Strategy-evaluation Framework for Mattel

Published Date: 23 Mar 2015 Last Modified: 10 Jan 2018

1.0 Strategy Review, Evaluation, and Control

The best-formulated and best-implemented strategies become obsolete as a firm's external and internal environments change. It is essential, therefore, that strategists systematically review, evaluate, and control the execution of strategies.

We have developed a general strategy-evaluation framework for Mattel:

1. Reviewing bases of strategy
2. Measuring organizational performance
3. Taking corrective actions

Besides that, we will introduce balanced scorecard as another strategy-evaluation tool to analyze Mattel from few areas of objectives: customers, managers/employees, investors/shareholders, operations/processes, community/social responsibility, and financials.

1.1 General Strategy-Evaluation Framework

1.1.1 Reviewing bases of strategy

Reviewing the underlying bases of Mattel's strategy could be approached by developing a revised EFE Matrix and IFE Matrix.

As being well described and analyzed in Chapter 3 and 4 of this report, here, we will revise EFE and IFE Matrix to review and evaluate how effective Mattel's strategies have been in response to key external and internal factors.

External Factors

Opportunities

• Mattel has a chance to market Barbie to the whole world and make it a recognizable brand worldwide. This has been proven that Mattel tries its best to improve its marketing strategies to penetrate different market segments and strive for stable revenue annually from international market.
• Weakening dollar makes the price of Mattel's toys becomes more affordable. It is helpful in increase its revenue. To take this advantage, in fact, Mattel has reduced the selling price of its products in some countries.

Threats

• Many children start abandoning tangible toys and looking for more interactive and technological toys or cyber/virtual games. That was why Mattel tried to diversify into software industry. However, until now, its result is not satisfactory. One of the reasons is, the adopted strategies are not matched with its corporate culture or operations.
• Global recession caused reduced spending or down trading for toys. This is inevitable despite how much effort has been made to stimulate the revenue. However, if Mattel is able to make it more affordable and create a need for customers, it might change its situation. However, strategies should be well developed.
• Different countries with different cultures and languages in fact have posed barriers which hindered market penetration strategies of Mattel. However, Mattel seemed to have overcome them well as it tried to market its products with different languages in different countries and modified the content of ads with some “local flavors”.
• Many other competitors keep coming out with different and better products, such high product substitution threat might threaten the competitive position of Mattel. Therefore, Mattel is particularly cautious with its product quality and safety issues. However, there was still an outbreak of toxic toy which caused few millions loss to Mattel.
• Due to the emergence of China market and since many production plants have been setup in China, raw materials are subject to price fluctuation when the economy of China appears to be unstable. To overcome this, possibly, Mattel can locate its plants at many different countries. The downfall in one country might be offset by the upturn of another country.

Internal Factors

Strengths

• With successful operational and marketing strategies, Barbie has been known as a long established brand for 60 years. With recognizable brand portfolio and wide product range to cater various life stage, in fact, Mattel has safeguarded its market leader position for years. One of the strategies is to have new product launch annually, so that, customers will have “surprise” every year. Such strategies are considered successful.
• With the effort and perseverance in maintaining business integrity and practicing corporate social responsibility, it has brought much credit to the reputation of Mattel. Despite the scandals, Mattel does have a group of loyal supporters and fans who will purchase new products of Mattel. Such strategy of creating loyalty and trust in customers is very effective in customer retention.
• Since Mattel has strategic partnership with Microsoft, Disney, BanDai and etc, this created an invincible strength for it. As there are so many other strong rivals who strive to win market share from Mattel, Mattel tries to form a strong alliance with other strong companies in the market.
• Devoted, highly-motivated and energetic management team which works together to make better and better products and performance and stay together during doom time, this shows that Mattel has a successful HR strategy which retains experienced and outstanding employees in the corporation.
• Since early year, Mattel has been keeping its intangible assets as its valuables, such as trade names and trademarks. That is why it has a particular department which deals with this issue.

Weaknesses

• Unprofitable mergers and acquisitions of the Learning Company had made a loss of nearly billion in Mattel's account. Although eventually Mattel sold off this subsidiary, this reduced the confidence of investors as Mattel's management is perceived as too reckless in M&A strategy.
• Due to many external changes, slipping popularity of their core product – Barbie has been shown in the declining sales of its product. Therefore, Mattel keeps coming out with new products to retain the interest and passion of customers.
• After the outbreak of toxic toys scandal, generally, the level of acceptance of customers has dropped. No doubt, Mattel has been striving to give the customers the best products, in terms of quality, safety, and etc, however, such an incident is nearly fatal to the reputation and future of Mattel. No matter how good the strategies are, one scandal might ruin the company as a whole.

1.1.2 Measuring organizational performance

This includes comparing expected results to actual results, investigating deviations from plans, evaluating individual performance, and examining progress being made toward meeting stated objectives. Both long-term and annual objectives are commonly used in this process. Criteria for evaluating strategies should be measurable and easily verifiable.

