Mattels's Chines Sourcing Crisis of 2007 - Assignment Example

Mattel’s Chinese Sourcing Crisis of 2007 Table of Contents Mattel’s global sourcing in China, like all other toy manufacturers, was based on both low-costs manufacturing, low-cost labor, and a growing critical mass of factories competitively vying for contract manufacturing business. Do you think the product recalls and product quality problems are separate from or part of pursuing a low-cost country strategy? 3 2.Whether it is lead paint on toys or defective sliding sides on baby cribs, whose responsibility do you think it is to assure safety – the company, like Mattel, or the country, in this case China? 9 3.Many international trade and development experts argue that China is just now discovering the difference between being a major economic player in global business and its previous peripheral role as a low-cost manufacturing site on the periphery of the world economy. What do you think? 14 References 19 Bibliography 25 1. Mattel’s global sourcing in China, like all other toy manufacturers, was based on both low-costs manufacturing, low-cost labor, and a growing critical mass of factories competitively vying for contract manufacturing business. Do you think the product recalls and product quality problems are separate from or part of pursuing a low-cost country strategy? Mattel was founded in the year 1945 by Ruth Handler, Elliot Handler and Harold Matson (Mattel, 2001). Mattel, a toy company from the United States, has been preserving a business relationship with China since 1959. Despite having a long-term trade relationship with China, Mattel had to face numerous ethical problems regarding its production process. Likewise any other multinational company, Mattel’s functions in the Chinese manufacturing sector was majorly focused on the low-cost production process with the virtues of low-cost labourers. Moreover, with the effect of modernisation and globalisation, the Chinese industry was also flourishing with growing numbers of small factories which were solely focused on operating as third-party manufacturers for global brands and thus earn a large amount of foreign currencies. This further motivated Mattel to shift its production process in the Chinese manufacturing sector with the intention of minimising its responsibilities towards quantity production and thus attaining a larger market share along with increased sales (Dietz & Gillespie, 2012). With its production functions transferred to the low-cost market of China, Mattel was able to earn various advantages in terms of low-cost labourers as well as low-cost raw materials. However, the shift of Mattel’s production functions to the Chinese economy also led to limitations such as the weakening quality of the manufactured products (Biggemann, 2007). Focusing on the historical performances of Mattel, it can be apparently witnessed that the organisation was long associated with the Chinese government and economic drivers in terms of the third-part manufacturing agreements since the late 1950s. As it was appropriately quoted by Dietz & Gillespie (2012), “Mattel’s multiple product recall crisis in 2007 highlights “how quickly a problem in the global supply chain can erupt into a fiasco of such magnitude that it threatens the reputation” of a company (pp. 12). It was in the year 2007 that Mattel had to recall its products from various markets including that of the US, the UK, China as well as other regions all around the world. The reason behind adopting such a major decision was identified in terms of the ethical problems faced by Mattel for distributing unsafe toys which were produced with the use of low quality raw materials and lead paints. A number of the toys were also found to contain small magnets inside which if accessed by children could cause fatal effects on their health (Bapuji & Beamish, 2007). Owing to its rapid and massive distribution process worldwide, Mattel had already marketed its product in international market to a large number of customers for which Mattel had recalled its products from the market three times within 45 days. The first phase of recalls by Mattel took place on 1st August, 2007, bringing back around 1.5 million toys of its varied 83 different models from its international markets owing to the accusation made against them of containing lead paints. The second recall took place on 14th August, 2007 in which Mattel had to evoke more than 18 million toys from the world market again. The third recall was made by Mattel on 4th September, 2007 for 8 million toys (Daniels Fund Ethics Initiative, 2011). After monitoring the recalls in the international market as its immediate response against the ethical dilemma raised, the management team of Mattel accused the third-party manufacturers allied with its production functions in China. It is worth mentioning in this context that the third-party toy manufacturing companies, allied with Mattel, used lead paints which were consumed secretly in China to minimise the cost of production, even after it was banned by the Chinese government many years ago (Ireland & et. al., 2008). Therefore, as third-party manufacturing partners’ unethical conduct was revealed with the brand name of Mattel, it also had to witness risks in terms of political and legal obligations as per the regulatory norms followed in the country with regard to its manufacturing industries (Dietz & Gillespie, 2012). From an in-depth point of view it can further be stated that for marketing toys with poor quality, Mattel had to take decisions concerning three recalls from its Chinese as well as global markets owing to its immense usage of lead paints in the toys and lack of efficiency in maintaining effectual quality check procedures. Considering the then economic trend of China and Mattel’s operations in the market having relationships with various Chinese raw material suppliers, it can be stated that the situation of recalls