Mattel integrates its factories in China

As a leading enterprise in the global toy industry, Mattel Group (hereinafter referred to as "Mattel") is an American-funded enterprise that invested and built factories in the Pearl River Delta in the early days of China's reform and opening up, and its subsidiary produces Barbie dolls Foshan Nanhai Sino-American Toy Factory (hereinafter referred to as "Sino-American Toy Factory") This year is exactly 40 years old.

However, at this point in time, there was news in the industry that "Mattel's Foshan factory will complete the capacity transfer work in 2024", which further triggered the discussion of Mattel's accelerated "withdrawal" from China.

On April 7, a number of staff members of Sino-US toy factories told the Economic Observer that they had not yet received an official notice from the company, but "closing the factory this year" was indeed a tacit matter in their hearts.

This is not the first Chinese plant that Mattel has decided to halt.

According to the information on Mattel's official website, the company was founded in 1945, headquartered in California, USA, with brands such as Barbie and Thomas, and currently has companies or manufacturing bases in Shenzhen, Dongguan, Foshan and Yanshan in Guangdong.

The Economic Observer reporter learned that at the beginning of 2022, Mattel merged part of the production capacity and employees of Dongguan Ledika Game Machine Manufacturing Co., Ltd. (hereinafter referred to as "Dongguan Ledika") into Dongguan Changan Mattel Toys Co., Ltd. According to industrial and commercial data, Dongguan Ledika was established in 1994 and became the production base of Mattel in China in 2006, which is still in existence.

A person from the former Guanyao Community Residents' Committee (hereinafter referred to as the "Neighborhood Committee") in Foshan City told reporters that the reason for the suspension of production of the Sino-US toy factory is suspected to be "the expiration of the contract with the government" and "poor efficiency". He recalls that around 2018 and 2019, the rent of a nearby industrial park rose sharply, causing many factories to leave, "some closed, some went to Guangxi, and the people on the street (Fengyuan West Road) were gone."

This former member of the neighborhood committee believes that the departure of the Sino-US toy factory has something to do with "land is expensive." Another person who is in charge of Mattel's personnel work in Foshan told reporters that at present, the work of the production line personnel of the Sino-US toy factory is scheduled until August, and part of the subsequent production capacity will be merged to another Mattel factory about 1.5 kilometers away from the factory.

Cost optimization

There are two bus stops on Fengyuan West Road, Nanhai District, Foshan City, called Guanyao Zhongmei Factory Station. On Fengyuan West Road, Mattel's production plants, staff dormitories, and guest houses are built in succession, and at a glance, five or six buildings look magnificent and eye-catching.

This is the earliest prosperous commercial area in Guanyao Town, and it is also the center of the town now. For locals, "having worked at Mattel" is a common occurrence.

"When the Sino-American Toy Factory was first built, a lot of the surrounding area was still farmland. On April 7, a local resident told reporters that his neighbor and his wife were both retired employees of the Sino-American toy factory.

The Economic Observer reporter learned from local residents and employees of the Sino-US Toy Factory that the current Mattel Foshan factory includes the former Sino-US Toy Factory (MGY) and Foshan Mattel (MFC), which mainly produces plastic and electronic toys such as Barbie and Thomas, with a total of more than 7,000 employees.

Among them, Sino-US Toy Factory is a joint venture between Mattel and the former Shishan Town Government of Guangdong Province in 1984, mainly producing Barbie and other plastic toys, with a plant area of 100,000 square meters and about 6,000 employees in 2018. Tianyancha information shows that Foshan Mattel includes Foshan Nanhai Mattel Toys Co., Ltd. and Foshan Nanhai Mattel Die Casting Co., Ltd., the latter of which is indirectly held by the state-owned enterprise Foshan Nanhai Shishan Investment Holding Co., Ltd.

