Interview with Dax Logue Of Brand Vending Products
The “Made in China” label, prominent on products for years, is suddenly being viewed with a jaundiced eye. The bulk vending industry was blindsided three years ago when lead was found in jewelry sold through vending machines and nearly all of it came from China. While there was publicity on the recall, it died down. Bulk vending suppliers, Brand Vending Products, A&A Global Industries, Cardinal Distributors, and L.M Becker & Co. along with the National Bulk Vendors Association (NBVA) took action right away, going along with the recall. Recently, there have been several incidences of Chinese products being recalled, causing a near panic in the United States.
Chinese produced dog food was found to be potentially fatal to dogs; toothpaste was found to contain an unsafe chemical; Mattel, one of the most respected and well known toy makers, was forced to recall millions of toys because of lead paint and loose magnets that could be fatal if swallowed.
The concern about Chinese manufactured products is taking on a grand scale alarm and rightfully so. Few realize the current state of China and its world influence. For example, China has stepped up its political and diplomatic presence. It is increasingly shaping the lifestyle of people around the world, as the United States did before it, down to the Mandarin language courses being taught in schools from Argentina to Virginia.
Along with looking to other countries for goods for its 1.3 billion people, China is also going far and wide in search of markets for its products. China is making up for decades of economic stagnation since the 1949 Communist takeover. Unlike using war to expand power, China just wants to trade its way to power. If China stays on the same economic track, it would become the world’s largest economy in just 20 years, surpassing the United States.
Paul Midler, Founder and President of China Advantage which provides China outsourcing and supply chain management services, said in an article called “Quality Fade: China’s Great Business Challenge” that Chinese suppliers that want to play games with their products are well positioned to do so and it’s very difficult for Western importers to prevent. He defined quality fade as the deliberate and secretive habit of widening profit margins through a reduction in the quality of materials and he sees this as pervasive in China with no end in sight.
Midler explained that importers usually never notice what’s happening; downward changes are subtle but progressive. The initial production sample is fine, but with each successive production run a bit more of the necessary inputs are missing. Midler said that the only thing passed on to the customer from these quality fades is an increase in product risk. Manufacturers push the limit by taking more and more out of the equation until they are caught or until disaster strikes.
What do the factories do then? They apologize and promise it won’t happen again while importers take them at their word and hope for the best. But it usually happens again and even threatening to find another factory only brings smiles to the factories because nearly all factories use the same tactics.
Yes, quality fade is a reality and major problem in China but it could be more for the factories to survive than to simply increase its profit margins. Why? The Chinese one-party government does what it wants and when it wants causing factories to believe they have to get their products out as fast as possible, make what they can, and basically in a separate situation in pursuit of the absolutely lowest price to keep the customer. However, it’s a race to the bottom in a misguided effort to survive. At some point they will have to offer higher quality goods at a higher margin. But will they voluntarily do that or is it time for the Chinese government to lay down the law?
What’s hard to accept is the fact that while Chinese officials admit that a global recall of millions of its toys was the responsible thing to do, they wink and add that it was really the result of new industry standards not poor quality. The government is being forced to recapture consumer confidence and on one level it reeks of “tell them what they want to hear” and less sincerity.
In reading reports from U.S. and Chinese newspapers it would seem that there is a campaign underway to win back confidence. The China Daily reported that makers of toys for export will have to undergo quality licensing as part of a newly launched inspection system. An official with the Guangdong Entry-Exit Inspection and Quarantine Bureau said, “We will keep a closer watch on not only finished products but also on potentially dangerous chemicals and paints.”
But on the heels of promises to assure U.S. companies, Vice Commerce Minister Gao Hucheng said Mattel was partly responsible for the massive recall of millions of toys because “It did not conduct strict examinations when it received toy shipments.” He did back step and assured the United States that “China is taking the quality issue seriously.”
After the spotlight settled on the Chinese factories at the center of the Mattel recall, the owner of Lee Der Industrial Co., Cheung Shu-hung, killed himself. His factory was prohibited from exporting products and was under investigation. Shocking? Perhaps not in China.
A professor at Dartmouth’s Tuck School of Business who conducts research on Chinese factories, said, “Factory owners suddenly realize they’ve stepped on a third rail. Next they’re losing face badly in the government-business structure. They’re shamed to everybody and then suddenly it’s like ‘game over’ for these guys.
The Beijing News reported that the People’s High Court upheld the death sentence for Cao Wenzhuang, former drug registration director for taking bribes. He was the secretary to Zheng Xiaoyu, head of the agency, who was executed in July for taking bribes to approve substandard medicines including an antibiotic blamed for at least 10 deaths. He became the symbol of China’s product safety crisis and his execution was said to be a move aimed at proving to the world that it was serious about dealing with the issue of quality..
The U.S.-China Working Group met with officials from China who admitted there was a problem and assured them it was being fixed. An Import Safety Act of 2007 was introduced that would increase penalties against importers of contaminated goods resulting in death from $500,000 to $50 million.
