Managing “quality failure” in China: lessons from the dairy industry case

Purpose - The purpose of this paper is to provide an analysis of the problem of “quality failure” in China using as an illustration the recent case of melamine contaminated dairy products. Design/methodology/approach - This conceptual paper examines whether it is possible to anticipate the incidence of quality fade and, if so, what can be done to minimise the likelihood of such problems occurring. Drawing on theoretical frameworks of alternative transactions governance modes, the discussion highlights the interaction between environmental operating conditions and effective governance modes. Findings - The discussion suggests that it is possible to anticipate quality and safety problems and identifies the key environmental conditions in China that contribute to the problem of quality deterioration. Analysis of three primary transaction governance modes – contracts, hierarchy and trust – and local operating conditions reveals a dairy industry which, in contrast to many of the developed economies, is highly fragmented, politicised, ineffectively regulated and characterised by corrupt and opportunistic behaviour. Originality/value - The dairy industry case provides a concrete application of recent conceptual analysis of quality and safety concerns in emerging markets. This case allows the derivation of recommendations on appropriate management practices for maintaining quality in the challenging business environment of China.