Product Manufacturing Safety in China : Mattel Toys Recall Business Crisis

Mattel, the world’s largest toys company, has been facing some rough challenges in recent years due to some safety scandals revolving toy design and manufacturing in China. During June 2007 Mattel was forced to massively recall toys due to loose magnets and excess lead found in some of the Mattel toys that posed immediate danger to the children that played with them.

This quick analysis of Mattel’s toy recall is based on two case-study I read for the "Doing Business in China" course at Hong Kong University of Science and Technology’s Management of Organizations titled "Mattel and the Toy Recalls (A)" and "Mattel and the Toy Recalls (B)".

MATTEL AND THE TOY RECALLS

China’s rise to the world’s dominant toys supplier

As with many other industries that are based on mass production, the toy industry quickly moved manufacturing factories to China while focusing their domestic efforts on more hi-end strategic efforts like R&D and marketing. Other neighboring countries that have started out as manufacturing hubs, like Japan and Taiwan, have moved on towards the more lucrative hi-tech fields, such as IT and engineering oriented. The same is likely to occur with China in the near if not immediate future, as labour and infrastructure costs are rising, manufacturing is expected to move on to lower cost economies (like Vietnam).

 

Mattel’s outsourcing strategy

Mattel’s has been trying to maximize production efficiency while minimizing risk, controlling costs, and maintaining flexibility. To do that, Mattel has strategically decided on a complex mix of wholly owned and third-party manufacturing for its products. Mattel has also been steadily moving manufacturing out of the United States and into other countries like China, Indonesia, Thailand, Malaysia and Mexico. In those countries, Mattel would contract with thousands of different vendors to produce their toys. Those contractors would usually have their own contracts with other local companies to obtain the required resources and services to build the toys based on Mattel’s guidelines and partial auditing.

While this does allow flexibility and reduces the risk of over relying on a single manufacturer, it also reduces the ability to effectively control and monitor all that happens in the toy making process, the main problem being quality assurance and enforcement of safety regulations. The system built has so many variables influenced by so many players, that it makes it nearly impossible for Mattel to keep on track with every last detail.

 

Current challenges and suggestions

crisis management

Facing the problem with the safety of their products Mattel has to quickly implement a crisis management plan. Knowing that recalls are part of the industry and having experienced those kinds of problems before it is absolutely vital that the company have a crisis management team with backup plans to address those issues as they come up in real time, working together with both manufacturing and PR departments to isolate the problem while communicating the issue to their customers.

In such instances time, accountability and responsibility are key for the company to effectively address the problem while controlling the negative impact on their reputation and sales. The leadership of the company must be involved from day one to act inside and outside simultaneously, investigating the issue and implementing crisis control.

implemention

The company had to move fast to work with CPSC to alert the public, yet while they did work with CPSC’s “fast track”, it took them over a month and a half of internal investigation to alert the public.

Since responsibility will be attributed to Mattel no matter what, accepting the responsibility is vital for Mattel to maintain credibility. Throwing the blame on others looks bad and invites a counter strike by the accused. In this case Mattel has been suggesting that the cause was related to the Chinese factories and the Chinese regulatory system, which has back-fired on them as the Chinese government decided to fight – not only against Mattel. Mattel’s high dependence on the Chinese factories and Chinese government has led them to apologize to the Chinese and lose the audience they were initially trying to convince. Mattel has also known from the beginning that while the lead problem was due to the manufacturing in China, the magnet problem was due to their own faulty design, so it was their irresponsible unwillingness to admit guilt that amounted to a much worse effect when the truth was revealed than would have been accepting responsibility in the first place.

Recalls are only one step in the crisis management implementation as additional critical areas include strategy, compensation, PR and law. First, Mattel is required to change its strategy to address the concerns in both design, manufacturing, quality control, auditing, safety assurance, offshoring, etc.. Secondly, the company would need to communicate their message effectively, while offering to compensate those hurt while preparing for the legal battle that will surely follow. Mattel has done a the minimum required in strategically reorganizing while focusing efforts on trying to communicate their message to maintain reputation, thus neglecting the important steps required in managing the crisis.

what’s next

Mattel now has to focus on a rebuilding strategy – rebuilding its reputation, rebuilding consumer trust in toys, rebuilding trust with industry, and rebuilding the relationship with China and the Chinese government. To do that, it should consider – (1) being open, transparent and truthful, (2) implementing a full scale crisis management action plan as suggested above, (3) constantly working on communicating and listening to their consumers to address their concerns and needs, (4) adapting strategic changes for future prevention, and (5) waging a huge promotion and public relation campaign, emphasizing the US and China.

To address the consumers, denial and accusations should be replaced with acceptance of guilt and responsibility, moving on to fully implement strategically changes to ensure the company is doing whatever it can to address the crisis and prevent one in the future. Emphasis in this case should be made on resource reallocation into safety assurance and quality control, reassessing contractors and reviewing all products in all plants by all contractors.

 

Chinese government

The Chinese government has been quick and determined in addressing this specific crisis. China was under attack not only by Mattel, but world-wide by both companies and countries (Brazil) tossing the blame onto China and the Chinese government for their lack of regulation and safety measures enforcement. To fight back, China has been emphasizing similar problems in other developed countries, proving that the story to be much more complex and using China’s trade and financial power to shift focus from debating China to debating the industry.

With that said, the Chinese government is facing an alarming increase in the rate of such incidents, which leads to a severe problem for China’s reputation as a manufacturing hub. Together with other issues of a rising Yuan and increased labor costs, China’s attractiveness is coming in question. As is with other global concerns in China over Intellectual Property (IP), environment and governance, there is a lot that China can do when it comes to regulations/laws and enforcement should it choose to. Possible action items – Setting high safety manufacturing standards through legislation, monitoring companies, on-going auditing to keep companies on their toes, strictly enforcing punishment in cases found, forming related governmental agencies corresponding to the American ones, and working together with companies in cases of crisis to quickly address and problem.

Comments welcome.