For the following case study address the questions in details(no bullets)

Mattel’s Recall Strategy – postmortem. What are the positives and negatives ofMattel’s recall strategy?

Who are Mattel’s Stakeholders? Name the different groupsthat were impacted.

Who did Mattel cater to in the recall? Why? Do youagree?

What values did Mattel exhibit during the recall? How did theyaffect Mattel? How did it affect the global supply chain?

What did Mattel do at the time and in the future? Did theysucceed in winning back consumer confidence?

Mattel's Product Recalls (B): Managingthe Crisis

'Mattel lnc.'s public apology to China for damage to thecountry's reputation stemming from a spate of toy recalls is anextraordinary attempt to placate theworid's largest toy maker'smost important supplier."'

The "111Street Journal

'The recent outcry over poisonous pet food and the recall oflead-tainted toys sourced by Mattelin China proves one thing:Wehave a China problem. It is not,however, a China problem in theway most people think. Itis not aproblemwith safety standards that threaten ourchildren andourpets.It is a problemwith the very fact of China as an emergingforce on the- global economic stage,and it underscores a profoundand worrying trend in American politicaland economic IWe. For halfa century we fought for the creation of a globalcapitalistsystem.Now that we haveone, we seemto haveforgottenonelittlething:Capitalism means competition,and we are acting like wecan't handle it."'

The "111Street Journal

With a flashback of product llablllty accusations,Mattelfinallydecided to recall all Its defective toys. Thereby,Ina perlcd of 4months from August-November 2007,Mattelrecalled several toys fromIts different brands like Fisher Price,Barbie,PONer Wheels,PollyPocket,etc. InaddlUon,Its chairmanand CEO,Robert Eckert (Eckert)andexecutive vice president for worldwide operations,Thomas A.Debrowskl,publicly apologised saying that Mattel takes fullresponslblllty for the crisis.

Mattel's Spate of Recalls in 2007

A23-year veteran of Kraft Foods Inc.',Eckert became Mattel'schairman and CEO InMay 2000 and successfully led the companythroughtheyearsto winback customer confidence,amid a slew ofproduct recalls. With the same commitment, In response to thescores of complaints/reports received from customers and publicopinion cops, Mattel - Incooperationwith Consumer Product SafetyCommission (CPSC) - announced three voluntary recallsof ItsChina-made toys between August-September 2007.

Firstly,onAugust 1• 2007,Mattelwithdrew 1.5 million Fisher Priceunit toys that Included various products like SesameStreet's BigBirdand Elmoand Nlckelcdeon'sDora,the Explorer,etc.,due toexcesslead Inthe surface paint of thetoys. TherecallIncluded thoseprcducts thatwere manufactured betweenAprll 19"2007 and July6"2007,and were sold at different retailstores between May-August2007.

The second recall was onAugust 14"' 2007,when Mattel pulled backmore than 18 million toys,which Included Do;igle Daycare,PollyPocket,Batman Magna,Barbieand Tanner sets and One Piece toys. Thiswas because of the presence of small magnets In dolls andaccessories that may come loose and If swallowed may causeIntestinal perforation or blockage. And also Its 'Sarge' dlecastPlxar fllm cars were recalled due to lead contamination In itssurface paint.While 436,000 toy carswere recalled duetoleadcontamination,18.2 milIIontoyswerewithdrawnowing to loosemagnets.' Earlier In November 2006,Mattelcollected neany 170 repatsof loose magnetsonItsPolly Pocket toys and recalled over 2millionunits (Exhibit Ill of theCase Study (A)).The samewasexpanded InAugust 2007 after collecting additional400 reports. ItIncluded those that are manufactured betweenJanuary 2002 andJanuary 2007, and sold at retail stores between January 2003 andAugust 2007.

Again,on September 4'2007, Mattel recalled 848,000toys due to lead contamination In thesurface paint. It Included (I) 675,000 Barbie accessory toysmanufactured between September 30" 2006 and August 20" 2007 and sddfrom October 2006 throughAugust 2007 (II) 8,900 units of Big BigWond 6 n-1Bongo Bandtoys of Fisher Price sddbetweenJuly-August2007and (Ill) 90,000 Geo Trax Locomotive toys manufacturedbetweenJuly 31" 2006 and August 20•2007,and sold betweenSeptember2006 throughAugust 2007.