was caused due to the practise of low-cost manufacturing functions by using lead paints and inadequate measures for ensuring quality (Biggemann, 2007). However, the accusation towards the Chinese manufacturers to be incompetent in rendering quality assurance to its global partners made the Chinese government to witness stern onslaughts from the international markets. In the later period, even though Mattel had made apologies to the global market shareholders and customers as well as other directly or indirectly related stakeholders regarding this misconduct, a major focus was yet on the issue that how much responsible was the Chinese third-party manufacturers and the government policies towards the instance of malpractices in terms of product safety (Merle & Mui, 2007). The question that arises in this concern is whether the organisational strategies adopted by Mattel concerning its production functions in China were separate or rather unrelated with the limitations imposed by low-cost manufacturing sector of the economy. As had been stated by Peijuan & et. al. (2009), this was perhaps for the first instance that foreign companies were actually accusing a country and its policies towards preserving product safety and quality level at a sustainable rate for the ethical dilemmas faced. As noted by Vestring & et. al. (2005), other than currency fluctuation risks, political risks are often witnessed by companies operating their businesses, especially their manufacturing units in low-cost countries such as China and India. Therefore, based on this certain fact it can be stated that Mattel’s strategy to shift its production functions in China, considering it as a low-cost manufacturing unit, played a vital role in causing the ethical challenge. Chinese partners of Mattel used lead paints in production process to minimise their cost incurred in order to gratify the organisational aim to satisfy the consumers with low cost product (Hebert, 2012). With regard to its quality ensuring measures, Mattel permitted two of its partners from China for testing its products for the longevity relationship concerning its product quality enhancement and assurance. It was later reported by the company that the fundamental reason for toys being marketed with poor quality and lead paints were the lacunas possessed by the two partners in testing the products before dispatching those for delivery. The company also accused its partners that many of its products and accessories had been transferred to other businesses illegally (Czinkota & et. al., 2008). From a generalised point of view, the then prevailing economic situation of China in terms of a low-cost manufacturing unit can also be identified to have a significant influence over the supply chain related ethical dilemma faced by Mattel. It is in this regards that companies are often witnessed to face challenges in their supply chain management owing to the incompetent quality measures adopted by partners as well as strict regulatory barriers in relation to licensing. Subsequently, Mattel also had to witness threat regarding intellectual property in China which again depicts a vital limitation of low-cost countries (Biggemann, 2007). Summarising the challenges faced by the organisation, it becomes apparent that the low cost product generally has certain influences over the rising demand as well as rise in the values of share within the market. However, that does not give long-term advantages and profit to the company. The low cost price for a product generally differs in quality. It is due to the reason that the cost of manufacturing a product fundamentally intends to determine the price of finished products (Czinkota & et. al., 2008). Hence, being influenced by the low-cost manufacturing process, companies operating their manufacturing units in such countries, attempt to segment their markets in terms of income capacity and customer purchase behaviour. It is worth mentioning in this respect that the price of product also states the quality of the product. Mattel also has good quality product with high price in world market but the product manufactured in China and supplied by the Chinese partners had more complains with relation to ethical concern. With due concern to the above mentioned facts, it becomes quite apparent that the product recalls were submissively a facet of Mattel’s expansion strategy to Chinese market with the prime intention to attain the low-cost benefits served by this market in relation to manufacturing functions. To be precise, it was the low-cost country production strategy of Mattel to make third-party alignments in its supply chain which later was revealed to raise such ethical issues steeply inhibiting the brand value of the company (Biggemann, 2007). Hence, it becomes tough to completely disconnect the recalls witnessed by the company and its production strategies in China as a major cause of the ethical dilemmas witnessed during the period of 2007. The learning that can be obtained from this case scenario apparently depicts that the strategies implemented by the organisation was essentially focused on the virtues or advantages presented by the low-cost manufacturing units in China. The company had concentrated on creating long-term relationships with the third-party manufacturers blooming in the industry sector as small factories. The company thereby also rendered adequate concern towards the governmental legislative policies involving licensing and product quality. However, it lacked in taking proper measures to ensure its brand reputation in the world market with due significance to the chances of misconducts by the small factories allied with the organisation in terms of third-party manufacturers. The company also lacked in ensuring its product quality with adequate focus on the techniques used by these small sized factories to manufacture the products at such large quantity. It is worth mentioning in this context that the ethical issue or rather the misconduct of the company partners in producing the toys was identified during the peak of the season when the distribution and demand for such products are considered to be the highest. It is owing to this certain fact that the company had to witness such massive loss being forced to take the decision of product recalls (Czinkota & et. al., 2008). Hence, the strategies adopted by the company can be apparently witnessed as an inseparable part of the country’s economic structure. Consequently, it can be understood that the product recalls and other challenges that Mattel had to face owing to its production functions in China were also not separate from the strategies adopted by the company in the low-cost country. 