There is a worldwide perception that "Made in China" means low cost but not always quality. With China companies seeking to expand internationally this issue is becoming more important.
China "dollar store" Miniso Group Holdings, following last week's filing with U.S. Securities and Exchange Commission for an initial public offering on the New York Stock Exchange, was exposed for selling hazardous cosmetics.
A nail polish available at Miniso stores contained chloroform in concentrations as high as 548.449 micrograms per gram - or 1,400 times more than the acceptable limit of 0.40 micrograms per gram, according to the Shanghai Food and Drug Administration.
Carcinogen Cover-up
Chloroform has been shown to be a carcinogenic after oral exposure, resulting in an increase in kidney and liver tumors. In 2015, China's government issued Cosmetics Technical Safety Standards that prohibit chloroform.
A Miniso representative said even though the company doubted the result, it would recall and destroy the nail polish and reimburse consumers.
The "blacklisted" nail polish was produced by Weisike Tianjin Biological Science & Technology. In December, Miniso received a similar notice from the Shanghai drug regulator regarding the same tainted nail polish. After sending samples to third-party tester Intertek, Miniso was informed the products met safety standards, the company said.
Problematic Supply Chain Management
State-run Procuratorate Daily published an article questioning the authenticity of the "third-party testing institution" and criticizing Miniso's lack of social responsibility.
Miniso said when it chooses suppliers it invites third-party institutions to assess quality. Miniso's quality control team participates in manufacturing - from choosing materials to quality checks, according to the prospectus Miniso filed with the Securities and Exchange Commission last week. This contradicts what one Miniso manager told local magazine Sixth Tone, claiming "we are here to sell products only. The problems must be the suppliers' responsibility."
In January 2018, Miniso was investigated for arsenic in an eye shadow. In June regulators announced the "KaKao Friends" bowl showed high levels of melamine. Both products were removed from sale.
"Chasing expansion and low cost can cause oversight in securing product quality. Lagging behind its expansion pace is the enhancement of supply chain management," an economics professor told Beijing Business Today.
Chasing Profits
Miniso Group reported 8.98 billion yuan ($1.3 billion) in sales as of June with 767 million yuan in net profits. Its chairperson and chief executive officer Yu Guofu said the coronavirus pandemic had brought unexpected opportunities as prime real estate locations had seen low rents.
According to its prospectus Miniso said franchisee dealers have to pay operation fees for stores as well as consultation fees for management once they sign up as a participating business. On top of that, franchisee stores have to share sales income.
Among about 4,000 Miniso stores around the world as many as 96.9% are franchise stores. The remainder are under Miniso's direct management.
Seeking to raise $100 million in its New York listing one of the company's plans is to expand overseas to reach 1,200 international stores.
