MATTEL IN CHINA: THE GOLD STANDARD IN TOY MANUFACTURE

UNCLAS SECTION 01 OF 02 GUANGZHOU 000887

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: WTRO ECON PGOV CH
SUBJECT: MATTEL IN CHINA: THE GOLD STANDARD IN TOY MANUFACTURE
ENCOUNTERS A PROTOCOL BREAKDOWN

(U) THIS DOCUMENT IS SENSITIVE BUT UNCLASSIFIED. IT SHOULD NOT BE
DISSEMINATED OUTSIDE U.S. GOVERNMENT CHANNELS OR IN ANY PUBLIC FORUM
WITHOUT THE WRITTEN CONCURRENCE OF THE ORIGINATOR. IT SHOULD NOT BE
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1. (SBU) Summary: Mattel officials at the company's Dongguan
factory - about an hour south of Guangzhou - told Ambassador Alan
Holmer, the Special Envoy to China for the Strategic Economic
Dialogue, that a new vendor used fake testing certificates to
surreptitiously introduce lead paint into the production line of
Fisher Price toys had had been recalled from a different Mattel
plant. The Chinese government, in the view of these managers, is
simply not strong enough to prevent people from cutting corners to
save money; the government needs independent institutes rather than
local labs to perform the tests. The government is often tempted to
collude with dishonest merchants, sometimes for money, or just as
often to make sure that firms can continue to operate to save jobs.
Senior leadership understands that "Made in China" as a brand has
been harmed, but local leaders remain less willing to sacrifice the
short term gain realized by dishonest practices. End summary.

Quality Assurance and Safety Protocols Failed
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2. (SBU) What happens when you play by the rules, have a rigorous
quality assurance system, and constantly evaluate your test
protocols to ensure product integrity? Well, according to Mattel
Asia Pacific Sourcing Senior Vice President David F. Lewis, you end
up like Mattel, i.e., forced to recall nearly a million Fisher Price
toys. In his August 3rd meeting at Mattel's factory plant in
Dongguan with Special Envoy to China for the Strategic Economic
Dialogue Alan Holmer, Lewis was candid about the circumstances
surrounding the product safety snafu. In response to Ambassador
Holmer's questions about the recent incident, Lewis answered that
the usual Mattel contractor for the toys made in the Guangyao plant
(north of Guangzhou) had changed paint vendors. The new vendor gave
the contractor a fake certificate documenting that the paint had
been tested - and passed - by an approved laboratory. For this
particular contractor, the bait-and-switch was a real eye opener; it
had had a one hundred percent Quality Assurance (QA) up to this
point. Although the actual date that the paint was used on the toys
was April 19, the problem was only discovered six weeks later when a
French retail customer requested a test of a toy at a Hong Kong
laboratory. Lewis said that as soon as Mattel learned of the
problem, it stopped shipment of the Fisher Price toys, notified the
Consumer Product Safety Commission, and spent the week before the
announcement quietly informing its retailers of the affected toys'
Stock Keep Unit number. (An SKU number is an identifier that allows
merchants to systematically track products and services offered to
customers.) The stoppage of shipment meant that only 600
twenty-foot containers out of the normal 900/week were shipped at
the time.


3. (SBU) At this point, Mattel's investigation is ongoing, Lewis
said. It is not clear whether the contractor will be penalized.
However, the vendor that supplied the fake certificate has shut down
his business, cleared out his factory and disappeared. This is not
an uncommon phenomenon and whether the vendor will be found and held
accountable is problematic. Lewis seemed somewhat bemused when the
Shenzhen Customs officials breathed a sigh of relief that the
dishonest vendor was not in their territory; in other words, it was
now someone else's problem. What Mattel needs to do now, Lewis
said, is review its QA system and ensure that this does not happen
again. Ironically, the recall occurred just one week after a very
favorable July 26 article in the New York Times hailing Mattel as
the "gold standard" for the toy industry in China.

Chinese Government Unable to Exercise Testing Control
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4. (SBU) The crux of the issue, Lewis went on, is that the Chinese
government simply is not strong enough to prevent people from
cutting corners to save money. What the government needs is
independent testing institutes rather than local labs which might be
tempted to collude with dishonest merchants. Indeed, all too often,
officials look the other way for money or to ensure that firms stay
in business and local jobs remain. While senior leadership
understands that "Made in China" as a brand has been harmed, it's
the local leaders that remain recalcitrant about enforcing
standards. The short term gain realized by dishonest practices is
just too enticing.


5. (SBU) For a company with $5.6 billion sales worldwide - and with
70 percent of those sales based on products made in China - Mattel
recognizes that it has to be proactive in cleaning house. As a
result it is looking to make common cause with the International
Council of Toy Industries to develop standards to be used
industry-wide.


GUANGZHOU 00000887 002 OF 002



6. (U) This cable has been cleared by Ambassador Holmer's party.