2. Whether it is lead paint on toys or defective sliding sides on baby cribs, whose responsibility do you think it is to assure safety – the company, like Mattel, or the country, in this case China? The major causes for Mattel to witness such product safety issues were largely due to its production strategies implemented in the Chinese market. The prime intention of the company to shift its production functions in the low-cost manufacturing unit was fundamentally to attain the benefits rendered by the market which on the other hand depicts that the company provided insignificant concern towards the quality issues which were quite likely to arise owing to the purchase of raw materials from third-party manufacturers. Contextually, the products such as toys, chairs and cribs among others should be manufactured with safety, especially due to the reason that the ultimate users of the products are the children. With this concern, the safety measure should have been noticed by the company’s highly skilled quality testing professionals before the final launch of the product in the market (Biggemann, 2007). According to the Ferrell (2004), ensuring product safety is a major facet that should be considered by any and every manufacturing company with the intention to secure its brand reputation in the long-run. Lacunas in terms of product safety measures and quality assurance are quite likely to lead towards severe decline in the brand value as well as in the stakeholder satisfaction level which in turn certainly inhibits the community interests of the organisation. With reference to the case scenario of Mattel’s production functions in China, a similar commotion can be identified depicting the challenges which are most likely to be raised due to malpractices and lack of ethical concern regarding product safety. It is in this context that while instigating a business nationally or globally, the company should frame its business in such a way that the ethical concern of the market does not get affected by company’s operational processes. With this concern, companies have often been observed to develop various departments and recruit skilled employees in the process of performing quality check and thus ensuring the safety of the products. From a similar perspective, Mattel, a US based toy manufacturing company expanded its business to China. However, it was noticed during 2007 that the toys manufactured and supplied in China as well as in the world market by Mattel were unsafe for the children and environment which were produced by using lead paints and poor quality materials inhibited the longevity and safety of the products by a large extent. It is in this context that to sustain in China’s increasingly competitive but low cost market, Mattel’s third-party manufacturers made an attempt to use lead paint accessories while manufacturing toys which helped Mattel to minimise the price for its toys as the production cost, owing to this process, had reduced substantially. It can be noted in this regard that even though Mattel had considered the managerial ethics in its manufacturing process, the market strategies concerning its production processes in China had adversely affected it while manufacturing of toys. But as a responsibility or ethical concern and also to secure its brand name, Mattel had to recall its products from China and the global market (Daniels Fund Ethics Initiative, 2011). This apparently depicts that Mattel had to face severe challenges in terms of the product safety issues owing to its strategies in China. The use of lead paints in manufacturing process had helped Mattel’s third-party manufacturers to minimise the marketing price for its toys; however, the brand value of the company was affected tremendously when the fact was revealed by the US quality check professionals resulting in massive customer dissatisfaction, political as well as legal hurdles (Hong, 2005). It is in this regards that Mattel had lacked considering the product safety measures in its manufacturing process while instigating its production operations in China. It was further observed that the structure of Chinese economy influenced the organisation to alter or rather slacken its strict restrictions over quality check performances while manufacturing toys rendering significance towards the enforced governmental policies (Czinkota & et. al., 2008). However, it is worth mentioning in this context that while making partnership agreements with the Chinese companies the ethical concern should have been made unambiguously formatted so that the ethical dilemma could have been avoided. Nonetheless, it was the sole responsibilities of the company to have ensured the quality of its products as at large it were its brand name that was affected by such ethical issues. Rather specifying the faults of Mattel’s partner it was Mattel’s managerial duty to judge the quality and responsibility of its product quality and safety before supplying the product or toys into the market of China. With relating to the condition, it can be observed that China intended to satisfy the customers’ requirements; however, comprising the quality aspect lacked in terms of a long run vision. One