Over the years, Mattel (NYSE: MAT) has built a portfolio of valuable toy brands -- Barbi, Barney, Dora and so on. In the highly competitive global economy, strong brands are extremely valuable. They act as a barrier to entry and allow for premium pricing.
Yet, brands are also vulnerable.
In the case of Mattel, the company has ordered a massive recall of 967,000 Fisher-Price toys manufactured in China because of high levels of lead in paint. There will be refunds as well.
It's a tough lesson for Mattel. And, I'm sure management will try to implement systems to prevent this from happening again.
But are there lessons for small businesses? Or are such issues (I think this case falls under a larger umbrella of environmental issues faced by businesses) mostly concerns for big companies?
Well, I think small business owners should pay attention. After all, Mattel has the resources to deal with a crisis. But, for a small business, the result of such a catastrophe is likely to be bankruptcy or a severe decline.
Some Lessons
First of all, it's a good idea to start understanding the environmental laws. Keep in mind that you may be liable even if you did not cause the problem. Basically, Congress has some strict regulatory requirements and may demand remediation – which can be costly and time consuming.
If you have reason to believe there could be environmental exposure, I suggest you get both a Phase I and Phase II Environmental Impact Report. This means hiring an expert to investigate the property – testing the soil, looking at the history of the facility, making sure the permits are up-to-date, and so on.
True, it can cost $10,000 or more. Then again, the liability for environmental problems can be much higher. And, the damage to your company's reputation could be incalculable.
Another piece of advice: Be cautious with outsourcing.
That was the issue with Mattel; that is, the company relied on China-based partners that failed to meet environmental standards.
Again, I suggest relying on an environmental expert, who can provide advice on who are trusted partners but can also implement systems to monitor the product quality. It's probably a good idea to have such a person on retainer.
Finally, it's a good idea to review your company's insurance policies. How are environmental liabilities handled? And, how does the policy handle outsourcing? What are the exclusions? What's really covered?
No doubt, all of this means higher expenses. But as the global economy becomes more intertwined -- and there is much more concern about environmental threats -- it's something even small businesses need to think about.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
Click here for Mattel toy recall news
Julie Tilsner: What's under the tree this Christmas season? 'Made in USA' toys
Brian White: Recalled Mattel (MAT) toys found to have 180 times the lead limit
Peter Cohan: Is China hurting Disney's (DIS) reputation?
Sarah Gilbert: Mattel's third toy recall: Parents response ho-hum, could Barbie survive?
Zac Bissonnette: Toys 'R' Us joins the recall club -- and how you can capitalize
Michael Fowlkes: More children's products join the Chinese recall list
Beth Gaston Moon: Mattel (MAT): Looking into the latest recall
Michael Fowlkes: Chinese executive found hanged following Mattel (MAT) toy recalls
Hilary Kramer: Mattel, Inc. (MAT): Buy or sell after recall?











Reader Comments (Page 1 of 2)
8-06-2007 @ 8:40AM
sherryl said...
Maybe this type of thing is what it will take to get American companies to put Americans back to work!
8-06-2007 @ 8:52AM
Paulie said...
I hope we start to realize that these " CHEAP" products that are made in China are worthless. Remember you get what you pay for and if you buy products made in China you get less than what they are worth.
8-06-2007 @ 9:52AM
Gaynelle said...
There weren't very many members in Congress that read the NAFTA before voting "yea" on taking more jobs out of the USA, helping the greedy manufacturers make more money and taking jobs away from America. You should look up the House members that voted "nay" and if still around...thank them for trying to keep jobs here. I'm not feeling a bit sorry for any manufacturer that has problems with China, or elsewhere for that matter. America needs manufacturing jobs so our young people have a chance to survive and also live the good life. By the way, the NAFTA was on fast track in the Clinton era and Al Gore broke the tie by voting "yea" in the Senate. That is how close it was to send our jobs overseas.
8-06-2007 @ 10:21AM
M gayer said...
At the next stock holders meeting, everyone join in and chirp, `Cheap, cheap, cheap' then talk about how cheap you all are.
Go broke you all desirve it, your CHEAP, like your products.
8-06-2007 @ 10:47AM
Carmen said...
That's what happens when you have oversea business handcrafting what should be made in the USA. Give the work to the people here instead of having our money go elsewhere. After all see what's happening now? Lead poisoning is no joke.
