AnalysisMattel's apology to China highlights a deeper problem

You may recall the 1 April 2001 incident in the air off the coast of China: A U.S. spy plane was flying over international waters along the coast. The Chinese sent two of their fighter jets to see what was going on, and perhaps send a message to the United States, but one of their jets got too close to the American plane, collided with the U.S. plane’s left wing, and crashed in flames, killing the pilot. The disabled American plane managed to land in a Chinese military airport, and China insisted on the United States apoologizing for violating Chinese sovereignty before the crew was released. Eventually some diplomatic wording was found which allowed China to claim the United States apologized, and for the United States to claim that it did not.

It is the same with the recent toy-maker Mattel’s apology to China. That apology was reluctant and was no sooner made than it was partly retracted. “Mattel takes full responsibility for these recalls and apologizes personally to you, the Chinese people and all of our customers who received the toys,” said Thomas Debrowski, a senior executive at the world’s biggest toymaker, which has had to recall twenty-one million toys this year. He said these words during a meeting in Beijing on 21 September with Li Changjiang, the chief of China’s quality watchdog. Only a few hours later Mattel said that the nature of the meeting had been “mischaracterized,” and that the apology in Beijing was not a kowtow to the Chinese but merely an elaboration of the apology the company had already made to consumers all over the world.

The Economist correctly points out that this episode highlights the nub of the problem. Western companies in China are operating in a largely lawless environment. “There is hardly any effective regulation and little recourse to law,” it writes. In August the government published its first white paper on food safety in the wake of 96 deaths from food poisoning in the first half of the year. With oversight of food safety spread between five different ministries, responsibilities are still murky. The Chinese have no culture of compliance and cut corners on safety and quality when squeezed on price, says Susan Aaronson of the George Washington University School of Business in Washington, DC. Western firms doing business in China thus have a responsibility to do their homework and keep a vigilant eye on their suppliers. “Buyers of toothpaste or dog food, which have also been subject to safety scares and recalls this year, should have known that more than one-fifth of China’s food products failed government safety-tests last year. Corruption, blackmail and counterfeiting are rampant,” th Economist writes. Eight buyers at Carrefour, a French supermarket chain, are under investigation for accepting kickbacks from suppliers. Zheng Xiaoyu, a former boss of the SFDA, was executed earlier this year for taking bribes to approve fake drugs and certificates claiming that the paint used by Mattel’s suppliers was lead-free.

Jean-Pierre Lehmann, an Asia expert at IMD, a business school in Lausanne, says the Chinese focus on high-volume, low-cost manufacturing has worked well in the initial phase of the country’s economic take-off, but that producers must now pay more attention to quality, brand development, governance, and transparency, or more harm will be done to “Made in China.”