Mattel recalls 9 million toys

Here we go again...

So, Mattel are recalling 9 million toys that were 'Made in China' as they contained two dangerous elements: tiny magnets that can be swallowed by kids or higher than acceptable levels of lead paint. Deja vu: two weeks earlier another 1.5+ million Mattel toys were recalled due to a lead paint scare.

As this latest news broke some interesting facts and commentary emerged. One NPR story highlighted how many products are manufactured in China - 80% of the toys sold in the US are made in China. Understand that manufacturing is to China what the IT industry is to India. It's the economic engine driving China into the First World and it'll be very hard to change that trajectory.

'Quality fade'

So, with such a high number of products from China of course any problems will probably be from a factory in China. So why is this happening? For example, we know that Wal*Mart is famous for 'Every Day Low Prices' and some of those low prices come as a result from increasing pressure on its suppliers to deliver. This is managed by the manufacturer through a process called 'quality fade'.

Here's a simple version of how it works: the Retailer squeezes the Manufacturer on price which results in the Manufacturer only being able to carve out a 2% profit margin on the deal. Once the deal has been running for some time, the Manufacturer reduces quality (ingredients, components etc.) to gain a 10% profit margin. The change is subtle and people may be none the wiser.

Here comes the politics

AP reported Sen. Dick Durbin, D-Ill. saying: “Another week, another recall of Chinese-made toys." Rep. Mike Ferguson, R-N.J., said companies whose toys are made in China need to be sure their products meet U.S. safety standards. “If they don’t, I believe Congress must give federal regulators the authority to ensure that our kids’ toys won’t actually harm them,” he said.

With this renewed pressure there could be calls for raised trade barriers and demands for further Chinese Yuan currency re-evaluation to make it fairer for US exporters, although the US dollar has hit a 26-year low which is good for export trade and has got to be helping the US trade deficit.