No Proper Name, No Proper Conduct: Company Affiliation and Product Quality in Wenzhou

Abstract This case study demonstrates the far-reaching impact on product quality when private firms were legally recognized and allowed to operate with their own brand names. Previously, when the private firms were forced to affiliate themselves with a governmental organization to get around the entry barrier, they had little incentive to improve the product quality, because too many enterprises were using a same brand name with no effective supervision on each other. Price competition was the only means to survive. This explains the persistent notorious waves of inferior goods through the 1980s to early 1990s. The legalization of private firms in 1992 brought about dramatic improvement in product quality, when the entry barrier against private firms was abolished and private firms began to operate under their own names, and competition through quality improvement began to prevail.