Return to VVG's Home Page

V V G  ~ Business and Investment Articles
C
opyright
(c) 2002-2014 Vietnam Venture Group, Inc. All rights reserved.   February 27, 2004

Exporters To America 
Under the BTA 
Beware!

By: Peter N. Sheridan


Caviet emptor,” a Latin phrase meaning “buyer beware” was the rallying cry of manufacturers to the dismay of buyers left without any remedy in the period of the early western industrial revolution and for 100 years after, beginning in the mid 1800s. 

Exporter beware” should be the phrase echoing around the Vietnam as this nation on the frontier of world commerce continues its dream that entering the US market will cure all that ails it.  Read this article in its entirety.

Manufacturing Defects vs. Reasonable Expectations 

"Buyer Beware" is a now outdated principal but once a solid fixture of common law legal cases that involved disputes between manufactures and vendors on the one side, and consumers and commercial customers on the other who bought poorly made goods. 

If one purchases an item under the concept of “buyer beware,” it is the buyer's obligation to make a careful inspection to insure that he receives the benefit of his bargain. Walk away with the item and the risk of loss or damage passes to the buyer alone. Never mind that the buyer can’t see or readily discover either hidden defects or intentional errors that save manufacturing costs.   Never mind that the seller issued his "guarantee of quality."

This commercial and legal concept died a fretful common-law death beginning in the mid 1960s with the advent of consumer awareness and the subsequent growth of consumer protection laws, as well as laws enforcing a manufacturer's strict liability for the foreseeable consequences arising from the manufactures intentional acts or even negligent errors. 

Only then did meaning come to the words “guarantee” and “warranty.”  If the maker of shoddy goods refused to offer a warranty or refused to honor one, the courts imposed implied warranties and compelled their enforcement not only to protect the direct purchaser, but a remote buyer who was in the chain of purchase and was injured. 

Later, when injuries arose to persons who were not in the chain of purchase, they too were given legal recourse against the shoddy, or simply negligent, manufacturer.  This is still the law in America, Europe, and Japan.

There is no such protection in Southeast Asia or China. The concept of being responsible for one’s own negligent or even intentional acts in the sale of consumer or commercial products remains as foreign as does the thought that habitual lies destroy trust.  The conventional wisdom in the region is that every one lies. Therefore, even a direct buyer in Vietnam does not expect a guarantee or warranty to be honored. 

If a poorly manufactured item should catch fire and burn an infant because it was made from highly flammable fabrics when non-flammable fabrics are available, Asian custom is to say it was simply the child’s fate to die or be permanently scared. This is changing in more developed Asian states, but is still the effective general principal in Vietnam. 

When personal injury,  loss of life or loss of property arises due to poorly made goods, the cry in Vietnam is, “what do you expect? It’s made in Vietnam!” Whether it’s a shirt sleeve that separates due to poor stitching, cheap thread, or both, or a motor bike that needs the same parts repaired every few months, Vietnamese consumers learn to seek out foreign manufactured goods from neighboring Southeast Asian nations and China that are often not much better made. 

Even when such regional imports are not made any differently, and often not at all better, than domestic goods, domestic buyers still prefer the higher priced goods, presuming higher cost means better quality. 

Market surveys we conduct nation wide confirm that seller and buyers alike list quality among the top three values sought in all purchases and sales, but when the actual sales numbers are tallied it is always the least expensive item that sells the most. Quality is a commodity that does not yet exist as a valued item in Vietnam.

This must change.

Adding Value To Increase Sales. 

Does the consumer want more product or better quality?  A rule of thumb in Vietnam is for local merchants to tout the quality of their products - and do little more than that.  Quality control is most often misunderstood and misused as an excuse to increase production.  

It was so on Japan in the early 1970s. Following several fatal crashes of a Toyota model in the States, the courts ordered the manufacturer to instill the QC concept (Quality Control) immediately.  One of our early tasks in a new legal career was to inquire of the results of the court ordered change.

"We have QC," proclaimed the boss.  "We have erected a statue to the memory of the souls lost in Toyota motor cars and all our executives have been ordered to bow and pray to this monument as the enter and leave our Corporate Headquarters."

