Yahoo Finance Made in...? Why it’s so tough to know where your discount products came from
Those three words – Made in China – have become synonymous with the cheap goods and inexpensive clothing lining big box and discount stores alike. And for the most part they tell a story a lot of people know, of the economic incentives that go with getting their products manufactured in a country with lower wages and lax employment regulations.
But there’s so much hidden by the “made in” part of that statement, a world of movement, imports and cross-border manufacturing that goes overlooked amongst the simplicity of it all.
Case in point: U.S.-based discount flooring retailer, Lumber Liquidators – which has nine locations in Canada – was hit with environmental fines last week after an investigation revealed Xingjia, the China-based manufacturer, was sourcing illegally harvested wood from Russia’s last refuge for near-extinct Siberian tigers and Amur leopards.
Ultimately, Lumber Liquidators was hit with four misdemeanors and one felony carrying a USD$31.2 million fine, making it the largest fine ever imposed for illegal timber trafficking, according to the U.S. Justice Department.
The company had ignored repeated red flags said a report by Global News released last year. All in, Xingjia had sent more than $5.7 million worth of lumber through the port of Vancouver and onto North American store shelves.
Cheapness, it seems, comes at a cost.
According to experts, three-quarters of hardwood flooring sold through big box renovation chains and public-facing retailers comes from Chinese producers.
While it’s not a secret that discount brands often import from other countries – this is a common procedure to source inexpensive products while maximizing profits – most of those goods whether they’re hardware, household products or textiles, require a country of origin stamp.
“All companies have to abide by the same labeling requirements regardless of who ordered the goods from the factory and whether the factory is in Guangzhou or Guelph,” says Jim Danahy, retail analyst and CEO of productivity consultancy CustomerLab. “But can I trace a pair of socks to a specific factory in Asia? The answer is probably not because of trade secrets.”
Danahy is referring to businesses’ tight-lipped approach to protecting their specific manufacturers and contractors from the competition.
“This was especially common in the early days of athletic shoes where Nike for example didn’t want Adidas to know whose factories they were working with for fear that their rubber compounds or molds would be shared,” he says. “That’s long gone now and they simply have legal undertakings and enough muscle to enforce these types of things.”
Retailers, however, do need to keep records of the chain of command, elements like which company shipped the product, where they came from and when they were shipped. But these details, and knowing exactly where a product was sourced requires a lot of legwork.
“It's very, very difficult to find out,” says David Soberman, Canadian National Chair in Strategic Marketing at University of Toronto’s Rotman School of Management. “You can go online or call the retailer but (the truth is) when is a consumer going to want to know that information?”
For low-quality discount goods like a plastic container or pair of socks, to borrow Danahy’s example, consumers aren’t too likely to complain if the container doesn’t seal right or the socks get a hole after a few weeks but knowing those goods are produced ethically is something consumers are interested in.
“From a liability standpoint they absolutely follow the chain of custody if they’re big,” explains Danahy. “If they’re a small retailer it’s a whole lot more difficult – the products may be purchased from large Asian distributors or North American distributors in which case they’re one if not two hands removed from the factory.”
It ends up falling on the retailers to set standards.
“They have to essentially trust the undertakings from their own suppliers that no children’s hands touched these garments in the manufacturing process and no effluence was flushed into the drinking water,” he adds.
That’s where membership associations advocating responsible sourcing come into play, says Dave Wilkes, senior vice president of government relations at the Retail Council of Canada.
He points to the apparel sector in Bangladesh as a prime example.
In 2013, the Rana Plaza garment factory collapsed killing over 1,000 people. Loblaw’s fast fashion offshoot Joe Fresh was one of the companies who had subcontracted the garment factory to produce some of the inexpensive clothing.
Since the disaster, the chain says it has spent more than $5 million on overhauling its supply chain in the country to ensure tragedies like that don’t occur and workers conditions are met appropriately.
Wilkes says Joe Fresh and other apparel manufacturers in the company have rallied behind the Accord on Fire and Building Safety in Bangladesh and the Alliance for Bangladesh Worker Safety, which ensure the companies they source from are following appropriate building codes and other safety aspects within the sourcing regimes.
“There's also a group of global retailers and manufacturers that belong to something called the Consumer Goods Forum that have made commitments around responsible sourcing as it relates to rainforests for example,” he says. “So there are a number of initiatives that companies are engaged in and promoting both collaboratively and through their own commitments.”
Not all parties buy it.
In April, Toronto law firm Rochon Genova LLP launched a lawsuit against Loblaw and several others seeking $2 billion in damages on behalf of Rana Plaza survivors and the families and estates of those who did not.
But Danahy insists that despite private label brands like Loblaw’s Joe Fresh and President’s Choice or Walmart’s Great Value penchant for beating their name brand competitors in price by outsourcing to a myriad of manufacturers, they are actually more accountable to consumers.
“They have nowhere to hide,” he says. “How the company deals with either exceeding company expectations or falling below them reflects not just on the item but the brand as a whole.”
It doesn’t mean it’s easier to find out where they’re getting the products, but it does mean it’s easier to know where to go when you have a problem with the business.
But Soberman notes that just because a discount brand or private label is able to sell at a lower price point than its name brand competitor doesn’t mean it’s sourcing from overseas. It could also mean it’s cut some of the frills, skipped the advertising and marketing and distribution and grabbed it from a local manufacturer.
“Even in the Toronto area there are probably 20-30 contract manufacturers of soap and detergent, so when you go into a Metro and buy their private brand of soap – there's no telling which of their manufacturers made it,” he says. “These contracts come up for bid all the time and so one of the ways there is a discipline going on is the companies have to meet the standards and pricing or they lose the business.”
There’s a changing tide coming says Soberman. Whether a product is stamped made in China or assembled down the road consumers want to know about the secret supply chains, they want to know not just where the products are made but where they’re sourced and how they’re sourced.
“If you think of a category where everyone is being quiet about it, an opportunity to actually get competitive advantage is to be very open with your procedures,” he adds. “This gives you an opportunity to perhaps gain more traction in the market place, versus your competitors who haven't been so open – once one firm has been open, the other firms will be expected to do the same.”
