Recalls to Boost Production Costs but Maybe not Prices
The rash of product recalls of imported goods last year is likely to result in higher production costs, but retailers may have a hard time passing those costs on to the consumer, a new survey from Deloitte indicates.
The reputation of goods produced in emerging markets had a rough ride in 2007. Not only have the various product recalls from China caused great media uproar, the rise in consumer concern over the environment has given a PR edge to companies focused on environmental sustainability. The 2008 issue of Deloitte’s annual Innovation in Emerging Markets study “explores how manufacturers from developed and developing countries view product safety, product quality and environmental standards in emerging markets and how they are managing their exposure to risk stemming from sourcing from these markets.”
The study starts by outlining some of the recalls that became media events. “It could be termed the year of the recall.”
From tainted toothpaste to contaminated dog food, 2007 saw scores of products recalled due to safety and quality issues.
The product recalls were mostly of goods produced by manufacturers in China. The Deloitte report give special attention to the developing attitude of Chinese executives. They find that, unsurprisingly, the recent events have emphasized the importance of product quality, safety and environmental concerns.
More than three-quarters of developed market executives thought it was very or somewhat likely their company would favor sourcing from markets with stricter standards and roughly two-thirds expected increased production in company-owned facilities.
Developed and developing country executives agreed that these actions undoubtedly mean higher operating costs. Interestingly, only about half of developed market executives thought they would be able to charge higher prices by adhering to higher
standards. In contrast more than two-thirds of developing market executives believed that companies meeting strict standards could command higher prices.
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