Publicopinioncops raised Issueswith continuous recallsandonSeptember 12'2007,Mattelwas asked totestify before a Senatesubcommittee seeking explanation for a senes of high-profileproduct recalls. Eckert apologised, "Like many of you,Iam a parent.I,like you, care deeply about the safety of children.And I,likeyou,am deeply disturbed and disappointed by recent events. As tolead paint on ourproducts,our systems were circumvented,and ourstandards were violated. We were let down,and so we let you down.On behalf of Matteland Its nearly 30,000 employees, Iapologiseslncerely....We are doing everything we canto prevent this fromhappening again."'

TheFingerpointing -Mattel vs ChineseManufacturers

WhileMattelblamedChinese manufacturers,theChinesegovernmentaccused Mattel.Already China-madeprcducts wereunderIncreasing fire,with recalls onevery thing from toys and tyresto seafood and pet food; It was brandedas a country of shoddyproduction.Though China Is emerglng as a powerful economic force,byserving as the wond's factory,safety concerns over Chinese productstarnished Its Image. Actually,Mattel's main supplierof carprcducts, Early Light lndustnalsubcontracted paintingtoanothercompanycalled Hong LIDa. Insteadof using the paintsupplied by Eany Light,Hong LI Da used lead-contaminated paint andthiswas the nubof the problem.

This made many headlines In American newspapers and other mediaabout unsafe products from China, and caused considerable damage tothe 'Made in China' label. Mattel blamed Its Chinese manufacturersfor breaking safety rules andstandards. As a resul some Chinesefactories Involved Inthe recallswere shut down. CheungShu-hung,ownerof Hong Kong-based Lee Der IndustrialCo. -one ofMattel's suppliers who produced faulty toys - committed suicide.The Chineseofficials enraged atAmencancntlcism,defended domesticmanufacturers,saying that most recalled products had designflaws(Exhibit I).Americanscapegoating of China hurt It so muchthat ItInsisted Mattelapologise for unfalny blaming Its manufacturers forMattel's design flaws.

OnSeptember21''2007,ThomasA.Debrowskl,Mattel'sexecutivevicepresidentforworldwideoperations,delivered a public apology,saying thatMattelhas a deep commitment In continuing Its business relationshipwith the Chinese government. In his words,'Mattel takes fullresponslblllty for these recalls and apolcglses personally to you,the Chinesepeople,and all of ourcustomerswhoreceivedthetoys. It'sImportant foreveryoneto understand that thevast majority ofthoseproductsthatwe recalledwere theresultof adesignflaw InMattel'sdesign,not throughamanufacturing flaw In Chinese manufacturers."'Eckerttoo pied,'We apolcglse again toeveryoneaffected and promisethatwewill continue to focus on ensuring the safety and quality ofour toys.'" Many analysts andexperts lauded Mattel's apology asaneffective strategic action Inhandling the cnsls. AndrewKrulwich,a former generalcounselfor the US Consumer Product SafetyCommission(CPSC), says,·1 can't think of any other Instancewhere"amajor toy company' has actually come outwith sucha publicannouncementof defect."'While Eric Johnson,professor atDartmouth'sTuck Schoolof Business called Mattel's public apologyasa'novelpolicy

move' toavoid'potentialfriction'.'After all,companies,and notcountries,areliable for what they sellunderthe label.

Mattel's Way of Handling the Toy Crisis

After a series of recalls Involving over 21 million toys In just2 months,Mattelwas In trouble.There were recall costs,newmonitoring systemsandquality controls,potentiallawsuits anddamageto Its Imageduring holiday shopping season.This shook upMattelIndealing public relations Issues across the world.Thereby,Mattel focused on advertising and PR campaigns for theholiday season. Michele Sturdivant,a spokeswomanatMattel,says,·weare a marketing drivencompany,soItwould be safetoassume that weabsolutely need to address this during the holidayseason."'0 It published print ads Innationalnewspapers likeThe NewYori<nmes to reassureparents about the safety of Mattel toys and Its revival effortsafter the crisis. A new webpage (www.mattel.c011/safety) wascreated and featured a video about Eckert's explanation.In hiswords,"As a parent of four children myself Iknow that nothing Ismore Important than the safety of our children. Iwantto ensure thatevery parent hears about these Issues and returns these products tous. Ican't change what's happened In the past, but I canchange howwe work Inthe future.'"' He told reporters thathe was not Insistingfor any federalsafety standards-"Idon'trely onanyoneelse to ensure the safety of ourproducts. ThisIs ourconcern.'' With a hope that hisads and website will easeparentalconcerns,he stressed,"Ithink It's Important to establish adialog with parents. Iwant to make sure they hear from me.'"'Affected consumers were asked to fill out anonllne form or provideInformationonphone,to receive refund or replacement. He Initiatedand Implemented a three-stage safety checksystemfor preventing leadcontaminationintoy paints: (I) To use paint only fromcertifiedsuppliers andto test every single batchof paint at fNerysinglevendor;abandoning it, Ifa batchdoes notpass the test (ii) Toincrease testing andunannounced Inspections atevery stage of theproduction process and(Ill) To test finished toys fromeveryproductlonrun for lead content,before delivering tothestoreshelves.