Generally, strategy evaluation is based on both quantitative and qualitative criteria. For quantitative criteria, financial ratios are commonly used. There are three critical comparisons:

• Comparing the firm's performance over different time periods
• Comparing the firm's performance to competitors'
• Comparing the firm's performance to industry averages

Mattel's performance over different time periods has been well explained in Chapter 7. Overall, Mattel is able to maintain its financial ratios over years. It only has slight increase or decrease occurred. Therefore, internally, we may say Mattel is financially stable and strong over years. Even during economic crisis period, it was still able to maintain its financial performance at a satisfactory level.

On the other hand, to compare the performance of Mattel to that of competitors and also industry averages, two main competitors, namely, Hasbro Inc. (HAS) and Jakks Pac Inc. (Jak) have been identified and served as a benchmark to compare the performance of Mattel Inc. (Mat).

From the table below, it is obvious that Mattel is the market leader of this industry which having splendid financial performance as compared to its main competitors. By looking at its valuation, profitability, dividend, growth, liquidity and asset ratios, Mattel is far better than competitors and industry averages. In short, based on quantitative criteria, Mattel's performance takes a leading position which created core competency for its sustainability and survival. However, it may guarantee long-term success if it does not proactively improve itself.

Year 2008	MAT	HAS	JAKK	Industry Averages
Valuation
Price/Earnings (TTM)	15.24	14.58	1.52	12.78
Price/Cash Flow	10.73	7.83	10.07	9.54
Price/Sales (TTM)	0.98	1.13	0.75	0.95
Price/Book	2.66	2.46	1.06	2.06
Per Share Data
Last Dividend	70.09	42.11	0	37.40
Book Value	5.88	9.3	11.66	1.95
EPS (TTM)	1.07	1.9	-12.8	-3.28
Revenue	5.91 B	4.02 B	903.39 M	3.61 B
Profitability
EBIDTA	742.00 M	654.33 M	101.79 M	499.37 M
Operating Margin	9.74%	12.29%	1.85%	10.29%
Profit Margin	6.41%	7.63%	1.42%	7.49%
Gross Profit Margin	45.19%	55.96%	35.56%	45.57%
Dividend
Dividend Yield	4.18%	2.96%	0.00%	2.38%
Payout Ratio	70.09	42.11	0	37.40
Dividend Yield 5 Year Average	3.33%	2.07%	0.00%	1.80%
Growth
Net Income	379.63 M	306.76 M	76.05 M	254.15 M
EPS (TTM)	1.07%	1.90%	-12.80%	-3.28%
Revenue	5.91 B	4.02 B	903.39 M	3.61 B
PEG	1.56%	1.44%	1.71%	1.57%
Financial Strength
Quick Ratio (MRQ)	6.41	7.63	1.42	7.49
Current Ratio (MRQ)	2.06	2.61	2.09	2.25
Long Term Debt to Equity Ratio (MRQ)	32.72	81.65	0	31.12
Total Debt to Capital (MRQ)	29.83	34.03	11.64	25.17
ROE	17.32	21.24	9.47	16.01
ROA	10.9	9.67	-46.98	-1.80
ROIC (Return on Invested Capital)	13.8	15.52	9.5	12.94
Assets
Asset Turnover	1.43	1.29	0.88	1.20
Asset per Employee	143,123.72	528,095.93	1.03 M	0.57 M
Inventory Turnover	6.72	5.74	6.79	6.42

Apart from quantitative criteria, there are some qualitative criteria needed to be taken into consideration. These criteria are presented in question forms, including the following questions:

* Is the hiring and recruitment process matched with the strategy?

Among the workers working at Mattel's plant, a large majority of the workers (79%) got their job by applying directly at the plant site, while another 19% were referred by friends. The average length of employment among the interviewed workers was approximately 4.0 years. However, for 26% of the workers, employment at Mattel was their first job. This indicates that while the workforce includes a sizeable proportion of temporary and seasonal workers, the core group provides Mattel with a substantial number of stable and experienced employees. The hiring process includes general company orientation, which covers such issues as the employment contract, rules of conduct, disciplinary measures, grievance procedures, wages deductions and overtime pay policies, transportation services, facilities, amenities and tour of the factory. Newly hired workers also receive information and training in the topics of Environmental, Health and Safety (EHS Orientation). Each worker at the Mattel's plant has a signed contract on file. Employee personnel records also include illness and injury reports; disciplinary action reports; medical examinations and maternity leave reports. All new hires are also given a medical examination. They also received job-related training of varying length based on the specific requirements of their jobs. Based on these mechanisms on hiring and recruitment, Mattel is able to ensure they have selected the best and right people to achieve company's goals.

Are the workers able to understand and practice GMP?

GMP is very important in ensuring the quality of products. Interviewed workers largely confirmed that they were familiar with various provisions of Mattel's GMP. Management Compliance Report (MCR) indicated that GMP document in local language was provided to all employees and is available in local language. The Plant Manager plays the key role in communicating GMP information to supervisors and employees. The MCR also stated that information on GMP is provided twice a year, through various sources such as the new hire orientation program, employee handbook, boards and the company intranet.

Are the plant's workers financially motivated to achieve company's objectives?

