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.
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Reader Comments (Page 2 of 2)
8-07-2007 @ 12:11AM
wchaoo said...
Aha, China bashers let loose again as usual. So what else is new?
This toy recall campaign is again a gimmick to stigmatize Chinese products as unsafe in order to stack up more bargaining chips to open up Chinese markets to American products. Mattel didn't lose a dime. Its Chinese sources did as a result of the recall.
Failing again to allow high-tech products to be exported to China as a remedial solution for the Sino-US trade imbalance, U.S. politicians are resorting to defamation tactics in the same fashion they forced open the Japanese market on behalf of companies such as Motorola in the 1980s.
Chinese toys have been exported to the US for decades without any problems. All fo a sudden the Chinese are accused to have used "paint with high levels of lead."
These toys have been made with Mattel-patented technology and approved material from Day One. Isn't it incredible that all of a sudden so many toys (almost a million) are found to have "high-levels of paint"?
If that were indeed the case, then the quality-monitoring agencies in America must have been sleeping all this time, as are the monitors who have been guarding America's imports of food, clothing, etc.
Guys and gals, if you believe all this, you must be the most credulous people on earth.
There's nothing wrong with Chinese products. The goal posts have been shifted recently in judging them due to political motives. Nothing more.
8-07-2007 @ 1:27AM
danefran said...
I AM FOR ONE WILL BE LOOKING WHERE THINGS ARE BEING MADE BEFORE BUYING THEM IT IS TIME WE ALL START DOING THAT. YOU CAN HARDLY FIND THINGS THAT AREN'T BEING MADE IN AMERICA. I WAS COLORING WITH MY GREAT GRAND DAUGHTER AND WONDER WHY THE CRAYON WAS SO HARD TO COLOR WITH. WHEN I LOOKED AT THE LABEL, HERE IT WAS MADE IN CHINA. THE CRAYON WAS LIKE A WAX. IT WAS A CRAYOLA CRAYON. COMPANIES MAY BE MAKING MORE MONEY ON CHEAP LABOR BUT WE THE PEOPLE WHO HAVE LOST OUR JOBS ARE STILL PAYING TOP DOLLAR FOR THE JUNK MERCHANDISE.
8-07-2007 @ 6:50AM
Bill West said...
How many more such incidents will it take to get this country's politicians to wake up? We have strict laws about the purity of the food and drugs we put in our bodies, and the toys our kids may play with and put in their mouths, but we only enforce them if the item is produced here. If imports were subjected to closer scrutiny, and the COST of that scrutiny was added to the price tag, there would still be Americans manufacturing things, instead of flipping burgers, and saying "Welcome to WalMart". The fortunes that have been made from cheap imports have come from our willingness to allow them in without proper caution- does it surprise anyone that WalMart is headquartered in Arkansas, the same state that gave us Bill Clinton, during whose administration we passed NAFTA to reduce the restrictions on imports. If a company in this country used lead paint on toys, they would be out of business tomorrow, and the officers of the company would be in jail within weeks. What penalty is there for the Chinese?
8-07-2007 @ 9:45AM
Ken said...
U.S. companies need to stop the outsourcing to china and India to bring the jobs back to america. The U.S. Government should not allow it period.
Someone Up there said something about CHINA BASHERS - Yeah, this is CHINA BASHING - Look who sent the product out with lead paint! Mexico?
You Must be Chinese, right?
8-07-2007 @ 10:50PM
Christine L said...
Keep to the topic, folks.
We are talking about a high-profile albeit suspicious spate of complaints against Chinese products in recent months. First it was someone pointing to an ingredient in toothpaste made in China. Then it was some pet food containing an ingredient which was said to be responsible for killing some dogs and cats. And then it was an alleged incident involving ONE defective tire. Now there is this million-toy recall campaign.
Hell, if these were all true, then it means
1. American monitors have been dozing off while on the job in all the categories of imports from China in the last twenty years.
2. Other than cats and dogs, more than one child or adult must have gotten killed by the use of such "unsafe" Chinese products.
3. The Japanese monitors of import safety must have been lying when they conclusively mentioned two weeks ago that Chinese imports into Japan -- in all categories -- were safer and passed stringent tests better than American and European imports into Japan.
4. All of a sudden the Chinese have decided to cheat or poison us by using heavily-leaded paints on toys, put illegal chemicals into toothpastes, used cheaper 'glues' for tires, and generally do a bad job in exporting.
Since none of these are true, then the converse must be true.
Chinese products are the best and most competitive in the world for safety and quality in nearly all categories, or else they wouldn't have been received so widely for so long in America, Europe and Japan.
Folks, if you are truly so naive as to believe all this, stop using Chinese products today and see if your dwindling paycheck will make it possible for you to make your ends meet when you do that.
Stop whining like wizened, grumpy old men and women and start working towards improving our own products. The Chinese did not steal jobs from anyone. They excel in manufacturing because they work and adapt FAST to the new environment, NOT because they are cheap. You can find tons of CHEAP labor in the other Third World countries. So ask yourself why the Chinese are succeeding and the others aren't in manufacturing?
So far I have not seen anyone here supposedly batting for America speak with any validity in his or her argument.
All we are witnessing here is China bashing without any merit.
8-14-2007 @ 2:54PM
michael said...
Goal Posts????????What can I say Wall-Mart+ China=low prices and poorly crafted product that are killing the world..China is the USSR with a marketing department..Please wake up America, some us sill love this land!
8-14-2007 @ 10:14PM
Donna said...
Free trade may be great for the big industries that do not want to pay American wages but still want to charge American prices. Free trade does not come cheap for the average American. It is not free for us, for we are paying a hefty price for dangerous products. We need to end all trade with China, this is why I will not shop at stores like Wal Mart who profit from buying foreign products that use to be made in the United States before it was sold in free trade. Democracy, if we are fighting for it in Iraq then we need to fight for it here in our country because we are losing it. This country was paid for in American blood and we are being seriously short changed on every thing as our jobs are going to the very countries who harbor the terrorist responsible for bringing down the Twin Towers. No need for damage control now there is not much left for George W to ruin.