MattelIs keenonconducting anIn-depth Investigationof allItsproducts,to Identify anydefects andrecallthem,no matter how minorthe defect may be. Eckert Is upbeat,'We have hundreds of people01the ground [now] In China,doing safety checks. We'vebeenprcduclngtoys InChina formany years. What'sImportant here isnot thatsomething happened...but how we respond.'" In October 2007, Eckertflew to China and met vendors and safety experts there -to ensureImplementationof the revised safety monitoring system.Regardingcosts associated with safety monitoring system,he assures that Itwould be below 1% of Its totalcost of sales."

As part of these Initiatives,Mattelannounced additionalrecallsof some of its toys due to lead contamination In paint (Exhibit11).

Exhibit II Mattel's Product Recalls during October-November 2007
Period of time	Name of the product	Potential/Existing Hazard	Recall details
October 25" 2007	Fisher Price unit's Go Diego GoAnimalRescue Boats	ln1permlsslble amountof lead In surface paint of toys. No reports orcomplaints of Injuries were received	Recalled 38,000 units
November 6"' 2007	Fisher Price unit's Laugh & Learn Leaming Kitchen Toys	Received 48 reports of small parts separating from thetoys,Including reports of childrenchoking after putting pieces In their mouths.	Recalled 155,000 units
Compledby Ille authorfromhtlp:/h1WW.cpsc.govlcpscpublprerelfprerel.hlmV

The Impact and the Future Outlook

Though Mattelswiftly responded to the toy crisis,Its performancewas stillaffected. Its net Income for the third quarterendedSeptember30"2007was $237 million,as against $239 millionfor thesame period In 2006. Netsales of$1.84 billionrecorded a 3%rise,butmissed analysts' estimatesof$1.91billion." It faced chargesof$40 milliondue to product recalls,as sales declined by $30-$50millioncaused bydisruptions to Its supply chainand revoked Importlicenses." Eckert announced that Mattel's overall growth wasprimarily driven by Its Internationalsales with Its core brands -Fisher Price and Dlsney/Plxar Cars -stillgoing strong.However,sales In the US were a bit sluggish.In an August 13"report,Gerrlck Johnson,analyst at BMO CapitalMarkets estimated thatMattel's revenues would come downby $25 million In 2007 and by $40mllllai In 2008."

The 'Cars'line toys,to;iether with thenew Radlcagamesandpuzzles,oonstltuted 29% Increase Insales for Mattel'sentertainment toys unit,while a 9% surge In global sales of Wheelsunit were driven by demand for Hct Wheels and Matchbox brands.However,during the samequarter,FisherPrice sales fellby 34% In theUS as against 21% globally. Similarly,domestic sales for Barbiefell by 19% asagainst lntematlaialsales by 4%."Froma year-to-datehigh,Mattel's stock price fell by 25% and under performedthanrivals like Hasbroand JAKKS Pacific .

"While product recallsclouded this quarter'sresults,thecompany's domestic business continuesto underperform, afactor that we belleve will continue to weigh on the stock,"'9 saysFelicia Hendrix, analyst at Lehman Brothers. Further,Increasedprcduct testing resulted In delayed shlpments and banon Mattel'sImports Incountries like Brazil had a significant Impact on Itsperformance.Thereby, analysts opine that Mattel's sales In thefourth quarter - that account fornearly half of year-onprofits,during the holiday shopping seain - may significantly getaffected. But Eckert was satisfied with the company's third quarterperformance - 'Despite the challenges the company faced during thethird quarter,the business has performed falny well,even with somesupply chain disruptions that Impactedsales.'"" Outof the milliontoys that Mattel produceseach year,Eckert feels that the recalledunits In 2007 are small. Christopher Byrne,an Independent toylndustiy consultan asserts that the Impact of recalls on Mattel-both financially as well as In public opinion - is negligible. Hesays,"Mattel's systems are so strong that they were able to

containtwo-thirds of the product from evergetting Into themaiketplace. That's good news and should make peoplevery confidentabout Mattel.""