In Vietnam, little emphasis is given or time devoted to increasing the intrinsic value of a product through workmanship.  That is because labor traditionally has little value. The cost of a product or service depends on the amount of hardware delivered, and not the quality of manufacture or service provided. 

That is why gold is sold nation-wide at up to 25% above world market prices. There is no other way to make a profit, as the added cost of labor is often less than 10% -- sometimes far less. 

Every product manufactured in and sold to the domestic Vietnamese market faces the same challenge: have a State mandated markup or be unable to make a profit. 

A motor vehicle repair shop will not charge a customer for the time it takes to make a repair. The only recognized value for which a customer will pay is when a part is replaced.  That is why parts are often made new, even when only a simple repair is needed.

Repairing a part is simply a function of labor.  Never mind that the new part is rarely if ever made to manufacturer's specifications. A new part may not even be needed. But if it fits, and if the device works, no matter how briefly, the shop can charge for the “service” performed. 

A manufacture of handsome dolls tells us that to increase his price he must make the dolls larger and put on fine threads made of silver and gold.  To him that is added value for which he can charge and collect from his customers.

Never mind that every appearance of detail work disappears on the larger items. There here is no attention given to the fact few people have room for, and fewer even want, a doll that exceeds one meter (39 inches) in height.  

Our advice is ignored when we counsel to concentrate on the quality of each element of the doll. We are ignored as we urge the manufacture to refine the appearance of the feet and hands, use more hard folds and thin-brushed designs on the body in lieu of real cloth, and improve further on the details of the face and hair. 

The manufacturer laughs at our suggestion that foreign buyers will pay much more for small, finely crafted objects than large ones. We counsel that bookshelf-sized dolls not exceeding 20 cm are the largest he should make, with a heightened concentration on miniatures less than 8 cm tall.

We know his carvers have the needed skill but, “after all,” the manufacturer tells his aides not aware that we understand Vietnamese, “what does a foreigner know about quality when he counsels that smaller is better?” 

What we know is what the manufacturer can’t imagine or even believed when he is told that Japanese Netsuke carvings of wood that often are less than 4 cm (1 ½ inches) tall sell for hundreds, thousands, and tens of thousands of US dollars. Gold cufflinks for shirts are made into finely crafted detail by European artisans using material with an intrinsic value of US$ 100 that sell for upwards of a thousand dollars. Porcelain crafts from Japan, China, and Europe that have an intrinsic value of almost nothing sell for hundreds of dollars due to the skill of the craftsmen and the design. 

Demands Of Retailers In America 

There are many pratfalls to be overcome by domestic manufacturers entering the USA markets for the first time.  Leslie Kaufman, reporting for the New York Times as reprinted by the International Herald Tribune (Monday, January 07, 2002 at page 9) describes the textile trade in America. This should be a primer course for all Vietnamese exporters. 

USA Domestic apparel makers are middle-tier private businesses, often family affairs that lack the resources and muscle to fight back when retailers knock them about.  Imagine the plight of the Vietnamese manufacturer who now darts off to sell his goods into this market. 

As told in the linked article, one manufacturer had been a good client, paying in full and on time for four years when, two weeks before an order was due to be delivered, it received a call from the store's buyer, saying that if the apparel maker did not cut its price by 33 percent, the retail store would cancel the order.

The manufacturer protested that such a cut would wipe out its profit margin. The buyer apologized, but insisted that extraordinary times called for extraordinary measures. With no choice but to discount or let the made-to-order knitwear sit in his warehouse, the manufacture cut its price and sold at cost.

As retailers become more demanding, creditors - usually factoring companies, the financial middlemen that finance manufacturers and collect payment directly from retailers - have become less forgiving, too, especially in dealing with family-owned makers.

Macroeconomic conditions, meanwhile, are worsening. Prices paid to producers of apparel have been falling since 1999; since November 2001 alone, the index of those prices is off almost 1 percent, according to the Labor Department.

"The success of discount retailers like Wal-Mart, Kohl's and Target has helped drive prices down," said Carl Steidtmann, chief economist at Deloitte Research. "It means if you are a midlevel manufacturer, life is not very fun."

 


Articles | V V G’s Home Page | People  
Southeast Asian Handicrafts
| Write to us or locate Our Offices