In Shenzhen, China, within the extensive laboratories of Mattel, a team of technicians rigorously tests toys to their breaking point. They set Chicken Dance Elmo dolls ablaze, crash Hot Wheels cars, and forcefully tug at Dora the Explorer’s limbs. This intense process is designed to identify and eliminate potential hazards, safeguarding children from dangers arising from poor construction or harmful materials. However, this meticulous approach also serves to protect Mattel, the world’s leading toy manufacturer, from the growing risks associated with operating in China.
Recent widespread recalls and warnings originating from China have sparked global anxieties regarding the safety of Chinese-made products. This situation threatens to disrupt the global manufacturing system that heavily relies on outsourcing. Companies are now under immense pressure to devise strategies for conducting business in China without jeopardizing their reputations, consumer trust, or, most importantly, the safety of their customers.
Mattel may offer a viable model. Once criticized in the 1990s for alleged sweatshop practices in Asia, the company is now recognized by independent analysts and watchdog groups as a benchmark for ethical and safe operations in China.
According to M. Eric Johnson, a management professor at Dartmouth’s Tuck School of Business, “Mattel understood early on that they would always face scrutiny regarding child labor and product safety. They knew they needed to operate with integrity.” Johnson, who has visited numerous factories in China, including Mattel’s, adds, “Mattel was in China before it became a popular business destination, and they learned to conduct business responsibly. They recognized the importance of brand protection and invested accordingly.”
Mattel, along with several external analysts, emphasizes the importance of direct command and control. Unlike many companies, Mattel owns the factories responsible for producing approximately 65 percent of its toys, including its most popular lines. Around 50 percent of Mattel’s revenue comes from core products manufactured in these company-operated plants. This is a significantly higher proportion within the industry, although it is a more expensive approach than simply contracting with the lowest-bidding local manufacturers.
These company-owned facilities, including the Shenzhen lab, perform rigorous on-site safety checks. Furthermore, independent auditors inspect these factories and publish their findings online.
Mattel also mandates that its external manufacturing partners adhere strictly to its safety protocols. Incoming supplies and raw materials at its five Chinese factories undergo thorough analysis and testing.
Jim Walter, a senior vice president at Mattel, acknowledges, “We are not infallible; we have weaknesses. But we are doing more than anyone else.”
Mattel’s involvement in Asia dates back decades before the global outsourcing trend. Jules Andres, a Mattel spokeswoman, points out, “The original Barbie dolls were marked ‘Made in Japan’ in 1959.”
Initially, overseas production was largely outsourced. However, in the 1980s, executives became concerned about the trademark risks associated with outsourcing toy production, fearing market saturation with counterfeit Barbies. They also believed that managing manufacturing in-house through large-scale factories would be more efficient.
Mattel embarked on an aggressive expansion of its owned plants in Asia. While non-core products, like movie-licensed trinkets, could be outsourced, core lines such as Barbie dolls and Hot Wheels would remain within their tightly controlled factory network.
Despite its commitment to direct control, Mattel faced an unexpected crisis during the 1996 holiday season. NBC’s “Dateline” program secretly filmed inside a Mattel factory in Indonesia, alleging the company employed underage workers and subjected them to harsh working conditions. Simultaneously, U.S. News and World Report ran a cover story titled “Sweatshop Christmas.”
A Mattel spokeswoman refuted many of these allegations, asserting the company’s existing commitment to decent working conditions.
Nevertheless, in 1997, Mattel took significant steps to enhance its image and improve workplace conditions. They hired S. Prakash Sethi, a Baruch College professor renowned for his criticism of worker mistreatment, to independently monitor their factories.
Sethi was granted unrestricted access to Mattel’s and its vendors’ plants, with the condition that his reports, regardless of their content, would be published publicly and uncensored. Mattel agreed.
Ten years later, Sethi affirms that Mattel continues to provide him with complete independence in his assessments, which are often critical. “Mattel is the gold standard,” he states.
Today, industry analysts frequently link Mattel’s dedication to worker welfare with its commitment to product safety. Sean McGowan, managing director and toy industry analyst at Wedbush Morgan Securities, notes, “Mattel expresses a genuine passion for these issues, it’s not just for show.”
This does not mean Mattel, including its subsidiaries Fisher-Price and American Girl, is immune to recalls. They have had 25 in the past decade. However, these recalls have primarily been due to design issues or consumer misuse, rather than supply-chain defects.
The largest recall occurred in 1998 and involved toys made in the United States, not China. Mattel recalled up to 10 million Fisher-Price Power Wheels electronic cars due to overheating risks, according to Mr. Walter.
Disagreements arose between Mattel and the U.S. Consumer Product Safety Commission regarding the recall. Mattel officials believed the problem stemmed from consumer misuse, particularly teenagers and young adults overriding safety features, as Mr. Walter explained. However, due to the frequency of misuse, Mattel decided to proceed with the recall.
Many recalls now fall into this “consumer usage” category, and Mattel aims to be proactive, initiating recalls before regulatory pressure.
Mattel was one of only two major toy companies that allowed a New York Times reporter to visit a Chinese factory and discuss product safety concerns with an executive. Hasbro, LeapFrog, and Zizzle, among others, declined similar requests. Lego, while not manufacturing in China, also declined factory visit requests. MEGA Brands of Canada was the only other company besides Mattel to agree to a factory visit.
One of Mattel’s largest factories, Mattel Diecast China, is located in Guanyao, Guangdong province, considered the world’s toy manufacturing hub. Opened in 1999, it produces Hot Wheels cars and Fisher-Price plastic toys.
During a factory tour, Mattel representatives showcased the 330,000-square-foot facility, operating 20 hours daily, six days a week during peak seasons. Approximately 3,000 workers were engaged in molding, painting, assembling, and packaging millions of Hot Wheels and plastic toy sets.
The workforce is predominantly young, female migrant workers, who typically work in factories for three to four years after high school. They generally work 10-hour days, six days a week, earning about $175 per month, typical for the region.
Elisha Chan, director of product integrity and corporate responsibility, is responsible for preventing dangerous defects like lead-based paint. He states that suppliers are closely monitored, and providing substandard or contaminated materials results in contract termination. Mr. Chan confirmed instances of vendors attempting to do so.
Professor Johnson of Dartmouth visited the Guanyao factory during its construction. He was impressed by Mattel’s investment in worker dormitories compared to other companies. “Mattel’s Chinese partner building the factory couldn’t understand why they were spending so much on these amenities,” he recalled.
Mattel argues that owning factories like this allows for superior quality control. Before approving new toys, around 5,000 annually, they produce small test batches. Once full production begins, toys are regularly sampled from the production line, and incoming materials are tested.
While this might seem basic, many Western companies in China do not test raw materials, even though suppliers are known to substitute cheaper materials to increase profits. Dane Chamorro, regional director at Control Risks, a global consulting firm, explains, “This is very common. Initial samples are always excellent, but quality can decline once contracts are secured. Many Chinese companies will cut corners to reduce costs.”
Some manufacturing experts believe that factories owned by global brands like Mattel tend to have higher quality standards than vendor-owned plants. However, David M. Upton, a Harvard Business School professor, suggests that companies using contract factories could enforce equally stringent standards if they chose to, stating, “You can fire the vendor, too.”
Toy testing and safety measures are costly. However, the Mattel brand commands a premium price, notes analyst Mr. McGowan. He concludes that “a major toy safety problem” would be far more expensive than investing in preventative measures.
