Thursday, August 02, 2007

"Made In China" Gets Expensive

The last anyone heard, US companies manufactured goods in China because labor costs were low and the out-sourcing saved money.

Yesterday, Mattel's (MAT) Fisher division recalled about one milion toys. They had high levels of lead in the paint used on them. Mattel had not inspected them as carefully as it might have because the company knew the manufacturer well. Target (TGT) and other firms have recently announced that they had problems with the quality of products brought in from China. These issues now cover a range of goods from toothpaste to dog food to toys.

What has become obvious very quickly is that US companies importing Chinese products are going to have to audit manufacturing in that country and significantly increase the inspection of items as they come to the United states. And, that could be very expensive given the tens of millions of units that come from the Asian country to American each month.

While labor costs may be China's biggest ally in terms of getting US business, low quality and poor inspection standards are its greatest enemies.

If US companies have to increase costs to monitor Chinese products, the country may cease being the low cost provider. And, public opinion is showing the US consumers are already worried.

Douglas A. McIntyre for 24/7 Wall St.