Financial compensations to plant's workers are very important to maintain the morale and motivation level of workers. The minimum wage for Tijuana is $41.67 (Mexican pesos) per day. Temporary workers at the Mexico's plant earn at least $74.00 per day; while the core group's minimum wage is $85. All overtime is paid at double wage rates, up to 9 overtime hours each week. All hours worked in excess of 9 hours per week are paid at triple rates. In addition, workers also receive attendance and punctuality bonuses. Besides, all confirmed workers are also entitled to annual leave, sick leave, maternity leave, free vacation, free transportation, free coffee and bakery products, free training courses, and etc. These policies are able to match the workers' objectives with company's objectives when they are well compensated.

Are work environment of manufacturing operations and related facilities able to ensure the quality of work from workers?

As an example, the plant in Mexico is a large plant consisting of one building covering an area of over 473,000 sq. square feet. The facility has installed a very modern and efficient delivery system for handling raw materials. Resins for manufacturing plastic are delivered by trucks to a roadside facility where they are stored in large silos. From there, they are delivered to the molding machines on the factory floor through a sophisticated computer-controlled system. The process is designed to keep the site clean and helps minimize spillage and waste.

The facility maintains, among others, detailed and up-to-date records on plant maintenance, air filtration, noise control, fire prevention, and safe storage of hazardous materials. The high standards of environmental health safety of the plant were also confirmed by the ICCA professional engineering audit team through an extensive “walk through” of the entire plant. ICCA's inspection confirmed that the plant was in “good” operating condition internally and in “fair” condition externally. The plant provides free-of-charge Personal Protective Equipment (PPE) to all employees where use of such equipment is required and appropriate. The factory meets or exceeds the GMP requirements for bathroom, wash basins, and clean drinking water. Toilets are equipped with an effective flushing system and are maintained and cleaned on a regular basis. The dining area at the factory canteen is quite attractive. Colorful paintings, natural light through large windows and TV for entertainment provides the dining room with a pleasant environment. There is also an outside eating area for those who wish to smoke. Employees are served two meals per shift. The meals are mostly subsidized by the factory with workers paying only a nominal sum. In addition, the medical clinic at the plant is excellent and well-staffed. It is open 24 hours and seven days a week. It is staffed with one medical doctor and three qualified nurses. The clinic has a good record keeping system for the workers' use of the clinic including work-related injury data.

In short, Mattel has a well maintained facility and operates in an efficient manner while ensuring that the plant provides a clean, safe and healthy work environment for its employees. This also helps to ensure the workers produce high-quality products.

1.1.3 Taking corrective actions

The final strategy-evaluation activity is about taking corrective actions, which requires making changes to competitively reposition a firm for the future. These corrective actions might be derived from the inspection of internal or external auditors who review and evaluate the practices and policies of a company. Some corrective actions, for example, like altering an organization's structure, replacing one or more key individuals, selling a division, or revising a business mission. Other changes could include establishing or revising objectives, devising new policies, issuing stock to raise capital, adding additional salespersons, differently allocating resources, or developing new performance incentives.

As for Mattel, despites some of the scandals, it has been performing well since its establishment. When there were discrepancies of performance from target, Mattel had made corrective actions accordingly.

1. Mattel Independent Monitoring Council for Global Manufacturing Principles

In this internal auditing practice, the physical plant, including all manufacturing and storage areas, were found to be in excellent condition. The plant and its related machinery were well maintained. The housekeeping appeared to be very good resulting in a neat, clean and safe operating plant. MIMCO was especially attentive to ensure that employees were properly using safety equipment and that environmental practices were being followed. However, there are few areas have been identified to make improvements.

• Employee Treatment by Line Supervisors
• MIMCO' report of the previous audit had noted that the primary source of employee dissatisfaction pertained to incidents, albeit infrequent, of verbal abuse by line supervisors especially when it is meted out in public and in the presence of co-workers. It was recommended that Montoi's plant management review all pertinent issues of supervision and human relations in its weekly meetings. Further, the plant management should take action to strengthen its first-line supervisor training program.
• Work-place Hazards

Mattel was found to have insufficient storage space as it had reached its maximum capacity. This shortage led to storage of volatile compounds in a tool crib in the middle of the factory' assembly line. Another issue of concern was the noise level in some areas caused by the sonic welding machines. This noise level was found to be in access of Mattel' GMP standards in the vicinity of the sonic welding operations. A possible work hazard described by employees was the risk of fire when water spilled from machines on the electric cables in work areas. MIMCO recommended an upgrade to the water feeding system and training of employees. The use of all-purpose utility knives to trim the mold marks was identified as a work hazard by management, production employees and the MIMCO team. These cuts were found to be a major source of injury and lost-days of work. Mattel had made corrective actions accordingly to rectify the mistakes and improve on the insufficiencies.

• Insufficient Bathroom and Toilet Facilities

In the initial audit of Montoi, employees had complained about long waiting time for the use of bathrooms. The employees felt that there were not enough bathrooms to meet their needs when the plant was operating at full capacity. Although, the number of available bathrooms met both the GMP standards and the Mexican law, it was recommended that serious consideration should be given to expanding these facilities. The Montoi plant has added 11 more toilets for female employees and 8 for male employees.