8-06-2007 @ 11:52AM
gertrude visaggio said...
Stop buying china products. I know this is hard. They are making billions of dollars and planning their takeover in becoming the # 1
power within 10 years. Bush is helping them. Look at what bush has done to our country in 7 years. We have lost power, respect and jobs, also the American dream.
8-06-2007 @ 11:38AM
Hope said...
# 3 Gaynelle:
May I remind you that even though NAFTA passed during Clinton's administration, it was Ronald Reagan and Bush 41 who started the process. Republicans were in the majority in the house and were hell bent on passing this crap shit piece of legislation. So check your facts before blaming Bill Clinton for everything wrong that has happened in this country. You get what you sow. Republicans shoved NAFTA down our throats and now this administration is hell bent on the North American Union between the U.S., Canada and Mexico with secret talks because this President doesn't give a damn about the U.S. Constitution or its citizens. Not to mention that this President does not want label of origin on foods because it will cost big corporations money; this President has made it his business to reduce FDA inspectors, reduce CPS inspectors. All because he wants to make damn sure that large corporations move their operations overseas and pocket large savings while shoving cheap garbage products down consumers' throats.
8-06-2007 @ 3:58PM
Hank Eyrich said...
The importer and/or distributor of China's products should be held fully responsible for liability issues. Personally I getting tired of purchasing China's junk but many times there are no options to purchase products made in this country. A very sad sanario for the US consumer.
8-06-2007 @ 12:05PM
Tami said...
Amen Sheryl. It seems like in the last year so many things have been recalled that are sold in American but made in China. Maybe "big business" will see now that what goes around comes around. As the saying goes "Cheap is expensive". Now lets start moving some of these jobs back to the American people!!!!! God works in mysterious ways.
8-07-2007 @ 12:06PM
Florence said...
Large companies like Mattel should understand the dangers of using chinese labor.
It is paying them to destroy the rest of the world in more ways than one.
8-07-2007 @ 12:16PM
Bill Seeley said...
There are several negligent parties responsible for Mattel peddling a million toys painted with lead based paint:
1. Mattel: They should have set up a scientifically based, thorough inspection system in China to ensure that its toys were not painted with leaded paint, or any other harmful materials.
2. Chinese vendors: Most Chinese vendors (as well as those from many other parts of the world) are only concerned with maximizing their profits. chinese vendors' lack of consumer safety has been repeatedly shown in their widespread use of cheaper leaded paint, skimping on glue needed to hold layers of radial tires together, or using harmful chemicals in producing tooth paste.
3. U.S. government inspectors: The U.S. government only inspects 1% of imported cargo for possible weapons of mass destruction, chemical poisoning or product contamination. This is woefully inadequate. The FDA and other import inspections should be greatly expanded. The increased cost of these inspections should be paid 100% by importers -- thus passing the cost onto those Americans wishing to purchase these foreign made products. "Cheap imported goods" would then become more expensive, and American firms might be better able to compete with these foreign firms. HOWEVER, increased inspections fees should not be unnecessaryily increased as a back-door method of imposing prohibitive tarriffs on imported goods, which would violate the trade rules of the World Trade Organization and NAFTA, of which America is a member.
8-06-2007 @ 4:24PM
MA said...
Get with it folks, this is not a Nafta problem, this is an American Problem. China has so many recalls because they are manufacturing almost everything we use everyday in our tech, toy, electronic saturated lives. If you looked at the percentage of total imports vs recalls I bet you’d be very surprised. And when China makes a mistake, they are honorable about it, pay their dues and move on, they don’t just fold and go bankrupt and reopen under another name. We are now a society that consists of lawyers, doctors, techies and high school dropouts, and nobody wants to get their hands dirty doing the jobs the Chinese and Mexicans are willing to do. Our insurance companies are the richest businesses in our country, but at a cost of manufacturing in this country. Our manufacturers can’t compete with global manufacturers because high commercial insurance costs. Between high labor high wages, (which sadly are barely enough for workers to live off of in this credit laden rip off mentality society of ours), and fending off frivolous legal suits and a multitude of other bullshit our manufacturers have to face, our products cost twice as much the products of China and other out sources. Wake up America, don’t put this on our government, we elect and support the people in office, so we are each personally responsible for what happens in our own country. Do your damn homework before you vote, don’t just vote a party!!! And for gosh sakes, VOTE! With all our problems we are still the best country in the world, so act like it.
