Holy Cow (Or When Quality Is Out of Control)

Acclaimed Indian director Satyajit Ray explored universal themes, but he considered his 1975 film Jana Aranya (The Middleman) to be his most cynical. It’s the story of an honest young man who learns to make his way by going against his upbringing and accepting bribes. Though the film was made nearly 50 years ago, it depicts a culture that thrives to this day in many Indian operations, which is just one of many reasons not to manufacture there.

Carey Smith | Founding Contrarian

India is a fascinating country. Your first visit there is like your first time scuba diving, or snorkeling on a coral reef: “It’s a whole ‘nother world,”’ you want to say — beautiful, enthralling and, well, otherworldly.

But if you’ve ever traveled by Indian railroad and seen men defecating without embarrassment by the side of the tracks; or been stuck in city traffic and watched as families of five or six cling to motorbikes built for two; or visited historic monuments where one misstep on a crumbling staircase could send you plummeting 50 feet; or observed building sites where construction seems to teeter on disaster, then you’ve realized it’s a culture that operates according to very different standards than America. And you’d definitely — I hope — think twice before choosing to manufacture a product there, especially a product where quality control can be a matter of life and death.

And yet, India produces at least 20% of the world’s generic drugs, with pathetically little oversight. Which explains why generic eye drops made there were recalled last year after killing several people and blinding others, and why generic chemotherapy drugs manufactured there have been found to be tainted.

That last issue is what prompted an Army colonel in charge of delivering lifesaving (presumably) medicine to troops overseas to independently test some of the drugs he’d been sending. The results were not reassuring, to say the least.

Surprise, surprise. One of the topics I harp on the most with our portfolio companies is quality control and the fact that the moment manufacturing goes overseas, you lose both control and quality.

A few years after I sold Big Ass Fans, news outlets across the country reported the recall of nearly 200,000 residential ceiling fans that had been manufactured in China and sold through a Florida distributor at stores nationwide. According to the U.S. Consumer Product Safety Commission, the recall was because “the blades can detach from the fan while in use, posing an injury hazard to consumers.” A fan company’s worst nightmare, in other words. It was also a perfect example of why I never manufactured in China, and why I continually preach against it — or any other country halfway around the world.

Yet dreams of bigger margins continue to lure founders — and seasoned pros who should know better — time and again. And given the current state of U.S.-China relations, companies are increasingly turning to the subcontinent in hopes of squeezing a few extra pennies of profit out of each unit.

I love India. It’s a great place to visit. But you’d have to be out of your effin’ mind to manufacture there.