2. Mattel's corrective actions on ICCA 2004 Follow-Up Report of Mattel Owned and Operated Plants in China

• Regular and Overtime Work Hours

ICCA found that Mattel's plants were scheduling work hours in excess of Mattel's 60 hour per week requirement. In response to this, Mattel has elected to limit the maximum number of working hours to 60 per week during normal operations, and 72 hours per week during peak periods and other extraordinary situations, provided that overtime is voluntary, the employees are paid appropriately and work hours in excess of 60 hours per week, but less than 72 hours per week, do not exceed 1/3 of the year for each employee.

• Payment of Minimum Wages

Mattel's China partner at the Guan Yao facility had made a good faith effort in negotiating a minimum wage that was competitive with other local cities, and had sought out and received approval for the reduced minimum wage originally stipulated for their area. With respect to this reduction of minimum wage at Mattel's Guan Yao plant, Mattel has instituted a policy in conjunction with the new minimum wage increase slated for early 2005, which requires Mattel's China partner to pay the stated minimum wage for the area. Due to the inconsistency in legal opinion regarding local waivers allowing a reduction of the minimum wage, Mattel will no longer accept these types of waivers from the local labor bureau.

• Inappropriate Wage Rate During Temporary Shut Downs and Other Circumstances

There are three separate and distinct situations with respect to the amount of money employees are compensated for hours worked. In each case that ICCA has identified, Mattel has gone back and assessed an acceptable corrective action. For example, in the case of Guan Yao & Chang An, with respect to the payment of minimum wages during down time for internal factors within control of the plant operations, Mattel has instituted a policy of paying the employees minimum wage during these unexpected shutdown periods. This policy change was instituted in January 2004.

• Mandatory Deductions and Legally Mandated Benefits

Mattel's annual leave policy has been amended to reflect the actual days of service an employee has worked over the length of their tenure at Mattel. In 2004, Mattel will compensate employees with 5 days of paid leave for those who quit before the end of the year and have one year of service. Mattel's policy with respect to maternity leave was updated in 2004. All employees seeking maternity leave, regardless of whether they return to work, will be compensated for the full 90 days, as allowed under Chinese labor law. Mattel's policy on deductions for room and board was changed in 2004. All employees who stay in the dorm and eat at the cafeteria will be charged no more than 50 percent of their minimum wage rate. It should further be noted that staying in the dorms is voluntary for employees.

1.2 Balanced Scorecard

There are few criteria have been introduced to evaluate and review the performance of Mattel Inc.

1.2.1 Customers

Product Quality and Safety

Mattel's reputation for product quality and safety is among its most valuable assets. Their commitment to product quality and safety is an integral part of their design, manufacturing, testing and distribution processes, and is essential to the success of their business. Children's health, safety and well-being are their primary concern. They will meet or exceed legal requirements and industry standards for product quality and safety. They strive to earn their consumers' trust through their dedication to safety, and to exceed the expectations of parents. Employees have an obligation to immediately report any concerns about product safety or quality to Mattel's Worldwide Product Integrity Department.

Consumer Information

They respect the confidentiality of consumer information consistent with all applicable privacy and data protection laws and regulations. They do not share, sell or trade any private or sensitive personal information obtained online from children without the prior consent of the parent or unless compelled by legal process.

Advertising and Promotions

Mattel's brand and product promotion activities, including advertising, packaging, point of purchase displays, promotional programs and sweepstakes, should be conducted in a manner consistent with applicable laws and with their reputation for honesty and integrity. They adhere to high standards of commercial fairness in ads and promotions. They must accurately portray the features, quality and performance of their products in all advertising media and packaging in a manner appropriate for their target audience. They do not misstate facts or provide misleading or deceptive information about Mattel's products, or the products of a competitor.

They should be diligent in safeguarding the reputation of Mattel brands and products by being selective about promotional opportunities, such as event sponsorship and other joint promotions, avoiding association of Mattel's name with any product, service or activity which might be considered unsafe or inappropriate for children, or with any person or organization if the relationship might be damaging to Mattel's reputation.

1.2.2 Managers/Employees

Respect

They will treat others as they want to be treated - with respect, dignity and fairness. They have the right to work in an environment free from discrimination and harassment based on race, color, religion, sex (including pregnancy, childbirth or related medical conditions), sexual orientation, gender identity, national origin, ancestry, social origin, age, disability, marital status, veteran status or other protected characteristics. They also respect their co-workers' rights, and remember that such discrimination and harassment will not be tolerated. They should speak out when the conduct of a coworker makes them or others uncomfortable. They each have a responsibility to report to Human Resources any such harassment or discrimination that they experience or observe.

Diversity

Mattel recognizes diversity as an asset, and is committed to actively seeking and promoting diversity in the workforce. They value the different perspectives, insights and experiences of diverse individuals and cultures, and they aspire to create a company culture that encourages an expression of, and a respect for, diverse viewpoints. They provide equal employment opportunity for all applicants and employees, without regard to factors such as race, color, religion, sex (including pregnancy, childbirth or related medical conditions), sexual orientation, gender identity, national origin, ancestry, social origin, age, disability, marital status, veteran status or other protected characteristics. They make employment decisions to meet their business needs based on factors such as qualifications, skills and achievement. They comply with local and national employment laws.