of the major reasons to influence such misconduct can be identified as the intension of manufacturing low cost material by the Chinese suppliers due to the low cost market of China. It is in this context that Mattel manufactured its toys with the low cost material supplied by its partner companies from China. The low cost materials consisted of lead paints and even small magnets which proved to be quite harmful for the children as well as environment (Diaconu, 2007). With due concern to the fact, the products were being recalled by the US Quality Testing Committee in massive amount stating that the toy contains lead paints which are harmful and unsafe for the children and environment. For such misconducts Mattel had to face several problems including inhibited brand name and value, misunderstanding with Chinese government in turn giving rise to political issues and the problems relating to its manufacturing process as well as in business. From a broader perspective, it can further be noted that for all these problems the contribution of China as a low-cost market was also not quite inevitable. As the low cost market of China has high demand for product from different dimensions of the consumer market, the demand for high price products are low in China. In order to resolve the pricing problem, Chinese companies used laid paints and poor quality materials from whom Mattel used to buy the accessories for manufacturing of toys. Lead paints and low cost material were used in manufacturing processes so as to minimise the cost of production despite of the fact that many years ago, using of lead paint in manufacturing of products was banded by the Chinese government. However, it was still used by the Chinese companies secretly for minimising the cost production (Sen, 2001). This in turn depicts that even though the country had enforced strict regulations to ensure product safety, the implementation of such policies were witnessed to be incompetent enough to mitigate such risks. Therefore, it can be stated that if it was the responsibility of the organisation to ensure the safety of its customers or rather the ultimate users with a view to attain larger customer satisfaction, it was also the responsibility of the Chinese government to ensure the safety issues so as to make sure of its environmental and social health. Summarising the facts represented above, it can be stated that the major responsibility towards the product safety challenges faced by Mattel was majorly caused by organizational lacunas perceived in terms of indentifying both the advantages and disadvantages of the host economy. It was fundamentally the concern of Mattel to focus on its efficiencies and competencies to ensure the quality of its products before being served to its international markets, especially when most of those models were not being manufactured in its manufacturing units. However, the concern of China can also not be avoided in such scenario as being a low-cost economy it could have provided better concern towards maintaining strict regulatory norms for the manufacturers pressuring them to be ethically concerned by a large extent. Nonetheless, the major proportion of the responsibility remains in the account of the company as it is the brand itself which is likely to be the most affected one which can be apparently witnessed in the case of Mattel (Joel & Wisner, 2012). 3. Many international trade and development experts argue that China is just now discovering the difference between being a major economic player in global business and its previous peripheral role as a low-cost manufacturing site on the periphery of the world economy. What do you think? Low-cost markets can be defined as the market situation in which the cost incurred while manufacturing products are low which permits the manufacturers to market the product at lower price compared to other markets. Owing to the economic advantages of lower priced products, the demand for such products is witnessed to be substantially high in the low-cost markets. It is in this context that the low-cost markets tend to further influence manufacturers to continuously expand its business in order to satisfy the rapidly growing market demand. The low cost market renders significant advantages to the new and existing business and manufacturer by facilitating faster marketing process (Dahlman & Aubert, 2000). However, it must be noted that even though a company may attain noteworthy advantages with the virtues of shifting its production operations to the low-cost manufacturing units, it is quite likely that if the company lacks in continuously responding to the market changes and other trends, it might have to face severe challenges. These challenges can be related to the company’s intellectual property rights obtained in the market, quality assurance as well as other political and legal risks. It is in this context that low-cost countries have also been observed to offer multiple limitations in terms or rigid trade policies, conservative cultural beliefs and low-skilled labourers along with the advantages served in relation to low-cost manpower and poor quality materials. A few of the low cost market characteristics can be identified in countries such as China, India, Indonesia, Brazil, and Russia among others (Tisdell & et. al., 2009). China is being affected vastly in its environment by the low cost market. Because the low cost market of China became a barrier for expensive manufacturing unit as well as global company’s investment. It is in this regard, expensive manufacturing unit supplies and manufacture high price product for the market but related demand for the product declines, and as a result the company suffers loss. To overcome the loss, company changes its expensive operational process to chief operational process due to which company manufactures low quality products for the market. This low quality product gives less satisfaction to the