Zhang Guoqiang, who is responsible for the warehousing record work in the Sino-US Toy Factory, has been working for nearly 40 years. He told reporters that he was 56 years old this year, and when he was 17 years old, he was introduced to the factory by his relatives, because he felt that this was a cooperation project between American enterprises and the government, and he felt that it was "advanced, formal, and well developed."

Zhang Guoqiang's idea was later confirmed. In his memory, Mattel's Foshan factory had tens of thousands of employees in its heyday, and when it was time to get off work, Fengyuan West Road was full of people coming and going, and the vegetable market was also crowded. Over the years, he said, Mattel's factories have been stable, even when the economy has been volatile.

"I don't have a degree, I don't dare to go out casually, the salary here is slowly rising from a few hundred yuan, and now it adds up to six or seven thousand yuan a month. Zhang Guoqiang said that since about 2015, the factory's orders have fluctuated, and since 2018, it has been "sluggish". In the past two years, he and his colleagues have felt more clearly that "business is not easy to do".

Zhang Guoqiang told reporters that according to the information he has heard so far, the Sino-American toy factory where he works will be closed, but there are no new adjustments to other Mattel factories in Foshan for the time being. As of the day of the reporter's interview, Zhang Guoqiang was still waiting for the company's notice, whether it was retirement or diversion, he was not worried. This is also the current mentality of many employees of Chinese and American toy factories who are "waiting for notice".

On April 2, when a reporter from the Economic Observer asked the staff in the office building of the Sino-US toy factory to verify the "factory shutdown", the other party said that "there was no notice, I don't know". At the same time, she declined to be interviewed, citing no further contacts.

The reporter noted that Mattel mentioned the arrangement of the Chinese factory in the company's financial report.

On March 15, Mattel said in its 2023 Annual Report that on February 7, 2024, the company announced a long-term profit optimization program ("OPG Plan") aimed at further achieving efficiency and cost savings by optimizing its global supply chain. The program is a continuation of Mattel's Growth Optimization Program (the "OFG Program") launched in 2021.

Among them, the OPG plan includes the shutdown of the Chinese plant, which was not originally planned by OFG. According to Mattel, based on current projections, OPG plans to save the company about $200 million between 2024 and 2026.

Previously, Mattel also mentioned the shutdown of a Chinese factory in the "Third Quarter Report of 2023", and said that the relevant actions will be completed by the end of 2024, which is expected to save about $2.1 million in costs for the whole year. The actions will involve severance costs of $25.3 million, with total cash charges of approximately $30 million to $35 million.

Performance pressure

The Economic Observer reporter checked Mattel's 2021-2023 annual financial report and found that the company has been under pressure from declining performance since 2022, and has made adjustments in its development strategy in 2023 to promote the transformation of the toy business driven by "IP (intellectual property)". These include the restorative growth in performance brought about by the release of the Barbie movie, as well as the above-mentioned cost-saving programs.

Mattel's financial report data shows that its net sales in 2022 will be about US$5.435 billion, basically the same as the previous year, and its net profit will be about US$394 million, a year-on-year decrease of about 56%, and its net sales in 2023 will be about US$5.441 billion, and its net profit will be about US$214 million, a year-on-year decrease of about 46%.

On April 7, a retired person from the Guanyao Neighborhood Committee told reporters that in recent years, the flow of people on Fengyuan West Road, where the Sino-US toy factory is located, has decreased significantly, which will occur in 2019 and 2023. "The benefits used to be very good, but now it is not good, and it is not as good as a year. The retiree said that before the epidemic, there was a "wave of relocation" of factories in the local area, mainly due to rising labor and rents.

The work experience of a young general worker in a Sino-US toy factory also corresponds to the "decrease in the flow of people in 2023" described by the above-mentioned person from the Guanyao Neighborhood Committee. On April 7, the young general worker told reporters that after the Chinese New Year in 2023, he worked in the Sino-US toy factory for 8 months, during which the monthly income was only 2,000 yuan to 3,000 yuan, "(2023) Mid-Autumn Festival came back, I felt that the salary was too low, so I resigned and went to another electronics factory, with a salary of about 4,000 yuan."

