Mattel's apology to China seems designed to appease a key partner

The Chinese call it "guanxi," and it refers to the relationships that are so crucial to doing business in their country.

To many observers, it helps explain why a high-ranking Mattel executive appeared with Chinese government officials Friday to apologize publicly for having to recall more than 21 million toys because of lead paint and dangerous magnets.

The toys had been made in China, so why was Mattel eating crow?

"It's the whole concept of guanxi — cooperation — and face-saving," said Mark Allenbaugh, a lawyer who consults with companies doing business in China.

"Mattel has developed relationships over the years, with the factories and with government officials. That can all disappear very quickly if Mattel went the other route and blamed the Chinese manufacturers as being the bad guys here."

At the Friday meeting, Thomas Debrowski, Mattel's executive vice president for worldwide operations, personally apologized to China's product-safety chief, Li Changjiang, as reporters and company lawyers watched.

"Mattel takes full responsibility for these recalls and apologizes personally to you, the Chinese people, and all of our customers who received the toys," Debrowski told Li.

Debrowski acknowledged the "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."

Lead-tainted toys accounted for only a small percentage of all toys recalled, he said, adding that: "We understand and appreciate deeply the issues that this has caused for the reputation of Chinese manufacturers."

Li told Debrowski of his displeasure at the admission that perhaps too many toys had been targeted.

"You cannot recall 10,000 products just because one is substandard. This is unacceptable," he said.

Few companies would know better than Mattel, the world's largest toy maker, about the importance of guanxi. The El Segundo, Calif., company imports 65 percent of its products from China and, unlike most others in its industry, owns the factories there that produce many of its goods.

Because so much of its business is based in China, it's especially important for Mattel to be on good terms with the Chinese government, said Allenbaugh, the lawyer, who also owns an Irvine manufacturing company that imports products from China.

"The Chinese government can make it very, very difficult and expensive for a company like Mattel to continue to do business in China," he said.

But as news of the apology circulated, Mattel had the difficult task of trying to quell a brewing storm, a week before Chairman and Chief Executive Officer Robert Eckert visits China to personally inspect the company's new manufacturing safeguards.

"China should be apologizing as well to consumers around the world for exporting shoddy products and dangerous food," said Sen. Charles Schumer, D-N.Y.

Mattel said later Friday that the meeting between Chinese officials and Debrowski had been "mischaracterized."

A spokeswoman said Debrowski's appearance in Beijing was no different from similar testimonials before Congress and European Union officials.

"Since Mattel toys are sold the world over, Mattel apologized to the Chinese today just as it has wherever its toys are sold," Mattel said.

China's complaint

In a series of recalls this year of Chinese-made products that began last winter with tainted pet-food ingredients, Chinese officials have complained that their factories have gotten undue criticism. Consumers failed to consider foreign companies' lack of oversight, Chinese officials said, or the billions of safe products Chinese factories produce.

"Mattel would [apologize] ... because they want to keep good relations with China," said Susan Aronson, a professor at the George Washington University School of Business and an expert in global corporate social responsibility. "Apologizing for a corporate mistake is not common in the United States, but it's common in other countries, particularly in Asia."

Eric Johnson, a professor of operations management at Tuck School of Business at Dartmouth College, said, "Mattel certainly must have been facing some pressure to [apologize] ... because you can't imagine why they would be trying to push this story along any further."

He suggested Mattel may want to prevent China from imposing more taxes or regulations. "China's embarrassment in all this could lead to that, and I think they were trying to head that off with this apology," Johnson said.

Peter Navarro, a business professor at the University of California, Irvine, and the author of "The Coming China Wars," also suggested Mattel was trying to avoid punitive measures.

"Mattel is worried that the Chinese government is going to make it difficult for them to produce, put their costs up and hurt their stock price," Navarro said.

For its part, Mattel has said repeatedly that its biggest recall had nothing to do with China or shoddy production.

This summer, Mattel issued three separate recalls of toys made in China, more than 21 million, featuring characters such as Barbie, Big Bird and Elmo. Some toys contained excessive amounts of lead and that received heavy media coverage. Overall, however, more recalls involved design flaws, such as tiny magnets that can seriously injure children if swallowed.

The problem, Mattel's Eckert said again and again, was in design, not manufacturing.

The company also has said from the beginning that out of an abundance of caution, it was recalling all products with even the slightest chance of cross-contamination from lead paint.

The design factor

Emphasizing the design issue, the official New China News Agency story on the Beijing meeting said an investigation showed that 87 percent of the 21 million recalled toys had design flaws, and 13 percent contained excessive lead.

"Expanding the recall without disclosing the exact proportion of the recalled toys among all its imports isn't proper," Li told the news service.

Indeed — perhaps in deference to guanxi — Mattel's statement in China highlighted the scope of the recall and the source of the magnet problem.

"The magnet-related recalls were due to emerging issues concerning design, and this has nothing to do with whether the toys were manufactured in China," Debrowski said.

"Mattel does not hold Chinese manufacturers responsible for the design in relation to the recalled magnet toys."

Given Mattel's significant investment in China — making it difficult to quickly shift production elsewhere — Mattel may have had little choice but to apologize.

"They had to give a 'mea culpa' to the Chinese government in order to move forward so they can get back to business," said Drew Thompson, director of China studies for the Nixon Center in Washington, D.C.

Thompson said the tactic could backfire. "I'm not sure [the Chinese] considered the potential impact this is going to have on future foreign direct investment," he said. "This incident makes China look like they're bullying a company that has made significant investments in the Chinese economy.

"It has struck a nerve here in the States in a way that I don't think the Chinese government has appreciated."

Material from the Los Angeles Times, The Washington Post, Reuters and The Associated Press is included in this report.