TRUTH OF CHEAP CHINESE PRODUCT

Every time we see a tag “made in china” the first thing that comes to our mind is that it is a sub-standard product and should be extremely cheap. Has anyone ever thought why it is so? Why we think every product made in china is a junk?

First let me tell you something. We all must have seen the famous Voltas Ad. “India ka AC” but do you know it’s every part is designed, manufactured and assembled in China then how TATA can say that it is INDIA’s AC. This Diwali I did some research in the market and tried to know the origin of many products which we buy for one of our famous and most celebrated festival.

I.        Decoration lighting: Nearly 90% of total decorative lightings comes from the china starting from Rs.11.25 (for 3m lighting)

II.        Crackers: Which we are so used to see made in “shivakashi” are actually Chinese made which are repacked in shivakashi under different brand names.

III.        Earthen pot/diva: they are mass produced in china with price as low as 10p/pic

IV.        Even Indian Gods/Goddess which we are so sacred for us are made in China.

V.        All artificial decorative items are made in china

The main reason for the above is the cheapness of the product, the Indian made products are almost twice as expensive as Chinese made (including transportation). Then why is so that everything that has been manufactured in bulk is not from china?

It all started in late 90’s and early 2000 are when our market started flooding with Chinese made product starting from batteries to toys. They believed in the philosophy that if we start dumping the material in the foreign market at a very cheap rate, the local manufacturing will get stalled which will give them the dominating share in the market. The Chinese government somehow liked the idea and gave all kind of subsidies and tax holidays to impose Chinese dominance in the foreign market. It started with a bang as people realized that the same products were available at almost 1/3 of the original cost and they took it hand in hand. But as governments all over the world realized the ramification of the same they started retaliating with the introduction of anti-dumping duty, imposing extra custom duty etc.

But Korea, India and some other countries started another very clever campaign they realized that a great defect with the mass produced products is that they are cheap because they are mass produced and if the regulations are changed on certain parts they become worthless so they started making the regulations more stringent on these product to make them un-usable. They also started campaign on the inferior quality of the products and also their unreliability, slowly and steadily people started believing in it and so called “made in china” become a taboo in many markets. Most start believing that as the product doesn't come with a warranty it is most likely to fail, but let me tell you something that I have learned while taking the reliability course during my college.

A warranty is a contract or an agreement under which the manufacturer of a product or service must agree to repair, replace or provide service when the product fails or the service does not meet the customer’s requirement before a specified time (warranty length).

There are three commonly-used warranty policies: the ordinary free replacement warranty, the unlimited free replacement warranty and the pro-rata warranty.

Ordinary Free Replacement Warranty: Under this warranty, if a product fails before the end of the warranty period because of quality or reliability issues, it will be replaced or repaired at no cost to the customer. The repaired product is then covered by an ordinary free replacement warranty. The length of the warranty for the repaired product is equal to the remaining length of the original warranty. The ordinary free warranty is used by many vehicle and home appliance companies.

Unlimited Free Replacement Warranty: Under this warranty, if a product fails before the end of the warranty period, it will be replaced or repaired at no cost to the customer. The repaired product is then covered by a new unlimited free replacement warranty. The length of the new warranty is equal to the length of the original one. The unlimited free replacement warranty is used for small electronic appliances that have high early failure rates. The length of the unlimited free replacement warranty usually is short.

Pro-rata Warranty: Under this warranty, if an item fails before the end of the warranty period, it is replaced at a cost that depends on the age of the item at the time of failure. The replacement item is then covered by an identical new warranty. This type of warranty sometimes is also called partial warranty, since only a part of the initial cost is covered. It is usually used for non-repairable items such as tires and batteries (amazon 18+18 month battery warranty is a very good example).

Once the warranty policy has been decided, the amount of capital that must be allocated to cover the future warranty cost. An example to illustrate how to predict the warranty cost for the pro-rata warranty policy.

Example (taken from a book):
A pro-rata warranty is applied to a product. Assume that the unit price before adding the warranty cost is $50 and the warranty length is five years or 1825 days. It is also known that the failure time distribution is a Weibull distribution with a shape parameter of 1.2 and a scale parameter of 5,600 days. What should be the unit price in order to cover the warranty cost?

For the sake of understanding following variables are defined:

·         c': unit price before adding the warranty cost

·         r: expected warranty cost per unit

·         c: unit price after adding the warranty cost, c = c’ + r

·         N(t): number of failure at time t

·         L: product lot size for warranty cost determination

·         w: duration of the warranty period

·         C(t): pro-rata customer cost at time t, C(t)=c[1-(t/w)]

·         T_c: total warranty cost of a lot of size L

Warranty Length (Year)	Unit Price
2.00	51.99
2.50	52.64
3.00	53.27
3.50	53.94
4.00	54.65
4.50	55.37
5.00	56.12
5.50	56.89
6.00	57.67
6.50	58.48
7.00	59.30
7.50	60.15
8.00	61.01
8.50	61.89
9.00	62.78
9.50	63.69
10.00	64.62

This is also shown in the following figure.

Figure 1: Unit Price for Different Warranty Lengths

So basically warranty is nothing but a component of total cost you have paid for the assurance of service which you expect to get from the manufacturer. But if the motive of the manufacturer is to produce the cheapest product in the market he will you cannot provide any warranty because otherwise he will have to book its cost in his selling price which will defeat his motive. Hence the products which doesn't come with a warranty are necessarily not bad products, it is just that they are not insured for their bad performance.

Hence the misconception about these Chinese products is somewhat unfortunate and with the changing dynamics of our world economics especially in the manufacturing industry they might provide a valid solution and make create a benchmark for the future business prospect.