so who can't make toys after all....

Discussion in 'Wall St. News' started by dhpar, Sep 21, 2007.

  1. dhpar


    this is really embarassing....

    Mattel Seeks to Placate China With Apology on Toys
    September 22, 2007

    Mattel Inc. made a public apology to China for damage to the country's reputation stemming from a spate of toy recalls. It was an extraordinary attempt to placate Mattel's most important supplier, but it is likely to shift the spotlight to the company's own responsibility in the crisis.

    In its apology, the world's largest toy maker said that its own "design flaw" was responsible for by far the biggest recall, involving nearly 18 million playsets studded with potentially dangerous magnets. While soothing China's pride, the admission could make Mattel a target in lawsuits.

    "I can't think of any other instance where" a major toy company "has actually come out with such a public announcement of a defect," said Andrew Krulwich, a former general counsel for the U.S. Consumer Product Safety Commission who now practices at Wiley Rein LLP.

    Chinese officials have ratcheted up criticism recently of Mattel and U.S. regulators, believing they are putting too much blame on China in the recent recalls of toys and other Chinese-made products. Mattel's apology is a reminder that U.S. companies dependent on business in China offend Beijing's communist rulers at their peril.

    Mattel, which gets 65% of its products from China, quietly began to mend fences three weeks ago. In a letter dated Sept. 1 on Mattel's corporate letterhead, Jim Walter, the company's senior vice president of world-wide quality assurance, wrote directly to the director of China's quality-control agency, Li Changjiang, to "address any possible misunderstandings." Mr. Walter wrote that Mattel has a "deep commitment to working together with the Chinese government," according to a copy of the letter seen by The Wall Street Journal.

    Within the top levels of China's government, concern is growing that significant damage has been done to the "Made in China" label. The product-quality issue came up during a meeting between President Bush and Chinese President Hu Jintao earlier this month.

    Mattel has recalled more than 21 million toys world-wide in recent weeks. Some of the recalls involved excessive lead paint found in Chinese-made toys. Flaws in the manufacturing process at Chinese plants have been blamed for the problem, leading to a cavalcade of negative headlines in the U.S. That added to the concerns about tainted Chinese imports ranging from pet food to toothpaste.

    As recently as this week, Mattel Chief Executive Robert Eckert told Congress that the company's "standards were ignored, and our rules were broken" at Chinese plants.

    By the numbers, however, the vast majority of the recalled toys didn't have any lead problem. The biggest recall, affecting 18 million toys, involves tiny magnets that can fall off toys and be deadly if swallowed. The recall of those toys, Mattel is now stressing, had nothing to do with a failure of Chinese manufacturing but rather stemmed from Mattel's own flawed designs for everything from Barbie accessories to Batman action figures.

    On Friday, Thomas A. Debrowski, Mattel's executive vice president for world-wide operations, met with Mr. Li, the Chinese product-safety chief. Mr. Debrowski listened to criticism of Mattel's actions, then delivered a prepared apology.

    The world's largest toy maker, Mattel, apologizes for damaging China's reputation after recent massive recalls of its Chinese-made toys. Video courtesy of Reuters.
    "Mattel takes full responsibility for these recalls and apologizes personally to you, the Chinese people, and all of our customers who received the toys," Mr. Debrowski said. He added, "t's important for everyone to understand that the vast majority of those products that we recalled were the result of a design flaw in Mattel's design, not through a manufacturing flaw in Chinese manufacturers."

    Mattel's stark admission surprised M. Eric Johnson, a professor at Dartmouth's Tuck School of Business who conducts research on Chinese factories and has published studies about Mattel's manufacturing operations. "This is a first," Mr. Johnson said. He called the apology a "novel policy move" designed to avoid "potential friction."

    Mattel also said Friday that it recalled more toys than necessary over lead-related issues, in another apparent attempt to soothe Chinese sentiment. It said subsequent testing showed some of the recalled toys "may not have had lead in paint in excess of the U.S. standards."

    In a statement issued yesterday in the U.S., Mattel sought to play down the significance of its statements in China. The company said it "apologized to the Chinese today just as it has wherever its toys are sold."

    Friday's exchange culminates a period in which China and Mattel sometimes offered different public explanations for the toy crisis.

    Mattel's Mr. Eckert has at times focused heavily on the lead paint issue in his public statements. In an opinion piece he wrote for The Wall Street Journal earlier this month, he referred to "three voluntary recalls of products, due to impermissible levels of lead in paint" and said "lead paint is topmost on parents' minds." He made no mention of the 18 million toys with the magnets. The company did raise the magnet issue in newspaper ads last month, and Mr. Eckert discussed it in a recent interview with The Wall Street Journal.

    Behind the scenes, Mattel was working to assuage the anger of Chinese officials who felt their country was being scapegoated. The Sept. 1 letter by Mr. Walter, the Mattel executive, gave a preview of Friday's statements about the magnet toys. "[A]ll statements made by Mattel and by our executive management, including me, have consistently attributed the safety concern regarding those products to an emerging design issue rather than a manufacturing issue," Mr. Walter wrote.

    Some of the Chinese factories involved in the recalls have shut down. Cheung Shu-hung, an owner of Hong Kong-based Lee Der Industrial Co., one of Mattel's suppliers involved in producing the faulty toys, killed himself Aug. 11 at his factory's warehouse in China's southern Guangdong province.

    In an interview with The Wall Street Journal on Sept. 10 in Beijing, Mr. Li acknowledged that some Chinese exporters were using too much lead, but shifted part of the blame to the U.S. companies that order and sell the products.

    He said the recall crisis is "largely due to the fact that our Chinese toy makers produced these toys upon the request of American designers and [according to] importers' specific requirements." Mr. Li's agency, the General Administration of Quality Supervision, Inspection and Quarantine, employs 30,000 people.

    Mattel's embrace of responsibility for the magnet issue could raise thorny legal issues. Many toy manufacturers have used small magnets that, when swallowed, can bind in the stomach lining and sometimes tear through the intestines.

    A wakeup call came to the industry in 2005 when Kenny Sweet, a Redmond, Wash., toddler, swallowed a magnet and died. The Canada-based manufacturer of the toy issued a recall in March 2006. Seven months later, Mattel issued its first recall over a similar magnet problem after toys in its Polly Pocket brand caused three children to suffer intestinal perforations that required surgery. On Aug. 14 of this year, it expanded that recall to include more toys with magnets.

    Mattel has consistently employed a formidable team of outside lawyers to deny defects with its toys, in some cases even after millions of them had been recalled and determined to be unsafe and defective by U.S. regulators.

    That's why its latest stance surprised Mr. Krulwich, the former Consumer Product Safety Commission general counsel. "If you have an admission by the company, it's very, very important evidence for the plaintiffs," he said.

    In late August, Mr. Eckert said in an interview that the magnets "have emerged as a significant issue for the toy industry." He said Mattel has been "at the forefront of establishing the new standards" to reduce such hazards.