Will Paying More Change Behavior And Make Someone More Ethical?
January 25th, 2008
January 27, 2008 Addendum: One nice feature of distance learning that takes place in the form of a blog, is that others from around the world with different perspectives can jump in and assist the learning process. See Dan Harris of the China Law Blog’s response to my/this post (Why Paying More Is Good China Business), and the comments thereto. His post raises some important distinctions (that my post did not go into in terms of detail, but much of which I agree with), and the comment thread thereto also raises some good opposing and similar views on this important topic.
A while back we had some nice discussion on the Choose Your Economic Poison post I made. Some suggested that we could solve the problem of too many defective products coming from China by paying more to the Chinese suppliers that make this stuff. I questioned that assumption, and still do.
One example I gave in that discussion thread was that if paying people more solved the problem, then why does paying most good employees more still result in good performance, but not superior performance? (See Comment No. 29.) And why does paying most bad employees more money still get you bad performance, and not good performance? (If you feel that more money correlates to higher performance, come see me after you have hired, managed and fired more than a few people, and let’s compare notes.)
Paul Midler, who coined the phrase, “quality fade,” has a blog called The China Game where he discusses China product quality issues (a hat tip to Dan Harris at the China Law Blog for this lead).
Midler has a post titled, The New Bugaboo: Low Prices, where he points out the illegitimacy of blaming China’s quality control problems on foreign companies seeking low prices.
Midler contends that the goal of buying low and selling for what you can get is nothing new — it’s business and the way business has always been done and the way it will always be done. Midler takes issue with those who contend that we can make all our problems go away by paying Chinese factories more for their product and service. Midler also notes that paying more money to a supplier who has behaved unethically sends that supplier the wrong message. He is also skeptical that those who behaved unethically at $1.00 per unit will behave ethically at a $1.10 per unit.
Your thoughts on this? I won’t let you off the hook by throwing out the ol’ business school canned, safe and easy answer that many give of, “Aw shucks. If we all buck up and pay more these issues will be solved, and I am willing do so.”
And if paying more to Chinese suppliers is not the solution, then what is? Discuss.
Entry Filed under: China, Pre-Departure, Beijing
8 Comments Add your own
1. Brandi Eng-Rohrbach | January 25th, 2008 at 9:33 pm
I don’t think paying suppliers more will solve the problem. I mean if you get paid more that just means your profit margin has increased and you get to take home more cash. You aren’t going to change and have a new set of ethics just by getting more money. I mean is it even ethical to use money to make people do the right thing in the first place?
I think if you want an ethical supplier, it would be best to go look for one. Try a new supplier and see if they stay true to their word, if they don’t leave them. There is a lot more suppliers than buyers, so buyers have the power. I think the only proper motivation for change would be to leave unethical suppliers to show that you are not willing to do business with those that act in such a manner. This will send a stronger message than giving them a tip in the form of more money.
2. Chris White | January 25th, 2008 at 11:17 pm
I agree that paying suppliers more will not solve the problem of importing tainted products from China. The dilemma with this situation is that these factories are barely making ends meet in their current situation. Do you really think that slightly increasing pay to these very poor people will entice them to pay more attention to products or users they will never see? I also think that in many cases these workers and factories are doing exactly what they have been told by American companies looking to make an extra dollar. In order to help solve this problem, I believe any extra money that is added to the cost of these goods should not go to the suppliers, but to a relevant government agency that inspects factories and their products before they are shipped overseas. It is in the best interests of both China and the United States, to ensure that these products are safe for consumer use. Both countries depend on each other for business. Unethical behavior will not be prevented by simply increasing wages. Someone needs to regulate these factories. I believe the U.S. government inspects imported goods once they reach U.S. ports, but to the best of my knowledge there are no comprehensive inspections performed overseas by government officials. Does anyone have any information on this? I have also heard that some U.S. companies have sent representatives to China to assess their factories. Why aren’t all companies doing this?
3. Jeff Mohr | January 26th, 2008 at 11:35 am
Surprisingly, I too agree that increasing prices would by no means create more ethical behavior. It is the same argument that arises with solving world problems. There is a camp that believes if we just had more money to throw at the issue then it will disappear. Not going to happen…
After checking higher prices off the list, we must then determine how to get the suppliers (and everyone else in the supply chain) to act ethically. Let me first state that I think the buyers do share part of the blame for suppliers who are exploiting workers, polluting the environment, or making bad products. A reasonable investigation should be made before contracting with a supplier, to ensure that blatant problems are not occurring. There are instances where the supplier hides their “unethical” behavior well enough that the buyer cannot be expected to have discovered it. But the majority of problems are probably known and just brushed off in an effort to improve the bottom line (no judgment here, that is the goal of management in the best interest of the shareholders).
Another issue we must look at also is by what standards is the behavior “unethical”? Is it because the workers are paid far less than in the United States or a plant produces more pollution than normally allowed? Some of the workers are thankful for even the small amount they are paid because of the utter poverty they have been taken out of (look back to 1978 when the annual income dropped below three dollars per person per year, and the practice of yi zi er shi). I am not condoning these low wages, but the history is an element we must consider if trying to improve the situation further.
My proposal?
Urge consumers to boycott companies who use shady suppliers as a means to force the companies to do more research.
OR
Let these countries continue their economic development in the hope that conditions will improve as they have over the past 30 years.
