Prime Minister S.Batbold has advised Mongolian businesses to keep strict watch over the quality of their products if they wish to compete in the international market. In this context it is interesting to see how China and Japan are tackling their own unique quality crises. In China, officials are hunting for 170 tons of contaminated milk powder that is still on shelves more than a year after the melamine scandal was first exposed. And in Japan, discussions are focused on all that has gone wrong with its automotive industry after Toyota's recent recalls. But a closer look at the two scandals shows how far apart the countries are in their approach to quality—and how much China stands to learn from Japan.

China's quality challenge has at times been compared to Japan's efforts in the 1950s and 1960s to transcend a bad reputation for manufacturing low-quality goods. At that time Japan also suffered tragic industrial disasters, like the mercury poisoning in Minamata that left 1,000 people dead. But Japan's leading companies have since been able to establish strong reputations for quality. Although the automotive recalls currently underway are extensive, design errors and electronic malfunctions are in a different league from China's instances of willful product manipulation, especially when that manipulation has involved artful efforts at circumventing third-party controls.

In China, operators display an incredible willingness to place public safety at risk in exchange for only the smallest gains in profit. The dairy industry's 2008 scandal is instructive. The trouble started when dairy farmers began adulterating milk with water, prompting dairy companies to test protein levels. Milk suppliers next discovered they could trick laboratory equipment into believing protein concentrations were higher by adding a toxic, chemical compound —melamine. Over time, more of the chemical was added, along with more water, and no one knows how little real milk was in the final product by the time the scandal broke. We only know the end result: six babies died, 300,000 were sickened and over 50,000 were hospitalized, causing untold grief to Chinese families.

The melamine scandal is by far the most disturbing of all the quality crises China has faced in recent years. It was not just the amount of suffering endured, but the fact that the contamination was an open secret shared by possibly hundreds of individuals at dozens of companies. While some people involved in the 2008 scandal might have been able to claim that they did not know melamine could do so much harm, those caught using melamine more recently cannot possibly plead ignorance.

Making matters worse has been the government's wrongheaded response. Beijing reacted to this year's melamine scandal with a heavy-handed cover-up. Chinese journalists have been warned not to report details surrounding milk cases. Parents of children sickened by melamine-tainted products who have attempted to organize themselves to protest or seek compensation risk being sent to jail for "social disruption".

China's State-directed legal system has failed to provide justice to victims. The government meted out severe punishment to only a small number of perpetrators engaged in the distribution and production of poisoned milk—two were executed—and a far greater number were let off the hook. China's response to past scandals has been to protect industry with a government shield, so no one should be surprised when fraud recurs in such an environment.

The melamine case illustrates the dangers of Chinese manufacturers' pathological focus on short-term profitability. Accidents can happen in almost any production process, but melamine did not coincidentally make its way into milk. China's obsession with thrift is a virtue often carried to a fault. Police have noted that the current melamine scandal was made possible by the many tons of melamine that remained from the 2008 scandal. Some distributors chose to repackage the tainted powder and put it on store shelves. They could not stand the thought of throwing away so much milk powder, even if it was dangerously contaminated, and even if it meant running the risk of being punished for it.

Japan's reputation for high quality in recent decades owes much to W. Edwards Deming, the father of "total quality management". Were he around today, Deming would remind us that negative reinforcement mechanisms are no way to improve quality standards. Quality must be seen as something positive; it must be seen as something that drives long-term growth. It must be a goal shared by all stakeholders. As it stands today, a small number of unscrupulous actors in China threaten to ruin the export opportunity for many.

When he arrived in Japan in the 1950s, one of Deming's goals was to drive fear out of manufacturing processes. Workers ought to have an open line of communication with management. There must be an opportunity to report incidences and concerns from the factory floor. Partly thanks to the work of Deming, Japan is today an economy that places a high value on the pursuit of quality for its own sake, and that vision has helped Japan to become an innovator in a wide variety of manufacturing sectors.

In China, workers are too afraid to report even the most obvious production errors or the most egregious cases of unethical misconduct. In many factories, line operators are reluctant to report anything at all. Managers ignore issues that might cause embarrassment. Everyone involved is making a risk calculation, determining that staying silent reduces the likelihood of trouble, at least in the short run. Where workers ought to speak up, the inclination is to look the other way instead.

One of China's problems is that efforts to improve quality are focused on the finished product only. Every time a scandal erupts, the answer has been to test more of the finished product. This after-the-fact approach is no match for an emphasis on continual, systemic improvement. As Deming suggested, "We should work on our process, not the outcome of our processes."
China should not take Japan's recent stumble as an opportunity to gloat. Japan's quality problems are unfortunate, but they are an aberration not representative of the manufacturing industry there. Now more than ever, China should be looking to its easterly neighbor as an example of how its own economy can adopt a philosophy of quality and product development that is the envy of the world.

