Incentives and Penalties

Buyers from developed countries must get more realistic about what it takes to improve the quality of their Chinese imports, Pinney says. Western companies have a tendency to "copy-paste" in China the sourcing and manufacturing practices they're accustomed to in the United States or Europe, he says. But quality improvement carries a price tag, and companies sourcing from China must realize it. Embracing advanced management techniques, such as root-cause analysis, would also help, he adds.

With combined efforts from several quarters, quality is getting "dramatically better" and is being policed much more aggressively, Michael says. Stricter regulatory enforcement would help, but the most important regulations may not be in China. A direct correlation seems to exist between Chinese suppliers' adherence to quality specifications and the degree to which their industry is regulated in the West. For instance, pharmaceuticals and foods tend to be more advanced in quality control "largely because of the pressures and incentives at the client end," Pinney says. Similarly, Pinney sees significant quality improvements in the automobile and white-goods industries. Where the consequences of failure are less dire, quality levels are generally lower. "Quality improvements are the least far along as you move down the food chain into low-end electronics and toys," he notes. "The downside to quality mess-ups is relatively small in shoes and textiles."

Companies must make it abundantly clear to suppliers -- verbally and contractually -- that meeting quality expectations is as important as meeting cost and delivery targets. In other words, buyers must provide incentives to Chinese suppliers to do the right thing. Incentives may not be effective, however, without corresponding penalties. Foreign buyers need to understand what "skin in the game" their Chinese suppliers have in ensuring quality, Pinney says.

The general push toward higher-value products "over time will lead to a restructuring of industries and a shift away from high labor-low value products," Pinney says, and Michael agrees that quality levels are on the rise in China.

Many experts seem confident that quality issues are just the growing pains of an accelerating economy. China "can make high-quality products" and often already does, Meyer says. "Look at an iPod made in China. It has the highest standards of quality. It says 'Designed in California, Assembled in China' on the back of the package."