Mattel Incorporation a toy industry analysis

Mattel began as a garage workshop in 1945, and it has grown to be a world leader in the toy industry. The co-founders, Harold Matson and Elliot Handler, combined their names and began Mattel. In the beginning, the company engaged in picture frames and dollhouse products. However, as time goes and as the company grows, the co-founders were influenced greatly by the pop culture thus end up creating a broad range of toys. Ruth Handler came up with a three-dimensional doll after watching her child play paper dolls. The product was named Barbie, and this represents the major product line for the company. Barbie accounts for more than 50% of the company’s total sales. The company went public in 1960 and was ranked among the Fortune Lists as being among the top 500 largest firms in the United States. The company started to venture into international markets in 1964. Since then, the company has been expanding its products lines and has been establishing new plants in various parts of the world.

Industry Overview

Toy industry has been growing exponentially especially in the United States and parts of Europe.  In 2006, the value of toy market was estimated to be about $67 billion with North America and Europe markets representing the largest. Despite its exponential growth, the industry is high-risk, fad-driven and very competitive. Toys are fast-moving products and are seasonal. The industry realizes the highest volume of sales during Christmas time. According to reports released in 2007, Mattel Company is the world-leading toy company with approximately 6% of the global market. Annually, the company has been achieving an average turnover of US$6 billion. Young children below age 13 are the main customers of the industry. With the increase in the number of children, around the world, the demand for toy products have increased rapidly. In United States and Europe, the demand has gone up because of the dampening birth rate and the unusual trend of “kids getting older younger”. Noticeably, the industry has faced numerous competition challenges from electronic entertainment. With the emergence of video games offered as form of entertainment, young children have changed their tastes and preferences towards traditional toys. By 2007, the toy market environment production cost was becoming a challenge. In some markets such as China and Asia, the price of resin and the labor costs increased sharply.

United States provides the largest market for the toys where children consume 40% of the world produced toy products. Most of the country’s toy sales took place in hyper stores such as Target and Wal-Mart. The hyper stores are considered to be the best selling outlet because they have adopted order volume to drive prices down. This condition resulted in loss of sales by speciality toy chains in United States. For example, Toys”R”Us almost collapse in mid-2000 due to reduced volume of sales since most customers prefer purchasing the products from the hyper stores. During the Second World War, Japanese government designated the toy industry as an export-oriented industry in an attempt to attain earns better foreign exchange from United States. Some of the key players in the industry in the United States began to outsource their production to Japan. In 1980s, toy manufacturing companies emerged in China and other Asian countries. Since then, China has been exporting most of its manufactured toy products to United States. The Guangdong is considered to be the major toy-manufacturing province in the Asian continent as evident by the more than 5,000 factories which produce more than 80 per cent of the total China exports. The flourishing of this center has been facilitated by numerous factors such as low wages and geographic advantage associated with being nearness to Hong Kong. The hollowing out of manufacturing activities in Hong Kong did not deter toy industry activities.

Mattel History

Mattel is the world leading Toy Company founded by Harold Matson and Elliot Handler in 1945 in California. The Company has a broad range of toy-related activities which include design, manufacturing and marketing. The company has been growing exponentially as evident by expanded toy products such as Fisher-Price preschool toys, Barbie fashion dolls and Hot Wheels die-cast vehicles.. It has established many manufacturing plants in areas such as Taiwan, the Philippines and Los Angeles. The company closed its business operations in California and moved to parts of Asia and Indonesia to take advantage of cheap labor.

Mattel’s Financial Analysis

Since its inception, Mattel has been growing exponentially due to ever-improving financial situation. Research indicates that the company achieve annual turnover of US$5.65 billion in 2006. The greater percentage of these proceeds is from its core products: Barbie fashion dolls, Hot Wheels die-cast vehicles and Fisher-Price preschools toys. Prior to the achievement of great volume of sales, the company financial position has been improving gradually. The company realizes the highest volume of sales during Christmas time. According to reports released in 2007, Mattel Company is the world leading toy company with approximately 6% of the global market. Annually, the company has been achieving an average turnover of US$6 billion

SWOT Analysis

Strengths

1. It is the world leader in the toy industry: The Company is well recognized in most parts of the world hence it is likely to attract large numbers of customers in all major outlets. This will lead to greater profitability hence growth and development.
2. Better customer service: The Company’s management philosophy focuses on meeting the needs and demands of the customers. It has been constantly modifying its core products in order to satisfy the customers. The ability of the company to offer more interactive toys is likely to boost its volume of sales
3. Stable social responsibility: The Company is committed to economic, legal and philanthropic responsibilities. They consider the affairs of both internal and external stakeholders. The company has constantly observed full ethics audits to ensure that no child labor is used.
4. Mattel has been promoting philanthropic events within the surrounding communities.
5. It has better capital base
6. Good reputation
7. Well established

 

 

 

Weaknesses

1. Since the original co-founders, Mattel has had management struggles hence most of the decisions have resulted in huge troubles. This is likely to affect future business operations
2. The company has been engaging in unprofitable mergers and acquisitions. The purchase of Intellivision in 1970s has affected the company negatively, and this is likely to be felt in the near future.
3. The popularity of some of its core products is slipping everyday. For example, Barbie popularity has been dropping out since 2002.
4. Despite recent adoption of the new principles, some of the world customers may still criticize the company following poor safety standards in the early 1980s.

