Amway or the Highway: QA in a Risky Business Environment

UNCLAS SECTION 01 OF 02 GUANGZHOU 000870 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ETRD ECON EINV PGOV CH SUBJECT: Amway or the Highway: QA in a Risky Business Environment ¶1. (SBU) SUMMARY AND COMMENT: Amway is confident that its Quality Assurance (QA) program enhances the quality and safety of its products. As in its dealings with Wal-mart, the Chinese government seeks Amway's advice on ways to elevate safety standards and educate Chinese companies. Across-the-board, U.S. companies today are playing a major role in shaping the consumer product/QA environment domestically and globally for Chinese-made products. This presents an opportunity for the USG to leverage Chinese policymakers' receptiveness to U.S. business advice and expertise. This is another in our series of cables of interviews with U.S. and Chinese companies regarding consumer product safety and standards. END COMMENT Amway Sources Locally and from its U.S. Operations -------------- -------------- ¶2. (SBU) Amway's Director of Technical Regulatory Services Hong Min Xu told us that the company generally relies on local Chinese suppliers to provide the raw materials, intermediate goods, and final goods for Amway's cosmetics, cleaning supplies, and household products. For some products, however, Amway buys the raw materials but assembles the final product at one of its China-based production facilities. In contrast, Xu explained, 99 percent of Amway's raw materials for its food products come from U.S. suppliers; that way, Amway can be assured that it is providing high quality goods. Good QA is Good Business -------------- ¶3. (SBU) Amway's market strategy for China relies on a robust quality assurance system. Eighty QA engineers audit suppliers' quality systems, product quality, and capacity at all levels of production, including raw materials, intermediate goods, final goods, and packaging. Amway, which received ISO 9001 certification from United Laboratories (UL) and BSI, has in the past required its Chinese suppliers to have similar certification. In recent years, Amway has raised its quality standards beyond ISO 9001 to guarantee the quality of products sold worldwide. While Amway generally uses U.S. quality and safety standards for its worldwide operations, Xu said, meeting this standard is sometimes impossible from country-to-country. However, Xu assured CongenOff, though without further clarification, this does not result in a lower level of safety or quality. ¶4. (SBU) Amway maintains a list of "qualified suppliers" for its cosmetics, detergents, and other household products. To become a "qualified supplier," a supplier goes through a 6-month to 3-year audit. Amway conducts regular inspections and audits of it "qualified suppliers." If a supplier fails to meet standards 2-3 times, Amway removes it from the firm's list of "qualified suppliers." Amway also operates a Product Response System (PRS) used to elicit feedback from customers. This enables Amway to investigate instances of product failure and design solutions to prevent future occurrences. Amway to go "Made in China" for retail worldwide -------------- --- ¶5. (SBU) While Amway's China operations currently do not export products to the U.S., Xu volunteered that Amway would like to begin sending its products to the U.S. and other markets. In fact, prior to the pet food scandal, Amway had plans to export it "softgel" food supplements; this has put this on hold for the time being. Xu personally believes that Amway management now views one level of QA standards for all of its operations as a way to increase competitiveness and mitigate supply chain risk. Amway's QA investment has paid off -------------- ¶6. (SBU) Xu was pleased that Amway had taken his advice and invested heavily in a quality control system, worldwide production facilities, and testing laboratories. This investment has resulted in local and national recognition. Xu explained that the national government has recognized Amway's testing laboratory as a national laboratory and frequently asks Amway to conduct tests on its behalf. Advice on Standards Given to the Chinese Government -------------- -------------- ¶7. (SBU) Xu noted that the Chinese government frequently seeks out Amway expertise on international standards and ways to revise Chinese standards. He commended, with pride, that nearly fifty percent of his department's work consists of providing this expert advice. His work brings him into contact with the Ministry of Health (MOH),the Administration of Quality Supervision, Inspection and Quarantine (AQSIQ),the State Administration of Industry and Commerce (SAIC),and the State Food and Drug Administration (SFDA). To date, Amway has assisted the Chinese government in shaping and GUANGZHOU 00000870 002 OF 002 creating some 170 technical standards. ¶8. (SBU) Amway has also organized seminars on technical standards and safety regulations for these Ministries. One recent seminar on international regulatory standards included European Commission officials, U.S. scientists, and other technical standard experts. Amway sometimes works with the Cosmetic Ingredient Review (CIR) and trade associations - the Council for Responsible Nutrition and International Alliance of Dietary Food Supplements Associations (IADSA)- to advise the Chinese government on the Codex Alimentarius Commission's list of standards. Xu acknowledged that other foreign firms - Roche, Mead Johnson, Johnson & Johnson, Nestle, Heinz, P&G, Avon, and Este Lauder - also advise on international standards. Too Many Cooks Spoil the Broth -------------- ¶9. (SBU) Xu pointed out that many - actually too many - Chinese government agencies are involved in creating and enforcing product and safety standards. In Amway's case, nine agencies determine whether the company's products are acceptable. He complained that these agencies or, in some instances, different divisions with these agencies, issue conflicting standards and interpretations. He also believes that many Chinese agencies do not have the expertise to develop and enforce standards. ¶10. (SBU) Five years ago, Xu said, the Chinese government actively sought to create sound technical standards and regulations. The government looked at different standards and regulations around the world as examples. In the area of cosmetics, for example, China has adopted the essence of the Cosmetic Ingredients Review's (CIR) recommended standards, as well as those of the European Union's. For food, China has generally looked to the U.S. standards as a model. Standards for other products have been an amalgam of internationally recognized and domestic standards. ¶11. (SBU) China has grown weary of what it believes to be increasingly complicated and trade distorting standards in the European Union and the United States, Xu said. Additionally, Chinese companies, seeking a competitive advantage, have lobbied the Chinese government to adopt standards so limiting that only their company can benefit. Xu observed that these two factors have led to a decline in Chinese standards and stalled reform. GOLDBERG