8-06-2007 @ 4:00PM
JLBillings said...
My opinions on this are: The current Republican goals are based upon one underlying principle -- cheap labor. It works like this (1) move the manufacturing plants overseas & thereby export jobs (2) encourage illegal immigration (3) keep the minimum wage at a poverty level (4) bust the unions. All this will create a huge pool of jobless Americans who will work for low wages and no benefits. Libertarianism can destroy America and George W. Bush is at the forefront. Will the greedy Wal-Mart types ever get enough wealth? Don't they understand that they are destroying their own customer base and ultimately thenselves?
8-06-2007 @ 3:46PM
Michele said...
I agree, Maybe we all can have america back to work and we won't be in such debt here anymmore and wlefoare people can have a job again and or the unemployed who were laid off because of this issue of overseas opperations. To save money for the CEO"S only.
Michele
http://www.discoverytoyslink.com/michelemarchetti
8-06-2007 @ 4:06PM
Joseph Leslie said...
The word "JUNK" comes from a chinese fishing boat!
When I was taking Economics in College, I learned that the output per worker (Productivity) was the key to success in the marketplace, not the hourly wage rate!
Dr. Edward S. Deming (the man who kept the war industries running in World War II and who taught the Japanese Quality Control after the war ended) makes the statement in his books that "you can't make a profit, if you have to fix products you are manufacturing (making good on warranties). You do it right the first time!
Chinese manufacturers will do an evaluation run (case in point the 450,000 defective radial tires) of a product that is absolutely perfect!. When they actually deliver the real product it is slipshod, missing essential parts and is inferior to samples made for testing and evaluation.
Chinese wages are miserably low, but so is productivity! The United States, Germany and Japan have the world's highest productivity levels and the best quality control. In these countries you do get your moneys worth!
The best thing to do to send the message to the big business PROFITEERS and the Chinese Junk manufacturers, is to look for the label "made in the Peoples Republic of China"! When you see this on a product you are thinking of buying, just put it back on the shelf and tell the store manager, "we have stopped buying any product manufactured in the People's Republic of China"! It will take some time, but as revenues fall, some of the GREEDY Fat cats will get the message!
8-06-2007 @ 5:39PM
DAN said...
#6 Hope - Ah reality, something bushits can't understand. Oh well, your post likely will disappear as an earlier post of mine did. AOL loves to censor.
8-06-2007 @ 6:13PM
Joseph Leslie said...
I'm going to disagree with the idiot who said American Wages and Liability Insurance costs are making us by CHINESE CRAP. As I stated before PRODUCTIVITY not wage rates is the key! CHINESE workers paid 1/10th or less of what other high productivity workers are paid, do not make up for the LACK OF QUALITY CONTROL or PRODUCTIVITY! (It also costs you time and money to return CHINESE CRAP to WALMART, so that you can wait in line for up to a hour to be insulted by some tatooed, pierced high school drop out!) The clerks at Walmart and Target are so tired of making the exchanges on Black and Decker Tools (formerly made in Baltimore, Maryland! I have a 20 year old Black and Decker electric drill that works just fine!). How can Black and Decker stay in business when they sell so many defective tools! Exchanges cost money! Exchanges mean no repeat sales! That's not how you pay dividends to stock holders!
If your child pokes his eye out on a CHINESE or an American made toy, the liability court is located here in the UNITED STATES! It makes no difference where the toy was manufactured; just where the injury takes place.
Finally, ask the US Distributor who sold the 450,000 defective CHINESE radial tires, how much cooperation he is getting from the CHINESE TIRE MANUFACTURER! The US Distributor is taking the whole hit! The CHINESE MANUFACTURER deliberately left out a "KEY COMPONENT" of the radial tire and is not helping the US Distributor!
So much for our "friends" in the Peoples Republic of China.
Sincerely
8-06-2007 @ 7:34PM
Plasti Duk said...
This is why we take pride in manufacturing all our products in the USA since 1956 and we keep our jobs here not overseas.
8-06-2007 @ 8:24PM
Ashley said...
Lets never buy china things again! I had always hated china things they break easily,and some food are bad.China things are bad and cheap.
8-07-2007 @ 12:22AM
Al said...
Screen check.