Avoiding quality fade in Chinese global supply chains : Designing appropriate governance structures

Purpose – China's increasing importance as a major global supplier has coincided in recent years with a number of disturbing cases of quality fade (sudden unexpected deteriorations in agreed quality levels) adversely impacting consumer safety, welfare and brand equity. The most effective responses to the problem of quality fade when sourcing from China are firm‐based. However, the efficacy of such responses assumes the existence of efficient markets and market‐supporting institutions. In the face of widespread market failure overseas, buyers need to carefully structure the global sourcing relationship to minimise the risk of quality fade. This paper seeks to address this issue. Design/methodology/approach – The paper adopts a comparative discussion approach to explore the three key global sourcing governance structures: contracts, internal organisation, and trust, and assesses their effectiveness in attenuating quality issues under both the general contracting problems of uncertainty and opportunism and the challenges unique to the Chinese business environment. Findings – The comparative discussion suggests no clear superiority of any one structure and a need to carefully monitor quality performance on an ongoing basis. This suggests that the appropriate structure is contextual and depends on specific needs for information and compliance. Originality/value – Highlighting the strengths and weaknesses of the three major governance structures emphasises trade‐offs that firms sourcing from China may need to make. Increased costs but assured quality may be an acceptable trade‐off when firms are sourcing high‐risk products (foodstuffs, pharmaceutical and vehicle tyres) or serving vulnerable market segments such as children.