MATTEL’S STRATEGY AFTER ITS RECALL OF
PRODUCTS MADE IN CHINA
In the summer of 2007, Mattel, the largest toymaker in the US, saw its sales dip sharply when it recalled its Chinese-made toys several times. The recalls also led to public hearings in the US Congress, which significantly affected its reputation.
Like other toymakers, Mattel had been relocating its production abroad and outsourcing the manufacture of parts and components. In 2007, Mattel produced 65% of its toys in China.1 In contrast to its competitors, however, Mattel understood the importance of quality control in the process of relocation and outsourcing. In the 1980s, it reversed its earlier strategy of outsourcing to factories in Asia by owning and operating some plants in Asia for production of its most popular products.
Nonetheless, the product recalls showed that quality control continued to be an issue. Should Mattel reassess its strategy for organising production? Should it rely more on in-house production than outsourcing? Even if it stuck to its outsourcing strategy, quality control was more difficult to control in developing economies than in developed ones. Should it revise the geographical spread of its manufacturing operation? Mattel had a choice between outsourcing to economies such as China where quality control was a serious issue and outsourcing to more developed countries with better contracting environments.
Global Toy Industry
The value of the worldwide toy market was estimated at US$67 billion in 2006. 2 North America, which made up 36% of the world market, was the largest toy-consuming region in the world. At 29%, Europe was the next-largest toy-consuming region, followed by Asia at 1
Banik, P.K.B.A. (16 October 2007) “Time for a Better Gameplan”, Businessline. NPD Group (2007) “Toy Market in the World”,
http://www.toyassociation.org/AM/Template.cfm?Section=Industry_Statistics&TEMPLATE=/CM/ContentDisplay.cfm&CON TENTID=3884 (accessed 2 February 2008).
Grace Loo prepared this case under the supervision of Liu Jiangyong, Tao Zhigang and Yu Linhui for class discussion. This case is not intended to show effective or ineffective handling of decision or business processes. © 2009 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be reproduced or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise (including the internet)—without the permission of The University of Hong Kong. Ref. 09/422C
This document is authorized for use only in Seminario de Procesos de Manufactura (SCM 05) by Daniel Benites at Universidad del Paciﬁco from June 2014 to August 2014.
Mattel’s Strategy After Its Recall of Products In China
24% [see Exhibit 1]. For 2007, a 6% growth was forecasted for worldwide toy sales, with Asia (especially China and India) and Latin America (especially Brazil) as the leading regions for growth.3
The global toy industry was fad-driven, high-risk and highly competitive.4 Excluding some classics such as Barbie, Monopoly and Scrabble, most toys stayed on shelves for no more than a year or two. Successful toy concepts were copied rapidly by other toymakers, and toy sales were highly seasonal, with between 50% and 60% of annual sales concentrated around Christmas time. The industry was also highly fragmented. Mattel, the largest toy company in the world, captured less than 6% of the global market with its annual turnover of US$5.65 billion.5
Because the market demand for toys was driven by children aged 12 and under, 6 the toy industry was challenged by dampening birth rates in the US and northern Europe,7 as well as the trend of “kids getting older younger”. The toy industry also faced stiff competition from electronic entertainment such as video games as children switched from traditional entertainment such as toys to electronic entertainment at an...
Please join StudyMode to read the full document