market and resulting in damages to mankind and environment (Dahlman & Aubert, 2000). By considering the affects within the country, China took several steps to overcome the low cost market from its territory. The major steps are welcoming global companies to expand their business in China market, developing education sector, creating skilled labour and strengthening the policies of the government among others. Steps which are implemented by China showed a positive aspect for its market which encouraged the development of the economic drivers. With this aspect China became the fastest developing country (Daniels Fund Ethics Initiative, 2011). The past scenario of Chinese market indicated the characteristics of a low cost market; however, in the current day phenomenon the situation of Chinese market has changed dramatically making it a developing technologically driven market offering skills labourers, certainly at a higher cost. Hence, it can be stated that China can be no longer considered as a traditional low cost market as it was in the previous times. Previously, China was identified to offer low cost labourers and the availability of raw materials used in the manufacturing processes of various industries also at a cheap price. This in turn attracted a large number of foreign companies towards the economy to base their manufacturing functions and thus attain the cost efficiency advantages served by this economy. In order to completely make use of these potentials, the Chinese government also was observed to make attempts towards enhancing its Foreign Direct Investment (FDI) flows, considering the aspect to be one of the key drivers of globalisation and overall economic growth. However, due to the limitations witnessed by the economy owing to its increasing dependency over FDI flows or rather, the foreign companies at large, China shifted its focus from attracting MNCs to reap the benefits of its low-cost manufacturing units towards generating highly skills and a bit expensive manpower that can be effectual is facilitating the national industries assisting the economy to make its position in the global market as a competitor (Gibbons & Kulkarni, 2011). It is owing to this fact that experts have recently being arguing China to recognise the virtues of being a global economic player and thus developing its policies to keep pace with other rapidly developing nations. It is worth mentioning in this context that the low or poor quality product tends to render insufficient satisfaction to the market resulting into damages to mankind and the environment at large. By considering the negative effects or the major consequences of foreign companies operating within the country in the long run, China took several steps to overcome the drawbacks and thus developing itself as a major global player serving with efficient labour force (Lin & et. al., 2003). The major steps adopted by the economy in this regards were majorly concerned towards welcoming global companies to expand their business in Chinese market with focus to its increasing demand in the consumer segments rather than emphasising on its manufacturing units. Furthermore, to ensure stability and sustainable growth of the industrial sector, developing competitive education sector and strengthening the employment as well as intellectual property rights policies were also rendered with deep concern by the government. Notably, these policies were implemented by China in its various industrial dimensions which in turn rewarded various advantages to the economy and significantly assisted it to become one of the fastest developing countries in the current scenario (Gibbons & Kulkarni, 2011). With the gradual development in the education sector, China was able to create educated manpower with skills suitable for company operations being competitive enough to keep pace with the altering external environment needs. This led China to be facilitated with skilled labour for the growth of both its national as well as international industries. It is in this context that with a gradual rise in the skills of the labour force within the country, the wages also was recorded to rise which subsequently inhibited the exposure of China as a low-cost manufacturing unit in the global stature. From an in depth point of view it can be stated that this marked an apparent distinction to its traditional and modern status (Kirby & et. al., 2008). From an in-depth point of view, industries present in China have also been identified to develop largely. It is worth mentioning in this context that owing to the changing market structure of the Chinese market, the foreign manufacturing companies were likely to become least interested to penetrate the market concerning its higher cost labourers and rapidly increasingly national competition (Prasad, 2004). However, with due consideration to the most likely drawbacks of the alterations occurring in its economic sphere, the Chinese economy attempted to offer the advantage of skilled labours, although, at a higher wage cost but along with the demand growth of a low-cost manufacturing unit. This in turn enhanced the global competency of China and encouraged its attractiveness amid international investors rising as one of the most favoured markets to be tapped with the purpose of enjoying rapidly increasing customer demand (Jinglian, n.d.). With due significance towards the above mentioned facts that China has been witnessing since its alterations were recorded to take place in the 21st century, it can be stated that the economy is gradually shifting its position in the global market as a competitive major global economy. It’s innovative and certainly more effectual economic policies concerning its social developments and industrial rudiments have proved to be quite vital and advantageous in assisting China to grow in the fiercely competitive global scenario (Das, 2008). 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