Editor’s note: “International Business Corner” is a new weekly column written by Joan Keston that will be providing information for people involved in or considering international operations. Keston is an international business consultant. Over the next several months she will be writing about important issues that international businesses face as they compete in the 21st century global business environment. This article is part of a series about building international bridges and addresses the composition of that bridge regarding inbound transactions.
RALEIGH – You might ask, “Do I really need to think about an international bridge when I am importing products?” “I already know my market and am successful, so why should I worry about any foreign business culture?”
The extent to which we are finding lead in children’s toys and baby products (including bibs, high chairs, etc.) and contaminated pet food, to name a few instances, is an indication that US companies did not understand or even ignored the foreign business culture where these products were made.
It is essential that executives and professionals are employed to bridge the business cultures involved in a transaction; those who understand the system that results in such quality and safety concerns and work to avoid their occurrence. The production process, the influencing factors on that process and their effects on the products themselves must be assessed. Corporate ethics and culture, legal protection and enforcement, government, safety and quality standards, processes and procedures, all of which directly affect production issues and the products that will enter the US market, may vary drastically and those differences must be understood and resolved by the individuals comprising your international bridge.
It is not surprising that quality and safety issues are present in products emanating from a developing country. The infrastructure and processes to assure quality and safety are not present or effective in developing countries, one of the major reasons why off-shore products are so much less costly. The quality assurance procedures established in the US and most developed countries have been implemented and modified over decades. We have a large and well-developed industry regarding quality standards and safety that involves procedures, processes, reporting and inspections, as well as compliance and due diligence. Not only has the government developed enormous bureaucratic bodies, but the legal and accounting professions have also developed practices to address these issues. The costs of adhering to standards and inspection procedures add a significant incremental cost to the products.
Quality and Safety in Developing Countries
This industry is lacking in most developed countries for several factors, including the following: (i) There are so many important economic, social and political areas that require attention and funding in a developing society. Resources, whether financial or human or other, are stretched to capacity. (ii) Production goals and objectives are often placed at a higher priority to concerns about quality or safety. As the powerful purchasers demand slimmer profit margins for the producer, quality and safety concerns and the resulting costs are eliminated. (iii) Foreign cultures and corporate ethics may not focus on these issues domestically. We in the US have evolved this industry over time and only after production objectives in our own industrialization process were achieved. (iv) The entire corporate culture and political system operate differently.
As developing countries are in an evolutionary process, these concerns will be addressed and eventually resolved. Market forces and international pressures will force the results. In the meantime companies must be pro-active in protecting themselves and using means to address quality.
A company can reduce their legal exposure by purchasing product liability insurance in the US from a reputable provider or by negotiating some level of legal protection in contracts with suppliers or manufacturers. However a better although much more costly approach is to build safety and quality into the business processes of your global supply chain. This will require participation of every department in a global company, including departments responsible for product design, product development, manufacturing, sourcing, warehousing, legal, logistics and more. This effort requires the commitment of senior management. In order to pass muster your global supply chain must know what is being made and how it is made. In essence your business processes will incorporate the standards imposed by our regulating authorities and replace their inspection and enforcing functions as well. Globalizing quality will require the necessary executives and professionals to build the bridge into the foreign business cultures in order to accomplish this somewhat sensitive work.
Joan Keston has experience with mature as well as entrepreneurial companies, domestically and internationally, and with an executive managerial and legal background. She has a deep understanding of the business culture and issues involved in doing business in developing countries as well as Europe. She is the Senior Managing Principal at Keston & Associates, Ltd., an international business consulting firm located in Raleigh, NC, and a partner at Paladin and Associates, Inc. Her firm assists companies establish business operations throughout the world. She can be reached at (919) 881-7764 and firstname.lastname@example.org.