Employee Health and Safety

Mattel is committed to providing a safe, healthful and environmentally responsible workplace, and has established safety programs to provide information and training for safe practices in the normal conduct of business and for emergencies. They are responsible for observing safety and health rules, for taking appropriate precautionary measures and for reporting unsafe or hazardous conditions to their supervisors, to Mattel's Global Sustainability Department, Global Security Department or local Mattel security personnel.

In order to maintain their high standards for quality, productivity and safety, they should be in suitable mental and physical condition at work. Possessing, buying or selling, using or being under the influence of illegal drugs or engaging in any other activities which create an unsafe work environment while on duty, or when on Mattel premises, are expressly prohibited. The consumption of alcohol while on duty or when on Mattel premises is prohibited except during approved Mattel social functions, or during business meals.

1.2.3 Investors/Shareholders

Protecting Mattel Assets

All employees and Directors share in the responsibility to protect Mattel's assets, including physical assets, financial assets, intellectual property and proprietary information from theft, loss, damage, misuse or waste. Those of them who have custody of company property, such as vehicles and laptop computers, should take appropriate measures to ensure their proper security and use.

Company assets should not be used for illegal purposes, or for personal benefit (except as may be allowed in company-approved compensation arrangements). Incidental personal use of company assets, such as telephones, personal computers and photocopying machines, is permitted as long as such use does not interfere with the employee's duties, is not done for monetary gain, does not conflict with Mattel's business and does not violate any Mattel policy or applicable law. The security of computer systems and electronic data should be protected by allowing access only by authorized persons, and by properly using passwords.

Commitments and Expenditures

Mattel has established policies that grant authority and establish review and approval requirements for commitments and expenditures. These guidelines apply to all financial expenditures (including capital expenditures), and to all agreements that commit Mattel's resources and define its business activities. Licensing agreements, joint venture or other strategic agreements, and contracts for the engagement of services, investments, acquisitions, or the lease or sale of corporate assets are examples of commitments subject to these guidelines. Only officers of Mattel (generally those having a title at or above the Vice President level) are authorized to enter into agreements on behalf of Mattel, and this authority is to be exercised only in compliance with the guidelines. They are each responsible for being familiar with these guidelines, understanding the scope of our authority, and ensuring that they do not make commitments (including oral commitments) that exceed their authority.

Intellectual Property and Confidential Information

Mattel's intellectual property, including trademarks, tradedress, trade names, copyrights, patents, internet domain names and similar rights or interests are among its most important assets. Improper use of intellectual property in advertising, packaging, correspondence and contracts can erode Mattel's rights. Questions regarding the proper use of Mattel's intellectual property are governed to the Law Department.

Confidential information is any information not generally known to the public that is useful to Mattel, that would be useful to its competitors or other third parties or that would be harmful to Mattel or its customers if disclosed. Confidential information includes revenue and profit information and projections, information regarding potential acquisitions, divestitures and investments, new product information, marketing plans, design and development efforts, manufacturing processes, and other trade secrets. Employees and Directors should not discuss confidential information with those who are not obligated to maintain the information in confidence or in public places where the information is not likely to be kept secret, such as planes, restaurants and elevators.

In view of the competitive nature of Mattel's business and the significant impact of the theft or unauthorized use of Mattel's intellectual property on Mattel's business and consumers, the protection of Mattel's intellectual property is one of the most important responsibilities of employment with Mattel. This obligation continues even after employment ends. Mattel recognizes and respects rights in intellectual property and confidential information owned by third parties. Mattel's employees should protect the confidential information of third parties from theft, misuse or unauthorized disclosure with the same degree of care used to protect Mattel's confidential information.

Insider Information and Securities Trading

Employees and Directors who have access to confidential information are not permitted to use or share that information for purposes of trading securities of Mattel or any other company, or for any other purpose except the conduct of our business. All non-public information about Mattel and non-public information about Mattel's business partners obtained in the course of employment at Mattel should be considered confidential information. To use such information for personal financial benefit or to "tip" others who might make an investment decision on the basis of this information is not only unethical, but also illegal. Employees and Directors should be familiar with and follow Mattel's Insider Trading Policy, and should contact the Law Department with any questions.

Communications with Investors

To ensure compliance with the securities laws, it is Mattel's policy that only certain designated officers and Directors designated from time to time are authorized to communicate with investors and securities market professionals, including brokers, analysts and other market professionals on any subject relating to Mattel business. No other employees or Directors are to engage in any such communications and they should refer all requests for information to the Investor Relations Department.

Accuracy of Company Records, Public Reports and Communications

Mattel is committed to provide full, fair, complete, accurate, timely and understandable disclosure of information, including financial information, in reports filed with the Securities and Exchange Commission and other public communications, in accordance with applicable laws, rules and regulations. Financial books, records and accounts are maintained in reasonable detail, accurately reflect transactions and events and conform to applicable legal and accounting requirements and to Mattel's system of internal controls. In order to fulfill their responsibility for sound decision-making, they require honest and accurate recording and reporting of business information and transactions, including quality, safety and personnel data records, as well as financial transactions and records. Falsification of any record or financial report, such as quality and safety data, time reports or expense reports, will result in immediate disciplinary action.