Eckert was also optimistic about company's future performance.In his words,'There will be a Christmas andMattel,Flsher-Pnce,Radlca andAmerican Girltoyswill beunder thetree. I'mconfident that this year's toyswillbe the safest ever."'Such positive outlook came from 2006's top-selling Matteltoys likethe T.M.X. Elmo doll.

Additionally,to recoopfromdecliningdcrnesHcsales for Barbiebrandfor thethirdconsecutiveyear,MattelIntroduced new multimediaproducts. Its site (www.barbleglrls.com) allowsgirls to play andInteract oollne,and 'Barbie of the Island' Is a direct-to-home DVD.Both these supposedly boost Mattel's sales In the holiday season.In Fisher Price uni Mattel Introduced new Smart Cycle,a 'physicallearning arcade system'.Through this,It expects that videogame-related toys would beccrne morepopular and even parents wouldlike It for its educationalfeatures.

Sean McGowan,analyst at Wedbush Morgan Securities,who ratedMattel's Investments as 'buy',expected It to show strong sales andearnings growth In2008,with recall-related disruptions limited to2007. In a research note he wrote,"Exdudlng the effect of thesecosts and disruptions,results would have met or exceeded ourestimate.'"' Analyst estimateson earnings of major toycompaniesshowthat Matteloutperforms Its rivals like Hasbro and JAKKS Pacific(Exhibit IV).

Mattel's sales andprofits areexpected togrow ata higherratethanits top Mattel         4.5%         9%         1.7%          8% Hasbro      ·2.5%            -2%         1.5%         6% JAKKS        2.5%         5%    -5.7%      -10%

Mattel Is not alone Inthis keen locus onquality controlandsafety monltonng systems.Severaltoy llcensors and tradeassociationsraised safety measures and Initiated third party testing. Major toycompanies likeWalt Disney Co., Toys"R"Us Inc., Viacom Inc., KB ToysInc.,Nlckelodaon and Sesame Workshop Increased their productInspection plans. Evena US trade group,Toy Industry Associationwasinsisting Congress to make toy testingmandatory.

Onthe other end,absence of comprehensiverulesgoverning recallsand Inability to track reportsonlnjunes from defective productsmade Chinese manufacturersandsuppliers resellthe recalledproductsthroughthebackdoor.This was partlculany the case with thoserecalled for manufactunng flaws,with foreign companies not ready topay the domestic manufacturers for the defective toys. So,goodsbanned In the West are still sold spuriously to Chinese consumers.Soonhong Min,professor of marketing and supply chain management atPrice College of Business, Oklahoma University,says,"After arecall,the (factory that made the toy for the foreign company will)try Its best to recover money by distributing the defectiveproducts Inthe localmarket. That Is nothing new."'

Many analysts were scepticalabout howwell toy companies likeMattelwithdrew all their recalled products from markets acrosstheglobe. The Wall Street Journal notes,'Itraises questions about the responsibility of multinationalcompanies tokeep dangerous toys off the shelves Inpartsofthewondwhereconsumer-protectionlaws areweakand the threat oflegalllablllty Is relatively low - butalso about theirability to doso.""

In October,The wanStreet Journalbought Mattel's four recalled toys Including Barbie kitchensetwithlead pain Polly Pocket play setcontaining potentially loosemagnets,anda Fisher Price Infant swing (that wasrecalledworldwidebecause infants suffered Injuries, cuts and bruises for gettingtrapped between the swing seat and Its frame) from sellers onTaobao.com,China's leading onllne consumer auction site. In thesame month, this site listed many toys from Mattel's recalledproducts andthe sellers also claimed that theyhad as many as 100ofeachtoy forsale.'" Mattel was allegedly unaware of this,amonthafter the newspaper reported It.

However,Mattelwas not the only suchtoy company.Montreal-basedMega brands lnc.'s Magnetlx buildingsets wererecalled InApril 2007due to hazards from loose magnets. AnAmerican child even died afterswallowing a tiny magnet that fellout loose from thebuilding set.Butthe samecolourfulsets are frund InChinese retail outletslike NewChina Children's Store,one of the Beijing's popular toy stores.Similarly,RC2 Corp.'s Thomas and Friends wocden trains wererecalled In June 2007 for Impermissible levels of lead In surfacepaint but were still found in Tian Hao Mcdels toy store. Both gotthese recalled toys from authorised distributors,sub-distributorsand even Individual wholesalers whogot the supplies from the toyfactories In southern China.