It seems that until companies make it a priority to make their entire supply chain up to our current “ethical” standards, this is a process that will continue, whether it remains in China or moves to countries like Brazil and others.
4. Woon Lam "Justine" Wong | January 26th, 2008 at 2:31 pm
My father once told me “A problem that can solved by money is not a problem”.
I truly believe that the ethical issue we discuss here cannot be solved by money, like other ethical issues. No one can control others’ behavior, not even provide better incentives.
The ethical issue here is more about the standard and norm of the culture than the incentive. There are many Chinese suppliers or manufacturers cutting corners and making “fake” products, not only a few. On top of reducing production cost, it seems that it is their normal way of doing things.
I remember seeing the pictures from the post titled,‘The’ Way vs. ‘A’ Way (Japan v China dept) under the December 4th post. The pictures show that the Japanese focus on “The” way of doing things, fulfilling all the proper standards and procedures. In contrast, the Chinese focus on finding “A” way to get things done, not caring about how to accomplish it.
I don’t have a solid solution for the ethical issue in this discussion. It is either starts from better education for the younger generations or posting heavier penalty for the suppliers.
However, I do have suggestions for the quality control. Like what Chris said, the U.S. companies can send representatives to China to assess their factories more regularly, not until something big happened.
Like the US, Japan imports a lot of goods from China. It has less trouble or recall, why? It is because the Japanese set very high standard of their product, and they have close supervision for the manufacturers in China. They would demand a rework if there is something wrong in the process, not until the product is done. I believe the US companies can improve the quality control assessment, ceasing the problem when it first appeared, rather than recalling them when they are already on the shelf.
5. Gary Chou | January 26th, 2008 at 10:17 pm
The cause of unethical business product/practice is not Chinese cheap labor or Chinese factory managers, but foreign companies who exploit the lenient standard and consequently pass all the blame to the image of China.
Chinese people are just hired hands, agents of those who pay them. We must require American companies to follow stringent regulations even when they do business in China.
Passing blame to Chinese labor while might offload short term liability for a foreign corporation, the ultimate victims will always be American consumers.
6. Simeon Trieu | January 27th, 2008 at 11:07 am
Incentives are more than just money. Sometimes, they are cultural. China’s ideals come from party ideals. The People’s Republic of China is communist/socialist/capitalist and has been under constant change since the founding of the PRC. Take the Great Leap Forward, for example. Mao commanded the Chinese proletariat to produce steel in mass quantities to surge China into a “great leap forward”. However, the quality standards were lacking, many quantity quotas were falsified, and people were starving since they weren’t growing food anymore. Keeping up with the incessant demands of steel on Mao’s orders were a stressor to managers. They just couldn’t keep up.
Chinese have gotten themselves in a similar situation in the current years. They are the factory of the world now and produce goods at a cheap rate, but the demand is great and managers need to cut corners here and there to actually keep up. Part of it is their quality control issues, and other times, it’s just the attitude of the workers. They do their minimum and aren’t compensated for the extra work they put in.
From an economics standpoint, these managers and employees are unmotivated because of poor compensation. Why not award them the base amount (ie. $1000, in this example), and a significant bonus up to $2000 for better quality or higher yield?
7. Dena Malloy | January 27th, 2008 at 4:46 pm
I don’t think money can solve these problems entirely, but it will definitely help. If you impose high fines for violating labor laws or producing “fake” products you have introduced a money stick. If you pay suppliers a little bit more for their goods, you have introduced a money carrot. I don’t believe that paying a bad supplier more money will get you a better product, but I do believe that when bidding a contract, picking your supplier by only looking at the one with the lowest price is almost guaranteed to get you a poor quality product.
I have hired and fired employees (probably not nearly as many as you, Dr. Carr) and I agree that giving a bad employee more money will not improve their performance and giving a good employee more money will not make them a superior employee. I do believe, however, that trying to hire employees below the going rate will not get you a superior employee. You will end up hiring and firing a bunch of bad employees. Paying a high salary definitely does not guarantee you a great employee, but I do believe that it increase the odds that you will find one. It is also important, to give raises to good employees or you may turn them into bad employees be effectively paying them less every year.
There are ethical and hard-working people everywhere just like there are unethical and lazy ones. I think you will be hard pressed to get a person or a company with a great reputation to work for you at bottom of the barrel prices.
8. Frank Wallace | February 10th, 2008 at 4:12 pm
I also agree that throwing money at this problem will not make it go away. In fact, it would probably end up making things worse. Like Midler mentioned, paying the Chinese suppliers more money will just send them the wrong message that it’s good that they are producing cheap low quality products. However, throwing money at the right area might solve the problem. What I don’t understand is what the American businesses are thinking. It seems pretty clear to me in the years I’ve been on this planet that for the most part, you get what you pay for. So if companies are paying dirt cheap labor prices over in China, then how can they possibly be expecting to get a superior product in return? That logic just doesn’t make sense. Like Gary said, we need to place the blame on the American companies because they should know better, but the Chinese factories are just doing what they are instructed to do.
My solution to this problem is similar to Brandi’s solution. I think that you need to look around for good suppliers. They are definitely out there, but they will most likely cost more than the really cheap labor that can be found. So in the end, I guess you are still throwing extra money at a problem, but you are doing it in a smart way.
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