Recording and Retaining Business Communications

Communications (even those they may consider "private" or "personal") may become public, so all correspondence should be clear and accurate. They avoid exaggeration, inappropriately colorful language, derogatory characterizations and, except for members of the Law Department, legal conclusions. These guidelines apply to communications of all kinds, including e-mail. They follow Mattel's records retention policies and procedures, and in accordance with those policies they should contact the Law Department in the event of litigation or government investigation.

1.2.4 Operations/Processes

Doing Business With Others

They are committed to expanding and improving Mattel's business through business alliances, including customers, suppliers, vendors, subcontractors, licensees, agents, joint ventures, etc. They will build productive relationships with business partners based on integrity, legal and ethical behavior and mutual trust. They seek to do business with customers and suppliers who reflect the diversity of the worldwide community in which they operate. Any person who acts, or who could be perceived as acting on Mattel's behalf should be made aware of Mattel's Code of Conduct.

Integrity, ethical behavior and mutual trust should be important criteria when evaluating and selecting their business partners. They seek to do business with parties who enjoy a history of ethical behavior.

Fair Dealing

Employees and Directors should endeavor to deal fairly with Mattel's customers, suppliers, competitors and employees. We should never take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair-dealing practice.

Responsible Manufacturing and Distribution Practices

Mattel's Global Manufacturing Principles (GMPs) are the cornerstone of their ongoing commitment to responsible manufacturing and distribution practices around the world. These standards apply to all parties that manufacture, assemble or distribute any product or package bearing the Mattel logo.

Mattel's GMP includes some of the most detailed and comprehensive standards in the consumer products industry. Detailed standards have been developed for each of the principal countries in which Mattel conducts its manufacturing and distribution operations. The standards address a wide spectrum of issues relating to living and working conditions. They serve as the criteria according to which Mattel's internal and independent monitoring programs operate around the world. Mattel works closely with its business partners to ensure compliance with the GMP.

Purchasing Practices

All suppliers should be treated in a fair, ethical and impartial manner. All decisions regarding suppliers and vendors of goods and services should be made on the basis of factors such as suitability, quality, price, and delivery. Individuals involved in the review and selection of potential suppliers, vendors and services providers must be diligent in avoiding actions that convey or imply that decisions will be influenced by favors or concessions, or by personal or family relationships.

1.2.5 Community/Social Responsibility

Community Service

Mattel is committed to improving the communities in which it operates through Philanthropy programs supported by Mattel and accomplished by voluntary efforts of Mattel employees. As a company, Mattel works to improve the lives of children in need through a variety of efforts, including corporate financial and product contributions, organized employee volunteer activities and through programs administered by the Mattel Children's Foundation.

Environment and Sustainability

Mattel is committed to protecting the health and safety of its employees, as well as minimizing their impact on the environment. Mattel strives to be a responsible citizen in the communities in which they operate. As part of this commitment, they follow environmental laws and regulations applicable to their operations worldwide, and integrate environmental, health and safety standards into their business operations to reduce risks, minimize impacts and strive to provide a safe, incident-free workplace.

Communication to the Media

In order to ensure that the information provided to the public is accurate and consistent, all communications to the media should be coordinated with Corporate Communications. They should not engage in conversations with the media without prior authorization from Corporate Communications, and if contacted by a member of the media should refer inquiries to Corporate Communications.

1.2.6 Financials

In 2008, Mattel received over $5.9 billion in net sales, down 1% from 2007, largely due to falling consumer spending during the U.S. recession.

Mattel's revenues have grown at a compound annual growth rate (CAGR) of 3.7% since 2004, when total revenues were $5.1 billion.

Gross margin has fallen from 49.0% in 2003 to 45.4% in 2008, due to a combination of price pressures from retailers and increasing input and distribution costs related to commodity and oil prices.

In 2007, Mattel's reputation took a major hit when the company recalled 967,000 toys due to issues with lead paint in the products. The firm stopped two-thirds of the products from reaching consumers, but over 300,000 items were bought by consumers in the United States. The products were manufactured by a Chinese sub-contractor but several lawsuits have been brought against Mattel for the incident, in addition to masses of bad press.

If classified as brands of product, contribution to sales is as below:

Mattel Boys & Girls Brands (56% of sales): This segment includes most of Mattel's traditional products and licensing agreements from other companies such as Disney (DIS), Time Warner (TWX), and DC Comics. The Girls brands include: Barbie, Polly Pocket, and Disney Classics. The Boys brands include: Hot Wheels, Matchbox, Tyco R/C brands, and licensed DC Comics products such as superhero action figures. This category also includes Radica Games, an electronic game maker acquired by Mattel in 2006. This segment experienced a 2% decline in gross sales during 2001.

Fisher-Price Brands (37% of sales): This segment includes products designed for younger children. The core brands within this category include: Fiscer-Price, Little People, BabyGear and View-Master. The Fisher-Price segment also includes licensed products from Nickelodeon (Dora the Explorer and Go-Diego-Go), Sesame Street, and Disney (Winnie the Pooh). Gross sales for the Fisher-Price group increased 1% worldwide during 2001.