Thereby,Matteland Mega Brands Inc. hired third-party companiesto destroy all the recalled toys either at the factory or afterthey are collected from distributors and retailers. But,FrederickFelman,chief marketing officer for a US-based brand protectioncompany,Markmonltor,says,"Unless you're very diligent aboutdestroying the toys, the toys could re-enter themarket.''27Thereby,Matteland Mega Brands strictly monitoreddestruction of all recalled toys - whether they are sent abroad orsold In the Chinese market. While Mattel enforced videodocumentation for all cases of toy destruction in the absence ofMattel's staff,Mega Brands made the company destroying Its toyscertify the same.

In spite of efforts to communicate recall information toconsumers - either by sending a statement,publishing onllne ortranslating the documents Into Chinese - Mattel extensively reliedon Its Chinese dlstnbutors to transmit recall Informationacrossthesupplychaln. Moreover,few sellers of Matteltoys ccrnplalnedthatthey received lnccrnplete lnformatlai about the recalls. GaoYunyun,a Taobao toy seller from Shenzhen,asserts,'We still getpeoplewhowant to buy recalled products. Ifind It very strange thatnobody kno.vs about these things.•,.

Addressing these Issues,Lisa Marie Bongiovanni,aMattel'sspokeswoman,says,"Mattel's primaryresponslblllty Is to gothrough proper channels to notify the retailer butthat the companyIsn't responsible for dangerous toys after theyhave reachedtheretailer.Once we sellthe product to the Wal-Marts of theworld or asmalltoyshop InChina,we don't have control over It.""To counterscandals on sub-standard Chinese exports,China Initiated measures -like organising cabinet-level safety conference, setting up productsafety working group and a nation-wide 'rectification campaign'.Afour-month product-safety Initiative,Included new regulationsparticularly with food and toy recalls,was launched InAugust 2007.It Is also planning toestablish a comprehensiveproduct safetylegislation thatwould Include settingup a database for recalledproducts and, a system for tracing products and their componentsthrough the supply chain. However, Implementation remainscomplicated due to the Involvement of multiple governmentbureaucracies. Liu Zhaobln,an officialatAQSIQ",says that the agencyfunctions are restricted only to Issuing recallnotices and stoppingmanufacture andsaleof recalled prcducts;actually theAdministrationof Industry and Commerce monitors retail sales channels.As aresult,>Mth worldwide outcry about their safety,China-madeproductswere cast out.

Fall of'MadeinChinaand Renaissance of'MadeinUSA'

Recall of China made prcducts Including those of Mattel reducedtheir demand. For Instance,a YouGov survey commissioned by a tradepublication Marketing Week, stated that nearly40% of British consumers are less likely to buy China-made toysbecause of Mattel's recall crisis. Further,some retailers arethinking about sourcing their toys from Europe rather thanChina."Asa resul toymakersand retailers Inthe USwere cashingon people'saversion towards China-made products- by mounting ad campaignshighlighting 'Made In USA' tags. It Included things like appearanceof American flags on corporate websites,toy package with patrioticcolours,usage of 'Made In USA' labels,etc. It Includes many majordomestictoymakers - likeK'Nex Industries Inc. (afamily-ownedcompany that produces construction sets InHatfield,Pennsylvania),Step2 Co. (that makes outdoor playsets andplastic kiddie furniture,based In Streetsboro, Ohio),Michigan-basedWalled Lake company,etc. Even retailers like FAO Schwarz are givingprominent shelf space for 'Made in USA' products. JohnGessert,president of American Plastic Toys Inc.,says,"Suddenly,It's becoming a realselling factor as they look atthe package.'"'

As cited In Case Study (A),with 80% of the world's toys made InChina,analysts opine that the smart move of homemade markeHngduring holiday shoppingseason,may not work out In the long run. ItIs more so for Mattelthat makes 65% of Itstoys InChina.The WallStreet Joumal notes,"But sincethedawnof the Americanrepublic,we have never faced the kindofeconomic challenge that China presents. It Is playing the game ofglobalcapitalism almost as adepHyasweare,and our response fornowseems to be a mixture of fear and disbelief. Ratherthan seeingChina as addingto anexpandingglobaleconomic pie,we treat Itsascendance as a zero-sum proposlHon for our workers,our companies,our currency and nowevenour health.While the evdutlon of China andthe US Is anything but certain, and while each face Internal Issuesthat could derail the steady move forward,one thing should befairly clear: Our China problem Is goingto harnl us more thanItwill derail China.'"' Moreover,notaily for Mattel,trading withChina Is appealing to any other global player - due to Its low-cootmanufacturing base,reliable Infrastructure and ability to produceat lower costs.