Knowledge at Wharton

Mattel’s recall of more than 10 million toys in the U.S. over the past three weeks has done more than focus attention on the company’s wide array of products which include such household names as Elmo Ernie Big Bird Barbie and Batman. It has also further raised public awareness of quality control problems in China and the relentless push to cut costs along every step of the supply chain. Knowledge at Wharton looks at Mattel’s response to the crisis its potential liability and the consequences for China.

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On August 1 Mattel recalled approximately 1.5 million toys made by a manufacturer in China because of dangerous levels of lead in their paint. Four days earlier the Chinese government ordered the country’s banks to increase their reserves as part of an effort to cool down its red-hot economy. But quality concerns and rapid growth aren’t China’s only worries. There is also the government’s need to keep forging ahead on preparations for the Olympics next August in Beijing despite criticism about overdevelopment and unsafe levels of pollution. Knowledge at Wharton asked management professor Marshall Meyer for his perspective on these issues.

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Producing a feature-length motion picture is a daunting task especially if you do it without the support of a major studio using money you have raised yourself. But according to independent filmmaker Lance Weiler ”the real struggle” comes after the film is completed. Distributing a theatrical feature -- and doing so profitably -- poses an even greater challenge. As Weiler noted during a recent interview with Knowledge at Wharton ”making the film is easy in comparison.” Yet Weiler believes he has a solution. By expanding the movie into an interactive theatrical event Weiler has carved out a niche that he believes offers an economically viable model for independent cinema.

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The secret to long-term CEO success according to David Nadler is conceiving of a CEO’s tenure as a performance with a series of distinct acts. ”Each act requires the CEO to lead think and behave in fundamentally different ways. The successful ones are those who are able to make the transitions ” says Nadler a consultant to boards and senior executives who spoke during the recent 11th annual Wharton Leadership Conference. The theme of the conference sponsored by the Center for Leadership and Change Management the Center for Human Resources and Wharton Executive Education was ”Developing Leadership Talent.”

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This spring World Bank president Paul Wolfowitz was forced out after being accused of arranging a big raise and promotion for a woman with whom he was having a relationship. As anyone who works in an office knows though favoritism isn’t confined to love and sex: Family relationships and close friendships can upset co-workers’ sense of fairness too and end up undermining an organization’s performance. What’s the solution? There’s no one answer according to Wharton faculty and other experts but companies would be well-advised to keep their rewards systems transparent and to have clear policies regarding conflicts of interest.

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Prediction markets where people bet on everything from the likelihood that a movie will be a hit to the chance that a politician will become president to whether the stock market will go up or down are in vogue. But because prediction markets have to be managed they aren’t always the ideal way to get information. Wharton professors Albert Saiz and Uri Simonsohn have found a cheaper way to deliver some of the same benefits. It’s called an Internet search. The two professors argue in a new paper that the likelihood that a topic is discussed online in relation to a given location correlates with its relative prevalence in the real world.

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Fast-growing social networking site Facebook and mobile messaging service Twitter didn’t introduce break-through technologies but they have become phenomenal success stories nonetheless. Increasingly ”web 2.0” companies like these are altering the traditional venture capital formula which used to count technology differentiation as a key requirement when evaluating new targets. In many cases technology has become a commodity but a big idea can go a long way provided there’s a rapidly growing audience. As VC firms look for new investments several questions come into play: How should companies be evaluated when they rely on technology that is easily replicated? How much value does a big audience carry? What is the preferred exit strategy? Wharton faculty and VC experts weigh in on these and other questions.

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In June a high-profile Supreme Court case held the attention of retailers and manufacturers alike. In a five-to-four ruling the high court overturned a lower-court decision to award $1.2 million to a Dallas-area clothing store that was cut off by a supplier Leegin Creative Leather Products because the retailer refused to abide by the manufacturer’s retail price maintenance (RPM) or no-discount policy. The decision means that manufacturers no longer face a blanket prohibition against implementing an RPM policy. The case has spurred concern among consumer groups who claim it overturns a century of precedent and will lead to price fixing and unjustifiably higher prices. But Wharton faculty suggest that any changes will be gradual and may ultimately benefit consumers.

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U.S. stock markets are in a tizzy. The Dow Jones Industrial Average plunged 311 points on July 26 and most media companies interpreted this to mean the end of the buyout boom. Buyout firms such as the Fortress Investment Group and the Blackstone Group were hit especially hard. How long will the turmoil continue? Could the trouble spread overseas to international markets? What is the right strategy for investors in these times? In an update to the podcast that Knowledge at Wharton published on July 25 Wharton finance professor Jeremy Siegel offers his insights on these questions. In the earlier podcast he discussed the continuing crisis involving sub-prime housing loans and other issues -- including economic growth in China and the impact of the strong Indian rupee -- with Knowledge at Wharton.

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Recent media reports detailing a series of quality problems with Chinese-made exports -- pet food tainted with prohibited chemicals toys covered with lead paint and tires that fall apart at high speed -- have alarmed the American public and resulted in a number of international product recalls. In this opinion piece Paul Midler founder and president of China Advantage  a services firm that provides outsourcing and supply chain management to U.S. and European companies discusses what he calls ”quality fade” and a number of related challenges that face Chinese manufacturing.

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