American Girl Brands (7% of sales): American Girl operates as a subsidiary of Mattel and sells most of its products directly to customers exclusively in the U.S., although Mattel operates a handful of American Girl doll retail stores throughout the country. American Girl products include a range of dolls, books, clothes, toys, and accessories for girls aged 3 and up. American Girl sales increased 7% in 2008, largely driven by the summer 2008 release of the film Kit Kittredge: An American Girl which led to increased sales of dolls and products related to the movie.

On the other hand, Mattel divides its business into two primary sectors: Domestic/North America and International. Mattel products are sold directly to retailers in most European, Latin American and Asian countries; in Australia, Canada and New Zealand, its products are sold through agents and distributors (Mattel has no direct sales presence). Except for American Girl, which is not sold internationally, Mattel offers the same products in both domestically and abroad. It does tailor product mix to regional fads and the quality is varied due to price sensitivity.

Mattel's international sales accounted for 49% of its gross sales in 2001. Europe, which accounted for 27% of 2007 sales, is Mattel's largest market outside of North America. In 2008, domestic sales fell 2% while international sales were only down 1%, as sales in each region differed: Europe (-6%), Latin America (+7%), Asia Pacific (+4%).

Based on this six-criterion balance scorecard, we have thoroughly and comprehensively reviewed the strategies and practices of Mattel. Next, we will address some scandals and disputes happened in the past few years which posed a challenge to the strategies of Mattel.

1. The Learning Company acquisition

In May 1999, at the height of the Dot.com bubble Mattel acquired The Learning Company for $3.5 billion in stock or 4.5 times annual sales. The Learning Company was considered at the time one of the leading entertainment and educational software companies, owner of such titles as Reader Rabbit, Carmen Sandiego, Myst, Riven and National Geographic but had in 1997 accumulated losses of $475 million. Mattel thought that this acquisition would help business diversification by giving the company a leading position in the market of consumer software. Mattel CEO Jill Barad expected to have direct internet sales for all Mattel's toys and predicted that Mattel sales over the Internet would reach $1 billion in a few years.

In the third quarter of 1999, Mattel expected The Learning Company to post $50 million in profits but in reality it posted losses of $105 million. Despite this loss, CEO Jill Barad continued to be optimistic. Things worsened in the fourth quarter, as The Learning Company's pre-tax losses reached $183 million. For the year The Learning Company's pre-taxes losses were $206 million, on revenues of $750 million. The Learning Company's losses depressed Mattel's 1999 profits and as a result, Mattel posted a $82 million net loss compared to a $206 million net income in 1991. Mattel also warned that it would take a revamping charge of $75 million to $100 million in the first quarter of 2000 because of The Learning Company.

By 2000, Mattel was losing $1.5 million a day with The Learning Company, and Mattel's stock price (which reached a high of $45 in March 1998) traded at $11 in February 2000. Under pressure on February 3 Mattel's CEO Jill Barad resigned but received a $50 million severance package. In April Mattel announced that it was selling The Learning Company, analysts predicted that The Learning Company could be sold for $400 million, then for $200 million. In the end, in October, The Learning Company was sold to Gores Technology for nothing other than a percentage of The Learning Company's future profits. In addition Mattel fired 10% of its workforce to further cut costs. As a result of this restructuring Mattel posted a net loss of $430 million for the year 2000.

2. Toxic Toys Scandal

On August 2, 2007, Mattel's Fisher-Price subsidiary recalled almost one million Chinese-made toys, including Dora the Explorer and Sesame Street toys, because of potential hazards from parts of the toys which were colored using lead-based paint that may have exceeded the US Federal limit of 600 part per million. In worst cases, Mattel toys' lead in paint was found to be 180 times the limit. The paint on the toys was up to 11% lead, or 110,000 parts per million. U.S. Federal law allows just 0.06% lead, or 600 parts per million. Children who suck on or ingest toys or jewelry with high lead content may be poisoned, which can lead to learning and behavior problems, even death in some cases.

On August 14, 2007, Mattel recalled over 18 million products because it was possible that they could pose a danger to children due to the use of strong magnets that may detach. Strong small magnets could be dangerous to the children if two or more were ingested, attracting each other in the intestines and causing damage. Some instances were reported. A child swallowed a Polly Pocket toy magnet and had to undergo a surgery. At the time of the recall, none of the American or European safety legislation and standards addressed the specific hazard of strong magnets. Some of the products had been available in U.S. stores since 2003, during which time Mattel did not consider them harmful enough to warrant a recall. After incidents with similar magnetic toy parts being swallowed, causing perforation of the intestines, Mattel re-wrote its policy on magnets, finally issuing this recall in August 2007.

Recalled items included die-cast Cars character, Sarge, made between May and July 2007, found to have been manufactured using paint containing higher than acceptable levels of lead (436,000 recalled globally), 7.1 million Polly Pocket toys produced before November 2006; 600,000 Barbie and Tanner Playsets; 1 million Doggie Daycare; Shonen Jump's One Piece; and thousands of Batman Manga toys due to exposed magnets. 11.2 million items were recalled in total.

Zhang Shuhong, co-owner of the Lee Der Toy Company, which had made a number of toys for Mattel, committed suicide by hanging himself at one of his company's factories in Foshan on August 11, 2007, according to authorities. In the factory's loading bay, the BBC's Quentin Somerville found boxes of toys made for Mattel and Fisher-Price going nowhere. The Lee Der business was closing for good.