Source: The Wall Street Journal Asia
Highlighted in BCM Newswire Article 105

These days Ulaanbaatar is looking decidedly prosperous. Traffic jams snarl up the streets, a new Louis Vuitton store is reportedly outselling the branch in Lyons, new bars and restaurants are popping up, and prices are rising. And there are a lot more foreigners than there used to be. The rising optimism is centered on Mongolia’s largely untapped mineral wealth. Everyone has known that Mongolia was, literally, sitting on gold – the reserves proven, the locations known – but exploiting it is a major political issue.

Everyone wants in on the action. The Mongolian Government has said it is open for business and the customers are starting to flock. But Mongolia is not a highly controlled one-party state like China, or a country producing crony capitalism and oligarchs, like Russia. Mongolia is a multi-party democracy with vibrant and sometimes hectic elections. There is a free and highly vocal press and a citizenry keen to see some rewards from their mineral wealth.
Hence the buzz phrase everyone is talking about, on TV, in the newspapers, on the shelves of the bookshops: “resource curse”. This refers to the paradoxical situation of the world’s resource-rich countries being among the poorest.

In the past the Government held back from opening the floodgates. The perception of giving the wealth away had led to demonstrations, sometimes violent. Still, the process has started – Canada’s Ivanhoe Mines and the Anglo-Australian Rio Tinto are licensed to start work in the massive Oyu Tolgoi field of copper and gold.

Limited liability companies have been formed, with the Government holding a 34% interest. But worries persist. Is the Government experienced enough to maintain a close watch on these new entities?

But Mongolia is not China. Bad practices will be made public and demonstrations will occur. Foreign miners entering Mongolia know that workplace safety is a major concern and both the Government and the press are watching – public opinion is a factor in Mongolia. And to help ease concerns the Government is encouraging local mining companies to modernize and compete.

Several deals were put on hold recently over concerns about corruption. The foreign miners are bringing a lot of money into what is still generally a poor country, so it is interesting to note that the Government has not simply grabbed the cash, but is remaining cautious. Similarly with the environment – new laws require that mining companies put in place reclamation projects at the end of the extraction process.

There will be more licensing and more miners entering Mongolia. To help avoid the resource curse, NGOs and pressure groups are being formed to lobby for the wealth to be spent on social infrastructure – electricity, water and schools. But others worry and see elite groups of local politicians and foreign businessmen forming cartels.

There will, inevitably, be a learning curve but that with a free press, politicians who can be elected or deselected and a vibrant public debate, Mongolia could just become one country to escape the curse.

Article Source

The source of information was obtained from EthicalCorp.com and was included in the news highlights of BCM Newswire issue 105.  BCM Newswire is sent once a week and highlights leading articles relating to business, investments, & mines in Mongolia.  BCM Newswire is sent to members of Business Council of Mongolia (BCM) and is made available to public after a month at bcmongolia.org.

Answering questions at a media conference, Minister for Minerals and Energy D.Zorigt said what Prime Minister S.Batbold has suggested about the Tavan Tolgoi deposit basically means that the State will keep 100 percent of the license without selling any share of this, and foreign companies will make contracts with Erdenes MGL to mine coal.

This way of working with private companies will be new in Mongolia, but is followed elsewhere in the world. He clarified that the Government's ownership will cover the area for which the license is held by Erdenes MGL, and exclude the few licenses already issued to companies such as Energy Resource.

Asked if companies would be willing to operate mines without owning them, Mr. Zorigt said once the terms were finalized, he was "sure there will be companies ready to accept them". He clarified the Government would not be "renting out" the deposit, but would ask "companies to operate under a contract to mine coal, on payment of fees". The details are being worked out and the changed situation may lead to "either an increase or a decrease" in the present number of 11 companies or consortiums who have expressed interest in Tavan Tolgoi.

"There may be one or several operators," Mr. Zorigt said, adding that anyone "holding operation rights and making large investments" would prefer to have control over the management and over the mining and selling of the coal. The Government will accept this, but "we will of course monitor and oversee the work".

Article Source

The source of information was obtained from Mongolian language newspapers news.mn and was included in the news highlights of BCM Newswire issue 105.  BCM Newswire is sent once a week and highlights leading articles relating to business, investments, & mines in Mongolia.  BCM Newswire is sent to members of Business Council of Mongolia (BCM) and is made available to public after a month at bcmongolia.org.