A person in charge of a local toy manufacturer who has participated in the production of Bingdundun told reporters that the performance pressure in 2023 does not only exist in Mattel, but also in the entire toy industry. He believes that Mattel's status and performance are still leading in the global toy industry, and many domestic toy companies are still his "apprentices".

On March 28 this year, the "2024 White Paper on the Development of China's Toys and Juvenile Products Industry" released by the China Toys and Juvenile Products Association showed that China, as the world's main producer of toys, China's toy exports in 2023 will be US$40.57 billion, down 12.2% from the same period last year, but still at a historical high. Among them, exports to the United States were 10.13 billion US dollars, down 20.2% year-on-year.

On the other hand, a Bubble Mart (09992. HK) supplier sources told reporters that since 2021, some European and American customers have proposed to Chinese toy companies that "factories outside China must be built".

The supplier of the above-mentioned Pop Mart said that there are some large-scale enterprises that are executing, mainly going to Southeast Asia, but this is not a common situation in the industry.

Relatively low-end

The above-mentioned Bingdundun manufacturer told the Economic Observer that the consideration behind Mattel's adjustment of the production capacity of China's supply chain is that the company's market focus is in Europe and the United States, and it has no signs and actions to further cultivate the Chinese market.

According to the financial report data, Mattel's net sales in 2023 will be about $5.441 billion. Of this amount, approximately US$3.003 billion was in North America and US$331 million in the Asia-Pacific region.

The reporter checked on Mattel's official website that although the company has faced pressure on performance and transformation in the past two years, it has successively announced in early December 2022 that the Malaysian company, which has been operating for 40 years, and the Indonesian company, which has been operating for 30 years, are still expanding factories to increase production capacity.

A toy dealer who has been in the business in Guangzhou for more than ten years told reporters that he had sold Mattel's Barbie dolls many years ago, but later chose to give up the category because of its poor market sales.

"Mattel's Barbie dolls are more expensive, the price is 10 times that of China, they sell for 900 yuan (dolls), and our domestic similar products only sell for 90 yuan, and Barbie's image is relatively old, and now the market is changing rapidly, and some popular 'IP' are bursting for a while. He said that this may also be a common situation faced by many imported toys in the Chinese market, but this does not mean that the Chinese market is bad, "Lego has a very good response in China."

The above-mentioned distributors believe that this is related to the company's market strategy. In the past few years, the rise of domestic original model toys is also obvious, although it is not as phenomenal as the phenomenon of Xiaomi cars, but he believes that the logic behind it is similar. For example, the toy wholesale market in Wanling Square in Guangzhou is now almost dominated by domestic manufacturers. "The cost performance is very high, and in recent years, the secondary creation and accuracy have been greatly improved. The above-mentioned dealer said.

However, the above-mentioned Bingdundun toy manufacturers also said that the current domestic original toys are still in the initial stage, most of the products exported to Europe and the United States are still OEM production for customers, although there are also Chinese original products that have entered the North American market, but they are still a minority. "In general, the toy industry is relatively low-end and does not have a particularly high technology content, so Southeast Asia can catch it. He said.

So, is Mattel's adjustment plan industry-wide? The American Chamber of Commerce in South China's recently released "2024 Special Economic Report on the Economic Situation in South China" may be able to answer one or two questions.

According to the survey, 62% of the companies surveyed are optimistic about the prospects of the Chinese market, but in the section of manufacturing respondents, the proportion of companies that see China as their preferred investment destination fell again to 32% year-on-year. According to the report, this means that China's attractiveness as a manufacturing base has diminished in recent years.

However, the report also said that no company had chosen to withdraw from China entirely. It is worth noting that in the annual survey, the biggest challenge faced by the surveyed companies in South China was "fierce local competition", followed by "rising costs".