On September 4, 2007, Mattel recalled a further 530,000 affected toys in the United States — and 318,000 outside the United States — after its intensive testing found that the Chinese-made products contained levels of lead in painted parts that were above the acceptable limit set by the company. This third recall in a month included accessories for Barbie dolls and Fisher-Price toys.

June 5, 2009 the Consumer Product Safety Commission fined Mattel and its' Fischer-Price division $2.3 million dollars for violation of Code 16 of Federal Regulations CFR 1303, the Federal lead paint ban. While Mattel agreed to the fine, no wrong doing was admitted on the companies' part.

Such news did have tremendous effect on Mattel. Mattel is now faced with declining market share and flat sales of its core toys. After the recalls have been announced by Mattel toys, some parents are mulling a Mattel toy boycott. Four corporations won Bad Product Awards this year, namely Coca-Cola, Kellogg's, Mattel and Takeda. The world federation of consumer organizations, Consumers International (CI) announced the winners of the International Bad Product Awards, to be presented at CI's World Congress in Sydney, Australia, 29 Oct - 1 November 2007. Among others, Fortune magazine rated the recall of Mattel's products as one of the 'Dumbest Moments' in business for 2007.

Because of these scandals, Mattel has increased audits and testing of all products. In August 2007, CEO Robert Eckert said, “We were let down, and so we let you down,” referring to the three massive product recalls for lead contamination of paint.

On September 21, 2007, Mattel's Executive Vice-President for worldwide operations, Thomas Debrowski, traveled to Beijing. In a meeting with China's product safety chief, Li Chanjiang, Debrowski took full responsibility for the magnet recalls and said that, “vast majority of those products that were recalled were the result of a design flaw in Mattel's design, not through a manufacturing flaw in China's manufacturers.” Reading a prepared text, he continued, “Mattel takes full responsibility for these recalls and apologizes personally to you, the Chinese people, and all of your customers who received the toys.”

Apart from these scandals, some of the lawsuits involving Mattel are as follows:

• Keller Rohrback L.L.P. Files Suit Against Mattel, Inc. for Selling Toys Covered in Lead Paint.
• Mattel Lawsuit Seeks Lead Tests for Children.Class action wants toymaker to pay for medical testing.
• Family files suit against maker of Polly Pocket after son undergoes surgery.
• Mattel against Winx Club.
• Shareholders File Lawsuit Against Mattel Over Toy Recalls.
• Mattel sued the band Aqua, saying they violated the Barbie trademark and turned Barbie into a sex object, referring to her as a "Blonde Bimbo." The lawsuit was finally rejected in 2002.
• Mattel is currently involved in legal proceedings with Super Duper Publications in an attempt to suppress Super Duper's use of the words "and say" in their therapy products. Super Duper Publications specializes in materials for use in special education classrooms but Mattel accuses Super Duper of trying the dilute their "See N' Say" product line.
• Mattel won the legal battle against Super Duper Publications and was awarded $400,000 in penalties. They are now seeking millions of dollars to pay for their legal expenses and costs.
• Mattel Inc. defeated MGA Entertainment Inc. in a conflict over the creation of the Bratz doll line. The U.S. District Court in Riverside ruled that Bratz designer CEO, Carter Bryant, violated the terms of his exclusivity contract with Mattel. It was decided that he created the Bratz doll concept while he was working for Mattel. This decision will lead to the possibility for Mattel to claim right to the Bratz doll line as well as the right to receive damages.
• Mattel Inc VS Playing Mantis. In the mid 1990's Playing Manits released a line of rechargeable cars which were a direct copy of the 1970s Mattel Hotwheels Sizzlers with the same name. The merchandise was quickly removed from store shelves. Mattel won the case, however the payout from Playing Mantis remains unknown. Since Mattel has re-released its own line of Sizzlers through an exclusive deal with Target Stores.

In conclusion, Mattel has made many good policies and practices in doing business, however, it has violated its own codes of practice due to wrong decision and negligence. As in the case of The Learning Company acquisition, in fact, the ex-CEO had made a very wrong decision and strategy to diversify into an industry that it is not familiar with. Besides, without taking cautious and complete planning, acquiring a failing company had caused a net loss of few billions to Mattel. Such mistake, of course, reduced the confidence level of investors and posed share price of Mattel dropped more than 75% (from $45 to $11).

From the case of toxic toys, we also see that Mattel is negligent in product quality control and safety testing. Until the first outbreak of poisoning case, Mattel only realized the problems associated with its products. Such a scandal had badly struck the confidence of customers and public. In fact, until now, many parents are still doubtful of the safety of its toy products. From ethical aspect, Mattel did not admit their negligence and fault in producing toxic and dangerous toys. They claimed that these were the faults of China producers. Eventually, it was proven that the scandals were caused by design flaws from US, not solely because of China producers. Subsequently, CEO of Mattel, under public pressure, openly apologized to China people and customers.

From these incidents, we learnt that, no matter how good the planning and strategies are, without proper implementation and control from company's management, everything is in vain when company lost its trust in the eyes of public, especially customers, investors and the community.