The Hindu Business Line : The toy effect this X’mas season

The problem with the toy-from-China business has lessons for us that go beyond toys and China. They reveal the pitfalls that all developing countries face as they ride the export engine, and try to engage the developed world to ride on their prosperity.

C. Gopinath

A steady stream of news reports in the US media has made it very clear that all is not well with toys this Christmas season. Christmas is a time when shoppers behave like they are on steroids, egged on by bright lights, carol music playing incessantly, and every shop having some special ‘sale’ to help you make up your mind. The retail industry makes the bulk of its profits this quarter, and extra aisles are allotted to toys, and ‘gift’ items meaning things you will not buy when you are rational. In turn, toy companies collapse or thrive depending on whether they have any ‘hit’ toys for this season.

Made in China

The warning signs that all was not well with the toys business came quite early. In the summer this year, Mattel, a major US toy company, recalled toys from which small magnets were falling out. They had made it into the stomachs of some children and had, therefore, made it into the front pages of newspapers in quick time. It turned out that the toys were made in China. Aha! No wonder, said some. But wait.

China managed to drag the top management of Mattel before the microphones and they apologised because the problem was bad design of the toy by Mattel causing the magnets to fall out. But this was just a mistaken tip of an iceberg.

Regular reports had been appearing in the papers of other toys that were found to have been made in China, and the paint used on them contained lead, a banned substance in the US.

Other reports were also beginning to circulate about other products; toothpaste made in China turned up in Africa with harmful ingredients.

Health and safety concerns

Now, from my experience, all infants fall into two categories and my expertise comes from memories of my children when they were infants.

One group, like my older son, will not put anything in its mouth for fear that it might be food. The other group, like my younger son, will put everything in its mouths hoping it is food. This second category has been causing a flutter among the health and safety experts.

Consumer and environmental health organisations in the US have been testing over 1,200 children’s products and found over 33 per cent contained dangerous chemicals such as lead, arsenic and mercury. Can you imagine all that slipping in through the mouth?! And can you blame all the focus on toys?

Scare about toys

Much of the focus has been directed towards China. That is not surprising, given the Toy Industry Association’s estimate that of about three billion toys sold in the US each year, about 80 per cent are from China.

Even if they are not Chinese but are US brand names, they are manufactured in China. You have to search long and hard to find toys made in the US or elsewhere. Thus, the problem has grown from a toy problem to a China problem.

The scare about toys from China resulted in John Edwards and Chris Dodd, two of the Democratic presidential hopefuls, being asked about it. They are not the front runners and may have seen this as an opportunity to take a hard stand on a policy issue that will get them to the front pages. No, each one declared. I will not be buying toys that are made in China this Xmas season.

Results of a poll conducted by Maritz Research, a market research firm, released recently can be quite revealing. Over half of US shoppers said they will be buying toys this season, and three-quarters of them said that the recalls of toys on account of quality problems will affect their buying decision. Of this, close to 25 per cent said they will not buy toys from China. Newspaper reports interviewing shoppers show that the concern is widespread.

Lessons beyond toys

First, the brand of a nation very often is associated with influences, and, in turn, is influenced by the brand of its products. We blindly buy consumer electronics products made in Japan! Companies spend a lot of money building their brand and assuring the customers that it stands for good quality.

But concerns about quality of goods from China is going to run into the branding that Mattel has been doing and the customer will play it safe. Buy the Mattel toy, but avoid it if it is made in China. If not, avoid Mattel and maybe buy a book instead!

As developing countries position themselves as good sources of low-cost manufacturing, they should not forget that the rest of the country’s image travels with them.

When a customer from a developed country arrives in Bangalore to meet with his hi-technology information systems vendor, isn’t he going to wonder how a company in this town is going to solve his software problems if this city can’t get its airport and traffic organised? But there is hope for the developing world that images can change. My mother would mention often that nobody would buy Japanese products soon after the Second World War due to their poor quality and look at them now!

Second, often suppliers from economies in transition are intent on making a quick buck. We have all heard the stories of vendors who show you a sample, get the order, and then the bulk supply falls short of what the sample promised.

The supplier is often difficult to trace after that! After years of catering to protected markets and non-discriminating consumers, the new market place and its requirements can be overwhelming.

The surprise of having secured an overseas order and the attraction of the money to be made from it seems to prevent normal business acumen.

The small manufacturer can’t believe that he will continue to get such orders and the temptation to fudge on the quality and sell cheaper materials is too strong. And they, in turn, spoil the image for those who play by the rules.

Manufacturers’ associations have an important role to play here in educating their membership and weeding out the undesirables who cause an image problem for all.

Third, the long arm of corruption is never too far away. Even with regulators and stringent technical standards, if the ethical standards are not up to the mark, the temptation may be to try and bribe one’s way through the inspection.

The unwanted stuff will still slip into the product. China only recently executed the head of its drug approval agency who was found guilty of having accepted bribes from some suppliers for approving their pharmaceutical products.

While capital punishment has no place in a civilised society, China was trying to send a strong message to its officials. I hope it was heard around the world.

Meanwhile, many small US manufacturers of toys that neither contain magnets nor lead paint are hoping that they can take advantage of the current concerns and are looking forward to being merry during Christmas.

(The author is a professor of international business and strategic management at Suffolk University, Boston, US. He can be reached at cgopinat@suffolk.edu)

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