Opportunities

1. The company can still explore and invest in the international markets using some of its ample products. Company’s brand such as Barbie has been widely recognized throughout the world hence the company can still sell it in the new international markets such as Latin America and some parts of Asia
2. The recent alliance with Bandai is beneficial to Mattel since numerous eastern countries are ready and willing to open their markets for goods and services from western countries. These markets have not been fully utilized, and offer a huge increase customer base for the company.
3. The weakening dollar is another positive signal for increasing international sales. The weakening of US dollar makes the company’s products more affordable in new international markets.

 

Threats

1. Competition is the most notable threat to the company. The introduction of video games and other electronic toy-related products is likely to erode the volume of sales. Customers are switching to more superior products thus likely to paralyzed business operations of Mattel
2. Due to competition, the company is forced to involve itself in technological realm which is quite expensive. This is likely to erode the capital base of the company
3. The company’s attempts to garner larger market for its products by venturing into technological realm have resulted in development of children-friendly websites. Company’s targeting children with the internet sites are likely to suffer from extra concerns. Therefore, Mattel ought to be extra careful in order to avoid harming its legal and moral reputation by intruding into privacy of children and their families
4. The national recession has led to frugal spending by the company. The economic condition has also resulted in decreased returns in the company.

Mattel’s Operating Strategy (Before Recall)

Manufacturing Strategy

Before establishing its plants in parts of Asian continent, Mattel had already outsourced its production from China. To overcome problems related to China’s lax intellectual property rights, labor rights, the company decided to establish its own plant in the country in 1980s. By 1987, more than 70% of its produce was from overseas plants. Despite foreign direct investment, Mattel continued to outsource part of its production.  The company set up Vendors Operation Asia meant to oversee manufacturing of non-core products and outsourcing activities. Since then, the vendor has expanded and developed a network of about 35 suppliers in Chin. By 1998, the vendor’s revenue amounted to more than 25% of the total company’s revenue.

At early stages of its growth and development, Mattel focus so much on core products. However, the company has gone further to manufacture short term products that are subject to ever changing demand. These include characters from movies and television shows, products which were outsourced. Through this strategy, the company has benefited from reduced cost and capital commitment thus cushioning its manufacturing operations in the toy industry. In addition, the strategy has helped the company develop stable relationships with suppliers.

Safety Standards

The company has set up safety standards to counterattack perils commonly associated with manufacturing in developing countries. In 1990s, the company was highly criticized for failing to offer safety protection to its workers in the working environment.  According to Chinese law and regulations, a worker works for eights hours a day and forty hours per week. However, the company had violated these rights of the workers concerned in manufacturing of toy products in Asian countries. In an attempt to counterattack these criticisms, the company adopted Global Manufacturing Principles (GMPs). The company insisted that contract manufacturers comply with these principles. To strengthen the rule, the company instructed Mattel Independent Monitoring Council to conduct the audit of the principles. The body has both independent and external experts, and they were delegated duties of investigating the company’s manufacturing plants and other financial information. The Global Manufacturing Principles adopted a code which covered employees’ working hours, standards of wages, product safety and quality, child labor and environmental protection. Unlike other toy manufacturing companies, Mattel opted to in-house production in order to enable it take full control over the safety of the products produced. The company’s management established a more stringent safety measures in all manufacturing plants to offer maximum safety measures to all stakeholders.

Product Recall

Following safety reasons, the company decided to recall some of its toys in China in the summer of 2007. The company recalled approximately 1.5 million Fisher-Price toys because of risks associated with high lead content present in the paints used. The paint hazards had been felt by many customers in China. In addition, it recalled about 18 million toys with small magnets that proved dangerous among young children. The toys connected to hazardous lead content had been manufactured by Lee Der Industrial Company and Early Light Industrial. Mattel was sharply criticized for failing to close its manufacturing partners. Additionally, the company’s vigorous vetting of its subcontractors received sharp criticisms.

The product recalls had great deal of impact on business operations in the toy industry. The provincial government took stern actions on toy manufacturing factories. It inspected them and suspended exporting licenses of more than one-third of the factories after realizing that they produced products below the required standards.

 

After Recall Strategy

Following government actions, Mattel took a step forward and beefed up safety rules and regulations regarding production of toy products. Inspection of all vendors was done through a three-step process. After recall some of its toy products in the Chinese markets, Mattel immediately strengthen the existing safety measures.

 

 

Recommendations

In order to prosper in the competitive toy industry, Mattel ought to embrace more of in-house production for guaranteed safety product measures. If the government continues to put more stringent safety measures in the toy industry, it is recommendable for the company to shift some of its production plants to other developed countries in order to spread the risks.

 

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