Mattel, Inc: The Lead Paint Recall
Ron Montalto tossed the newspaper onto a growing pile. The Sept 22, 2007 Wall Street Journal headline read “Mattel Seeks to Placate China With Apology.” The headlines in the stack of papers told the story:
Mattel Announces Third Toy Recall – CNN Money (Sept 5, 2007)
Mattel Does Damage Control After New Recall - Wall Street Journal (Aug 15, 2007)
Owner of Chinese Toy Factory Commits Suicide – New York Times (Aug 14, 2007)
Lead Paint Prompts Mattel to Recall 967,000 Toys– New York Times (Aug 2, 2007)
The worldwide news coverage had been intense. Robert Eckert, Mattel’s CEO, had led the news on both morning and evening TV broadcasts, staring ...view middle of the document...
” While in the U.S., Ron had met with his boss Joe Gandolfo, then President of Worldwide Manufacturing Operations and learned that he would be reassigned within the next month to oversee die-cast car operations. An ex-lawyer who had lived and worked in Hong Kong for nearly fifteen years, Montalto was a Senior Vice President and had been responsible for the company’s Vendor Operations Asia division (VOA) which managed Mattel’s outsourced production. Mattel began the vendor operation program in 1988 hoping to add flexibility to the company’s traditional in-house manufacturing. Montalto had spent ten years developing VOA into one of Mattel’s most valuable strategic assets. In 1997 it was responsible for manufacturing products that generated nearly 25% of the toy company’s total revenue. With demand for Matchbox cars at 64 million units in 1997 and growing, die-cast capacity concerned Montalto the most. Tyco manufactured the cars through joint-venture arrangements in Shanghai and Bangkok. Both of the joint ventures were minority share partnerships which raised questions for Mattel in the future. What’s more, the quality of Matchbox products had been eroding for years and was currently at an all-time low. The production equipment and steel molds used in the manufacturing plants were becoming obsolete. Though it might be possible to upgrade the existing Tyco operation in Bangkok, Mattel saw little hope of expanding the Shanghai operation.
Mattel owned a state-of-the-art die-cast facility producing Hot Wheels brand cars that was operating at full capacity in Penang Malaysia (see Exhibit 3). Expanding that facility significantly beyond its 1997 volume of 120M cars would be expensive and complicated. There was no room for further building on the site and no available land adjacent to the plant. The proposed China facility would solve the immediate capacity problems. However, with the financial storm sweeping through Asia, some executives inside Mattel argued that they...