Mattel's China Experience: A Crisis in Toyland
Mattel, an industry leader with a sterling reputation in corporate responsibility, was being pulled into a recall vortex that had seen affected a variety of products produced in and exported from China in 2007, including dog food, toothpaste, tires, and seafood. Mattel CEO Robert Eckert was faced with a crisis. By the time the dust settled, Mattel had recalled 19 million toys made in China. Mattel's stock price declined as they took a $40 million charge for recalls, and their costs increased because of added regulation in China and the United States. Customers threatened to boycott Mattel and all toys made in China. Bob Eckert had been called to testify before both U.S. House and Senate hearings on toy safety. Chinese government officials saw Mattel's recall public relations approach as blaming China's manufacturers for what was primarily a Mattel design problem. This unfavorable publicity drew attention from Chinese regulators, and resulted in Mattel making a highly publicized public apology to China and China's quality watchdog chief, Li Changjiang. When it looked like nothing could get worse for Mattel, Congress sent a letter to Mattel stating that Robert Eckert was not honoring the public commitment he had made to consumers during the initial recall incident. This tsunami of negative events left Mattel executives perplexed and reeling: How could a company so highly regarded as a toy industry model of corporate citizenship find itself mired in such a controversy? What next steps should they take to recover from the crisis? How should they protect their brand? What should they do to restore their reputation? Was this crisis a roadblock to achieving their vision of being the world's premier toy brand "tomorrow"?
The case provides a vehicle for analyzing the root causes of a supply network failure for a company manufacturing toys in China that resulted in highly visible product recalls and increased regulation of the industry. Historic information tracks the evolution of the company's early focus on toy innovation to a focus on cost control and brand management; the factors that created the context in which the supply network failure occurred; and the approach taken by the company in managing this crisis. The case highlights the trade-offs one company made as it evolved from a small entrepreneurial firm to become an industry giant; their role in driving industry-wide quality, safety, and employment standards; and how they responded to a highly visible failure in their global supply network. Detailed information in the case helps the reader understand the challenges of offshore manufacturing in China and those of managing a high-visibility product recall process. The case fits well into courses in industry and competitive strategy, general management, operations management, or crisis management. Concepts from the case include the consequences of failure to innovate as a company matures, the challenges of outsourcing, and the strategic communication role of the leader in a crisis. These concepts are applicable in multiple other industries.