Matter, 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 toymaker, Matter had been relocating its production abroad and outsourcing the manufacture of parts and components. In 2007, Matter produced 65% of its toys in China. In contrast to its competitors, however, Matter understood he Importance of quality control In the process of relocation and outsourcing. In the 19805, It reversed Its earlier strategy of outsourcing to factories In Salsa 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 Matter reassess its strategy for organizing 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? Matter 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.
This case Is not Intended to show effective or ineffective handling of decision or business processes. 2009 by The Asia Case 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/CHOC This document is authorized for use only in Seminarian De Process De Manufacture (SCM 05) by Daniel Finites at Universities del Pacific from June 2014 to August 2014. 09/CHOC Mantel’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 toymaker, and toy sales were highly seasonal, with between 50% and 60% of annual sales concentrated around Christmas time. The industry was also highly fragmented.
Matter, the largest toy company in the world, captured less than 6% of the global market with its annual turnover of SIS$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 aced stiff competition from electronic entertainment such as video games as children switched from traditional entertainment such as toys to electronic entertainment at an increasingly young age.
The market environment had also become increasingly tough, with production costs (ranging from labor costs in developing countries such as China to the price of resin used for toy production)8 on the rise. In the manufacturing of toys, raw materials comprised 45% to 55% of the cost, labor 20%, administrative fees 20% and transportation 5%. 9 Meanwhile, in the US?the largest toy-consuming nation in the world, where no more than 4% of the oral’s children consumed 40% of the world’s toys 10 ?toy sales increasingly took place in hypotheses such as Wall-Mart and Target.
These hypotheses were reputable for using their order volume to drive prices down and even specialty toy chain stores were losing out to them.