VZCZCXRO7700
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0870/01 2130745
ZNR UUUUU ZZH
R 010745Z AUG 07
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6333
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC

UNCLAS SECTION 01 OF 02 GUANGZHOU 000870 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EINV PGOV CH
SUBJECT: Amway or the Highway: QA in a Risky Business Environment 
 
 
¶1.  (SBU) SUMMARY AND COMMENT:  Amway is confident that its Quality 
Assurance (QA) program enhances the quality and safety of its 
products.  As in its dealings with Wal-mart, the Chinese government 
seeks Amway's advice on ways to elevate safety standards and educate 
Chinese companies.  Across-the-board, U.S. companies today are 
playing a major role in shaping the consumer product/QA environment 
domestically and globally for Chinese-made products.  This presents 
an opportunity for the USG to leverage Chinese policymakers' 
receptiveness to U.S. business advice and expertise.  This is 
another in our series of cables of interviews with U.S. and Chinese 
companies regarding consumer product safety and standards.  END 
COMMENT 
 
Amway Sources Locally and from its U.S. Operations 
--------------------------------------------- ------ 
 
¶2.  (SBU) Amway's Director of Technical Regulatory Services Hong Min 
Xu told us that the company generally relies on local Chinese 
suppliers to provide the raw materials, intermediate goods, and 
final goods for Amway's cosmetics, cleaning supplies, and household 
products.  For some products, however, Amway buys the raw materials 
but assembles the final product at one of its China-based production 
facilities.  In contrast, Xu explained, 99 percent of Amway's raw 
materials for its food products come from U.S. suppliers; that way, 
Amway can be assured that it is providing high quality goods. 
 
Good QA is Good Business 
------------------------ 
 
¶3.  (SBU) Amway's market strategy for China relies on a robust 
quality assurance system.  Eighty QA engineers audit suppliers' 
quality systems, product quality, and capacity at all levels of 
production, including raw materials, intermediate goods, final 
goods, and packaging.  Amway, which received ISO 9001 certification 
from United Laboratories (UL) and BSI, has in the past required its 
Chinese suppliers to have similar certification.  In recent years, 
Amway has raised its quality standards beyond ISO 9001 to guarantee 
the quality of products sold worldwide.  While Amway generally uses 
U.S. quality and safety standards for its worldwide operations, Xu 
said, meeting this standard is sometimes impossible from 
country-to-country.   However, Xu assured CongenOff, though without 
further clarification, this does not result in a lower level of 
safety or quality. 
 
¶4.  (SBU) Amway maintains a list of "qualified suppliers" for its 
cosmetics, detergents, and other household products. To become a 
"qualified supplier," a supplier goes through a 6-month to 3-year 
audit. Amway conducts regular inspections and audits of it 
"qualified suppliers."  If a supplier fails to meet standards 2-3 
times, Amway removes it from the firm's list of "qualified 
suppliers."  Amway also operates a Product Response System (PRS) 
used to elicit feedback from customers.  This enables Amway to 
investigate instances of product failure and design solutions to 
prevent future occurrences. 
 
Amway to go "Made in China" for retail worldwide 
--------------------------------------------- --- 
 
¶5. (SBU) While Amway's China operations currently do not export 
products to the U.S., Xu volunteered that Amway would like to begin 
sending its products to the U.S. and other markets.  In fact, prior 
to the pet food scandal, Amway had plans to export it "softgel" food 
supplements; this has put this on hold for the time being.  Xu 
personally believes that Amway management now views one level of QA 
standards for all of its operations as a way to increase 
competitiveness and mitigate supply chain risk. 
 
Amway's QA investment has paid off 
---------------------------------- 
 
¶6.  (SBU) Xu was pleased that Amway had taken his advice and 
invested heavily in a quality control system, worldwide production 
facilities, and testing laboratories.  This investment has resulted 
in local and national recognition. Xu explained that the national 
government has recognized Amway's testing laboratory as a national 
laboratory and frequently asks Amway to conduct tests on its behalf. 
 
 
Advice on Standards Given to the Chinese Government 
--------------------------------------------- ------ 
 
¶7.  (SBU) Xu noted that the Chinese government frequently seeks out 
Amway expertise on international standards and ways to revise 
Chinese standards.  He commended, with pride, that nearly fifty 
percent of his department's work consists of providing this expert 
advice.  His work brings him into contact with the Ministry of 
Health (MOH), the Administration of Quality Supervision, Inspection 
and Quarantine (AQSIQ), the State Administration of Industry and 
Commerce (SAIC), and the State Food and Drug Administration (SFDA). 
To date, Amway has assisted the Chinese government in shaping and 
 
GUANGZHOU 00000870  002 OF 002 
 
 
creating some 170 technical standards. 
 
¶8.  (SBU) Amway has also organized seminars on technical standards 
and safety regulations for these Ministries.  One recent seminar on 
international regulatory standards included European Commission 
officials, U.S. scientists, and other technical standard experts. 
Amway sometimes works with the Cosmetic Ingredient Review (CIR) and 
trade associations - the Council for Responsible Nutrition and 
International Alliance of Dietary Food Supplements Associations 
(IADSA)- to advise the Chinese government on the Codex Alimentarius 
Commission's list of standards.  Xu acknowledged that other foreign 
firms - Roche, Mead Johnson, Johnson & Johnson, Nestle, Heinz, P&G, 
Avon, and Este Lauder - also advise on international standards. 
 
Too Many Cooks Spoil the Broth 
------------------------------ 
 
¶9.  (SBU) Xu pointed out that many - actually too many - Chinese 
government agencies are involved in creating and enforcing product 
and safety standards.  In Amway's case, nine agencies determine 
whether the company's products are acceptable.  He complained that 
these agencies or, in some instances, different divisions with these 
agencies, issue conflicting standards and interpretations.  He also 
believes that many Chinese agencies do not have the expertise to 
develop and enforce standards. 
 
¶10.  (SBU) Five years ago, Xu said, the Chinese government actively 
sought to create sound technical standards and regulations.  The 
government looked at different standards and regulations around the 
world as examples.  In the area of cosmetics, for example, China has 
adopted the essence of the Cosmetic Ingredients Review's (CIR) 
recommended standards, as well as those of the European Union's. 
For food, China has generally looked to the U.S. standards as a 
model.  Standards for other products have been an amalgam of 
internationally recognized and domestic standards. 
 
¶11.  (SBU) China has grown weary of what it believes to be 
increasingly complicated and trade distorting standards in the 
European Union and the United States, Xu said.  Additionally, 
Chinese companies, seeking a competitive advantage, have lobbied the 
Chinese government to adopt standards so limiting that only their 
company can benefit.  Xu observed that these two factors have led to 
a decline in Chinese standards and stalled reform. 
 
GOLDBERG