of countries wanting to join the hub-bub of making and selling technology – Vietnam, India, Bangladesh and Indonesia – who have already made huge inroads into clothing and toy manufacturing. The good news is if that 1.2 billion Indians and 1.3 billion Chinese consumers end up becoming part of a global middle class, there will be enough market share for everybody – as long as the quality is there.