Mattel’s China Experience
In 1945, the Mattel brand was born. Ruth and Elliot Handler and Harold “Matt” Matson launched Mattel out of a garage workshop in Southern California. The first Mattel products were actually picture frames, but Elliot soon started using those picture frames to create dollhouse furniture. Harold Matson eventually sold out to his partner, Ruth and Elliot Handler. The Handler’s, encouraged by the success of the doll furniture and turned the emphasis of the company to toys. By 1955 Mattel was advertising toys through the popular show “Mickey Mouse Club”; this revolutionized the way toys were marketed.
By 1959 Mattel had introduced Barbie, named after their daughter Barbara’s nickname. Barbie would soon lead Mattel to the forefront of the toy industry and fascinate girls all over the world for decades. In 1960, Mattel became a publicly owned company, stock was listed was listed on the New York and Pacific Coast Stock Exchanges in 1963. By 1965, sales topped $100 million and the company joined the Fortune 500. In the years to come Mattel would enter the ever growing electronics industry, they would also enter several joint ventures and licensing agreements that would earn them more profit (Mattel History, www.
Mattel. com). In 2010, Mattel posted profit of $24. 8 million, or 7 cents a share, compared with a loss of $51 million, or 14 cents a share in the previous period. Sales totaled $880. 1 million, an increase of 12% compared with $785. 6 million a year earlier (Chang, 2010). A host of external factors can influence a firm’s decision of direction and action. Influencing Mattel’s decisions are economic factors, social factors, political factors, technological factors and ecological factors.
Mattel must lso understand the globalization strategy as it will allow them to pursue opportunities anywhere in the world and enable them to optimize business functions in the countries in which it operates (Pearce & Robinson, 2011). Companies such as Mattel, seeking lower prices have benefited from the “China price” which was 30 to 50 percent cheaper than the cost to make the equivalent product in the U. S. Companies choose China for a variety of reasons including lower business costs, cheaper labor, facilities, plant and equipment and raw materials.
There were also differences in regulatory oversight between China and many other countries, including the U. S. The U. S. banned lead toys in 1978; China only signed an agreement to do so in September of 2007 (Pearce & Robinson, 2011). Being a global company, Mattel faces multiple political, economic, legal, social and cultural environments as well as various changes within each of them. Other issues arise in geographic separation, cultural and national differences and variations of business practices which all tend to make control and communication efforts between headquarters and the overseas affiliates difficult.
Global companies like Mattel also face intense competition due to the differences in industry structures within countries. External factors such as technological change force Mattel to promote innovation to remain competitive. Mattel must be aware of technological changes that might influence its industry. Political factors are also considered external and are designed to benefit and protect firms like Mattel. Political constraints are placed on firms through actions like fair trade decisions, antitrust laws, tax programs, minimum wage legislation, pricing and polluting, many of these aimed at protecting employee’s (Pearce & Robinson, 2011).
Outsourcing to China also creates concerns in quality control as in the case of the 2007 recall for Mattel. In July of 2007, Mattel announced it would be voluntarily recalling some of its products from a contract manufacturer in China that was utilizing non-approved paint containing lead. Mattel requires that their manufacturing partners use paint from approved and certified suppliers and have procedures in place that test and verify but in this particular instance, procedures were not followed. Of the 19 million plus Mattel toys recalled, 2. 2 million were because of lead paint.
Toys were pulled from the shelves of retailers, media frenzy ensued and public pressure was mounting. By the time the dust had settled from the recall, Mattel had recalled over 19 million toys that were produced in China. Their stock price had declined as they took a $40 million charge for the recalls and their cost increased. Customers were threatening to boycott Mattel and all toys that were made in China. When it appeared nothing could get worse for Mattel, congress sent a letter in 2008 charging that Robert was not honoring the commitment he made to the public during the initial recall incident (Pearce & Robinson, 2011).
Mattel had to determine what next steps they would take to recover from such a crisis and move quickly in order to protect their brand. Mattel had to identify an approach to the recalls that would enable them to protect the Mattel brand and their reputation while not undermining their intent to be the “World’s Premiere Toy Brand – Today and Tomorrow” (Pearce & Robinson, 2011). Moving forward a solution this type of dilemma should include increased quality control efforts in all areas, increased audits and inspections to retain compliance with industry standards.
Chinese policy makers would also need to review their policies and change the countries practices to reduce such problems. In the months after the recall China announced high profile inspections and clampdowns on quality. Another solution would be for producers could subject individual shipments of toys to the same box-by-box inspection that is now applied to pet food additives. China could also force exporters to conform to foreign food and product safety standards, even if they exceed China’s own laws (Oneal, Callahan, & Osnos, N. D. ).
Current safety checks in place, including independent audits would need to be reviewed as they did not prevent the chain of events leading to the recall (Story, 2007). There are many different solutions mentioned above that could work together to minimize the likelihood of such massive recalls in the future. Mattel should increase its quality controls for the toy industry, especially for product produced in China. The company and its subsidiaries should comply with the suggested standards of the CPSC Toy Safety Standards which can inspect, monitor, prosecute and even fine for defects.
Mattel should report a defect or recall within 24 hours of discovery which did not happen in this case and lead to many distraught consumers that had lost faith in the Mattel brand. Instead of shifting blame to producers in China, Mattel needs to realize that it was their choice to produce in China and therefore the producers are not completely at fault. Mattel also needs to determine the root cause of the problem in order to perform corrective action and prevent it from happening again. Increased quality control and testing should be implemented immediately after a recall of this magnitude.
Investigations should take place immediately and continue ongoing until it is deemed that all quality control issues have been addressed. Mattel should take appropriate actions with its producers if it finds that their safety procedures were knowingly ignored. In this case Mattel worked to intercept incoming shipments to keep potentially hazardous problems from being placed on store shelves. Mattel should continue to focus on protecting children from lead-tainted imports (Pearce & Robinson, 2011).
In conclusion, in preparation for another scenario similar to the toy recall, Mattel could incorporate the following objectives into their action plan. Objective 1: Get all pertinent information about the recall to the public accurately, efficiently and quickly. Objective 2: Reassure consumers, parents especially, that Mattel is committed to making the safest toys, fixing the problem and being honest and open. Objective 3: Take responsibility for the recall, Mattel should solve the problem while maintaining a stable relationship with producers in China (Mattel Toy Recall, 2007).
