One on One with Eric Johnson, Prof. of Management at Dartmouth's Tuck School of Business
Monday, December 17, 2007
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SUSIE GHARIB: Toy safety is a hot topic this holiday season and a new poll says most Americans aren't sure whether to trust major toymakers when it comes to ensuring product safety. The Zogby poll released today says just 42 percent of Americans associate major toy makers like Mattel and Hasbro with safe products, while about the same amount do not. The survey also showed 83 percent of Americans associate unsafe toys with China, while 70 percent think American-made toys are safest. What impact is this attitude having on the toy industry? Joining us now with his analysis, Eric Johnson, professor of management at Dartmouth's Tuck school of business, who has conducted extensive studies about the Chinese toy industry. Hi Eric.
ERIC JOHNSON, PROFESSOR, TUCK SCHOOL OF BUSINESS AT DARTMOUTH: How are you doing, Susie?
GHARIB: Good, thank you. Well, tell us, I mean what impact are these safety issues having on the toy industry? Is there anyway you can quantify for us?
JOHNSON: Well, it certainly has been a wild year. I mean it's hit such big brands, brands like Mattel and Fisher-Price and characters like Elmo and Big Bird. These are right in every American's home. So certainly it has shaken their confidence. And we see surveys showing that a quarter of parents are worried about it. That said, you know, they really haven't stopped buying. I think they are just being more careful. Checking the web sites, looking at what the Consumer Product Safety Commission is saying, looking at the manufacturers are saying and maybe avoiding some of the Chinese toys.
GHARIB: How serious is the situation in terms of quality and in terms of safety? Is it perceptional or is it reality?
JOHNSON: Well, certainly the vast majority of toys are safe and even those toys coming from China. But I think it is just the fact that we have seen one after another all the way back to last summer of some really, you know, big brand toys. That shakes people's confidence. And so it does create some skepticism.
GHARIB: What in your view is the right way to fix the situation? What should companies like Hasbro or Mattel do to monitor the supply chain that works into facilities in China where these toys are being made?
JOHNSON: Well, the key to the problem is deep in the supply chain. Sometimes the second or third level suppliers and from companies like Mattel, it really means that they have to push their quality management practices deeper into the supply chain. It is not good enough to look at the first-tier suppliers. Those suppliers have to be managing their suppliers and their suppliers' suppliers. And that is going to be a challenge. It's something I call product genealogy. Where did the stuff come from that went into your stuff? And it is not just toys. It is going to affect other products as well.
GHARIB: What do you mean, what other products? You mean outside of the toy industry, other industries?
JOHNSON: Absolutely. I think we'll be watching other manufacturers in the next year or two struggling with this same problem with low-cost country sourcing.
GHARIB: So is it realistic to think that there is anything that regulators can do to correct the situation, whether we are talking about U.S. regulators or Chinese?
JOHNSON: Well, certainly the U.S. Consumer Product Safety Commission could use a little more staffing. It is not that they can inspect everything coming in our borders. That is far too big of a problem, millions and millions and millions of toys alone coming across. But a little more effort could be useful and certainly one that would make consumers feel safer.
GHARIB: What about retailers? What is their role in this whole process, especially big ones like Wal-Mart. What influence can they have on improving the safety of toys made outside of the United States?
JOHNSON: Well, in the toy industry, there is an amazing consolidation in the retail channel. And we now see well, Wal-Mart having about a third of the U.S. toy market. If you take the big three, Wal-Mart, Target, Toys R Us, they're more than half of the U.S. market. And so they have tremendous power that they can assert. And you know, they have a stake in this and in fact are working with the manufacturers to improve the situation because it is near and dear to their heart. When I look at Wal- Mart's top 12 toys this year, 11 out of 12 came from China. And one of them, you know, one of the ones on their top 12 list, one that was very popular, Aqua Dots, had to be recalled. You know, and it just a bizarre story of a product that became toxic when ingested.
GHARIB: OK. Well, we'll leave it there. I hope parents have a more successful time when they are buying their toys this season. Eric thank you very much for coming on the program. We appreciate it.
JOHNSON: Thank you.
GHARIB: My guest tonight, Eric Johnson of Dartmouth's Tucks school of business.