A representative with the U.S.-China Business Council summed it up, “I think Chinese companies will face a very tough lesson if they don’t respond adequately to growing concerns about safety and quality checks in their factories.”
After reading the accounts of the impact on the recalls and United States’ stand on Chinese imports, we wanted to find out how this affects the bulk vending industry since it had experience first hand.
Recently we had an opportunity to sit down with Brand Vending Products’ CEO Dax Logue. It did not take long for us to get deep into discussion about current events. Logue was involved in the recall back in 2004 had no problem adding his thoughts to the conversation about that weeks events concerning lead in toys and it being headline news.
Q: Dax, in light of all the recent publicity about lead being found in popular retail toys, what do you think about toy manufacturers such as Mattel/Fischer Price having multiple recalls on so many children’s popular toys? At the time of the bulk vending recall didn’t you make a statement about it being only the beginning and retail would be next?
A: It was only a matter of time! Dealing with the Chinese as I do I know a few things about the way they think. Now don’t get me wrong I don’t think the everyday Chinese person is corrupt. Just as I don’t think the average American is corrupt. However, allow opportunity and things can happen. So I’m not surprised that companies with a large presence in China are having the same kind of problems smaller companies like Brand Vending has had. Volume is the problem and the real question is who can test every piece intended to come to the United States? No one, not even Mattel can do it.
Q: Why do you think this is happening now?
A: Actually, what’s happening as far as recalls is not new. For instance in 1998 Fischer Price had a recall on toys for high levels of lead; it seems to me it was 40 million pieces. So it is not new. What is new is widespread public knowledge of heavy metals like lead and what it does to children if ingested. I suspect it will eventually move to all products. Also when you start seeing recalls by companies like Mattel that is linked with toys, it brings an awareness to everyone you didn’t see with recalled necklaces. Of the 152 recalls since January, 104 of the products were made in China.
Q: How do you think lead in products, specifically children’s toys, is ever going to be completely eradicated if companies like Mattel/Fischer Price have literally hundreds of people in China dedicated to just making sure that products are safe and specifically lead free?
A: Good question. I must tell you that if Fortune 500 companies like the companies you mention can get caught behind the eight ball you must know the smaller companies that manufacture are going to have an even bigger problem.
It’s going to take years of attention on this issue and it’s not going to become a non-problem with just the importer of record or the manufacturer, it’s going to take laws and laws take enforcement. With hundreds of thousands of manufacturers just in China alone, this issue could be in and out of the public’s eye for many years to come.
Q: OK, in 2004 the lead in jewelry issue was all about bulk suppliers. Today it seems like the retail industry and the brands they sell are in the spotlight. How do you see the shift in all this affecting the vending industry?
A: I see it two ways: On one hand it certainly has taken a lot of eyes off of directly looking at vending. For some time it looked as if our industry was the only one out there importing items from offshore manufacturers with questionable ingredients. Of course now the public knows that everyone importing from offshore manufacturers has to be extremely careful. The second way I see it is that a broader group of consumers gets exposed to the facts surrounding the effects of heavy metals on humans and I think “knowledge is power.”
Q: I believe the recalls of 2004 were about metal jewelry. This latest recall with Mattel and others seems to be about plastic toys, magnets, and maybe paint. What is the connection between the two?
A: Another good question and I will be brief with my answer because I could go on for a long time. Simply put, lead is the connection. In the case of the bulk vending recall of 2004 it was allegedly lead content under the protective coating that was in question. The ability for children to get to the base metal was the concern. Just so you totally understand that this kind of lead issue is still present. Many retailers from around 2004 until present time have been making recalls on their jewelry. (Not just vending.)
So you ask about lead in popular plastic retail toys. It is not so much an issue with the base ingredient having lead, but it is an issue with the PAINT that should not come as any surprise to the end user or the professional consumer. I think it was way back in 1978 that the U.S. government outlawed the use of lead in paints for homes and buildings. It also banned leaded gasoline to eliminate another source of lead.
Q: Could you summarize what the future looks like for vending in regards to lead and how it will affect the overall sales of novelty toys?
A: First of all, I don’t think that recalls are over. We are going to continue to see recalls in all sectors of toys. I feel the U.S. Government is going to have to put a lot more pressure on governments like China and India. Sales will be hurt over this exposure, how could they not be? Unfortunately, the Consumer Protection Safety Commission (CPSC) doesn’t have pre-market jurisdiction, which means that they can’t test products before they hit the market. Plus there is no requirement that toy manufacturers must abide by the industry’s own voluntary safety standards.
Let’s face it consumer confidence drives sales. So I see a continued decline in retail sales and possibly bulk vending. I think Christmas 2007 will tell the whole story. Just look, mom and dad will question purchases of well-known toy brands and ask whether they are safe or not.
This factor alone will trickle down into bulk vending and have some negative effects. A politician once explained it this way to me: The collective thoughts of people are like the wind. At one point they feel one way about something and that’s the direction the wind blows. Tomorrow, like the wind, the direction of public consensus can change. For now we should look at this as an oncoming hurricane.
