Mattels China Experience: a Crisis in Toyland - Essay Example

 Mattel’s China Experience: a Crisis in Toyland Introduction Mattel has been a major player in the toy industry for over 50 years. Over the years Mattel has been focusing on building its brands and gaining reputation by providing customers with toys that are safe for children. To emphasize its respect for safety the company collaborated with the U.S. Consumer Product Safety Commission (CPSC) and pioneered the development of the American Society for Testing and Materials (ASTM) an international products standards organization. Mattel also developed and introduced its Global Manufacturing Principles (GMP) all around the world. The company’s Fisher-Price division was instrumental in developing the first toy safety standards in the industry. The company became a leader in protecting the integrity of their supply network and a toy safety champion at the forefront of the industry. However, after recovering from a financial crisis in the late 1970’s it was faced with another serious problem in relation to the safety of its products, which could have had a devastating impact on its business. Synopsis of the Situation Despite Mattel’s passion for implementing standards to ensure that the reputation of its brand remains intact it was faced with a major problem which cost the company approximately $40mn. In 2007 it was faced with a major recall of 937,000 of its toys for violation of lead safety standards or magnet detaching. The problem was found only in toys made by one of its Chinese contractors. Approximately $22 million worth of toys were recalled. Of this amount, $2.4 million related to lead content in the paint used while the remainder of over $19mn related to magnet detaching. Even though the Chinese contractor was blamed for the problem, most of the recalls were related to a problem in the design of the products. The company was forced to adjust its financial results for that quarter by $30mn. Although, the company issued an apology its actions were not in harmony with its what its states as toys with lead contents of over 800% of the required standards were still sold on shelves in many states in the U.S. This was in spite of the fact that they were withdrawn from shelves in the state of Illinois. As a result of the situation the ASTM international toy safety standard is now mandatory for all toys sold in the U.S. A SWOT analysis of Mattel’s current situation can be found in the appendix. Key Issues The company has no doubt spent a lot of funds to put in place product safety standards and its Global Manufacturing Principles (GMP). However, that seems to be ineffective by itself. Its contractors have circumvented these standards leading to the distribution of toys that are hazardous to the health of children. Additionally, the design of some of its toys has health related consequences which were not considered before they were manufactured. Define the Problem The toys that Mattel manufactured in China could face a massive boycott if the problems of too much lead and magnet detaching which is also a health hazard are not dealt with. Companies are required to state where their products are manufactured and 65% of Mattel’s toys that are produced in China. Therefore, whether they are manufactured by contractors or not they face being boycotted once they have the ‘Made in China’ label. The company is faced with increased manufacturing costs as it seeks to ensure that all its toys meet the company’s own standards as well as that of the Consumer Products Safety Commission (CPSC). Mattel, the leading manufacturer of toys is faced with a credibility problem. While withdrawing the same products in Illinois, Mattel still sold them on shelves in other states even after making commitments to protect the nation’s children. Although the problem was seen as originating in China, a major part of the problem was found to be related to design and is therefore considered internal. China is concerned that Mattel did not come forward early enough to clear the air on this matter which had a serious impact on how products made in China are viewed. Mattel is faced with a reduction in its market share because of its inability to ensure that its standards are adhered to by its Chinese Manufacturers. There is also doubt in whether or not its claim to protect children can be trusted. Alternative Solutions Mattel will have to find ways to ensure that the standards that it has laid down are followed by its contractors. There are several ways by which this could be done. They include: Surprise inspection teams to ensure that no lead is used in toys manufactured by contractors Inspection by Mattel representative of samples in all batches produced by all contractors as well as at company operated locations around the globe before they are distributed to retailers Permanent placement of Mattel representative in quality control at all contractor locations to ensure that standards are maintained Ensuring that all new designs are properly scrutinized and tested to ensure that the meet safety standards before they are accepted for manufacture Selected Solution to the Problem Inspection should be carried out on all batches produced by Mattel contractors. This should be done by someone independent of the contractors – preferably someone who is employed by Mattel. This representative will ensure that the products supplied by these contractors to Mattel either meet or exceed the company’s standards. Heavy fines and termination of contract should be imposed on contractors who breach these standards. This should help to prevent a re-occurrence of anything similar to the 2007 scenario in the future. Implementation Since all batches will have the same materials, inspecting and testing a sample from each batch. This will allow the company to offer guarantees as to the safety of its products. This inspection should take place at the point at which they are being packaged for shipment to the distributors. The Packages should be stamped as meeting the requirements of the company and the authorities by Mattel representatives at that point. This will ensure that the toys distributed by Mattel are fit for their purpose and do not pose a health hazard to them. This will certainly assist in preventing a re-occurrence of the problem. Recommendations I recommend that the company do whatever is necessary to ensure that its standards are fully implemented at both its company-operated locations and its contractor locations. Mattel should also seek out new markets especially in developing countries where the standards are not as high as in the USA. This will ensure growth in its revenue and reduce the impact of any problems relating to the safety of its products. Information in the case indicates that there are increasing opportunities in the electronic entertainment sector. Mattel has invested quite a bit in this sector and should seek to use it as a spring-board to further growth in the industry. The company needs to carry out an analysis of the political, economic, social, technological, legal and ecological (PESTLE) analysis of its operations. A SWOT analysis which can be found in the appendix to this report provides information on the Mattel’s strengths, weaknesses, opportunities and threats. This should be used to assess the company and to determine the way forward. This information will assist Mattel in using its strengths to mitigate the effects of threats from the external environment. Conclusion Mattel’s attention to maintaining the reputation of its brands through the implementation of standards has in a way backfired as the company has found itself in a precarious position. The company definitely has some serious issues to attend to if it is to remain credible to its customers. Mattel strengths can be used to its advantage. There are also opportunities available to the company to earn additional revenue and to increase its market presence. However, Mattel has some weaknesses which need to be dealt with urgently in order to protect its reputation. Additionally, the company needs to use its strengths to turn its treats into opportunities. REFERENCES Teagarden, M.B. (n.d.). Mattel’s China Experience: A Crisis in Toyland. Retrieved from: APPENDIX SWOT Analysis of Mattel’s Operations Strengths Mattel’s strengths include: The longstanding reputation of its major brands, namely: Barbie, Hot Wheels and Fisher-Price The high standards that it has put in place to protect its reputation and its consumers Its ability to extend the life of it existing brands through product development Earned reputation as a role model in the toy industry for worker health and safety and product safety practices Leading manufacturer of toys for children under eight years of age The company is profitable The company has gone farther than any other company to be a good corporate citizen with regard to its Chinese operations The company has a well respected CEO in the form of Mr. Eckert who has returned the company to financial stability. Weaknesses The weaknesses in Mattel’s operations: inability to effectively monitor its contractors Not reporting potentially hazardous product defects within the required 24 hour time frame Most of the companies revenues are earned in the USA and any problems will affect its bottom-line significantly The company has double standards Opportunities A number of opportunities are available to Mattel. They include Increasing the company’s presence in electronic entertainment sector in order to facilitate continued growth. Increase its presence in developing countries where safety standards are not as high as in the USA. Threats Mattel faces a number of external treats in the global environment. They include: Losing its reputation as a trusted and highly regarded brand Boycott of its products – 65% of which are made in China Loss of market share to other competitors who do not manufacture their toys in China The cost of compliance with standards may make its business uncompetitive Being faced with higher costs than its competitors in order to maintain its reputation Further decline in share price if confidence and trust cannot be regained Read More