Mattel, Inc. in China MBA 752 – Business in Asia Final Project Group 5 David Gallo, Christina Maly, James Servi, & Brooke Walczak

About Mattel, Inc.  Founded in 1945 in Southern California  World’s largest toy company by revenue  Most well known toy brands include Hot Wheels, Fisher Price, American Girl, and Barbie  “Creating the Future of Play”

Manufacturing at Mattel  Started moving its manufacturing abroad over 50 years ago  Wholly owned manufacturing facilities for core product lines  Outsource the production of non-core lines  Manufacturing facilities in China, Indonesia, Italy, Malaysia, Mexico, and Thailand

Approach to Quality  Toy test lab  Test supplies and raw materials  Independent auditor for factories and vendor facilities

The Lead Paint Scandal  Traced back to Lee Der Industrial Co.  Strained relations with Chinese partners and officials  Prevention

Fair Play  Global Scholarship Program  2007 Special Olympics in Shanghai  2008 Earthquake Relief in China

Play Local  General Administration of Quality, Supervision, Inspection, and Quarantine  65% of Mattel’s Employees in Asia/Pacific  Improved labor policies for local workers  Factory Audits

Joint Ventures  Creates Goodwill  Provides an Inside Track  Mutually Beneficial  Li & Fung Partnership  Opportunities for Growth

Recommendations 1. Only contract with manufacturing plants that receive quality control audits 2. Hire a third-party auditing team responsible for inspections 3. Conduct QA/QC on every batch of toys worldwide 4. Rebuild partnership with the new Chinese government 5. Develop a plan to resolve similar crisis situations in the future

1. Manufacturer Quality Control Audits  Set standards high from the beginning  Recognize that different countries have different standards of quality  Show you mean business by only contracting with plants that have clean annual audits

2. Outside Auditing Team  Expand footprint of Mr. Sethi by creating an entire team to perform inspections  Findings should go to executives first and then be made available to the public

3. QA/QC All Toys  Test every batch of toys not only in China, but at all Mattel factories  Revised QA/QC model with accountable manager  Additional costs but nothing compared to the cost of the lead paint crisis  $40 million in response  $71 million in lost revenues

4. Partner with New Government  Commendable with their efforts to repair relationships  Need to continue with the newly formed Chinese government  Present newly formed crisis response plan and build trust

5. Crisis Response Plan  Good can result from this negative situation  Form a high profile team to write a crisis response plan  Analyze the lead paint crisis  What was done correctly and what needs to be improved  Cultural aspects of the response  Reaction to future catastrophes

Implementation Plan Going Back to Basics PreventionDetectionCorrection

Implementation #1: Manufacturer Quality Control Audits  Adopting a policy requiring a clean annual quality control external audit  Newly contracted manufacturing plants  Existing manufacturing plants  Lessons from the past  Quality differences in China vs. USA  Hedging lower costs for higher risks

Implementation #2: Outside Auditing Team  Hire third-party auditor to inspect Mattel and manufacturing plants  Audits would be independent of Mattel and external auditor, PWC  Adopting a policy for corporation with existing manufacturing plants  Would report directly to the Board of Directors

Implementation #3: QA/QC All Toys  Review recent quality control issues at all plants  Revise QA/QC protocols  New manager policies

Implementation #4: Partner with New Government  Continued open communication channels with Chinese officials  Present Crisis Response Plan to re-gain trust

Implementation #5: Crisis Response Plan  Creating the response plan team  Completing a response plan for each country Mattel operates in  Engaging with country officials prior to implementation

Going Forward  Issues identified  Recommendations provided  Implementation strategies

References  Barboza, David and Louise Story. 26 Jul “Toymaking in China, Mattel’s Way.” The New York Times. Web. 25 Nov  Fackler, Martin. 11 Oct “Safe Food for Japan.” The New York Times. Web. 25 Nov  “Global Citizenship Report.” Mattel, Inc. Web. 27 Oct Retrieved from  Johnson, M. Eric and Tom Clock “Mattel, Inc: Vendor Operations in Asia.” Trustees of Dartmouth College. Web. 25 Nov  Leung, Annie and, Wai, Madison. 22 Jun “Li and Fung Limited- Press Release.” ]Retrieved from  “Mattel History.” Mattel, Inc. Web. 25 Nov us/history/default.aspxhttp://corporate.mattel.com/about- us/history/default.aspx  “Murphy, Maxwell. 19 Jul “Foreign-Sales Kick for Toys.” The Wall Street Journal. Web. 25 Nov  Thottam, Jyoti. 21 Sept “Why Mattel Apologized to China.” Time. Web. 25 Nov  Wisner, Joel D “The Chinese-Made Toy Recalls at Mattel, Inc.” University of Nevada, College of Business.  Wong, Andy. 29 Nov “Overview: China’s 18 th National Congress” NY Times. Retrieved from  Zamiska, Nicholas and, N. C. 14 Aug “Another big recall may hit mattel; latest incident from China involves cars, magnet toys; more pressure on factories.” Wall Street Journal. Retrieved from  Louise Story. 2 Aug “Lead Paint Prompts Mattel to Recall 967,000 Toys.” The New York Times. Web.  General Administration of Quality Supervision, Inspection and Quarantine of P.R.C. Retrieved from