'Made in China' has become a red flag

By Rachel Beck | The Charlotte Observer
August 18, 2007

The first Barbie dolls to hit the market in 1959 cost $3 each. Today, the fashion doll won't set you back much more than that. That's the economics of the toy business. Consumers demand low prices. Toymakers want fat profits. So manufacturing ambled off to China, which for a long time has been willing and able to please both.

Now a massive toy recall by Mattel Inc. reveals an ugly side to that cost-cutting drive. The sacrifice of safety just to provide cheap toys is something for which everyone will have to pay.

The slogan "Made in China" has long stood for affordability. Thanks to the dramatically lower labor costs that China offered -- estimated by some to be a fifth of what they are globally -- toymakers could knock down their expenses by shifting production abroad.

That has boosted corporate earnings and helped them gain shelf space in retail chains such as Wal-Mart Stores Inc. that insisted on low prices for the products they bought. The merchants could then offer good deals to price-conscious shoppers, without losing any profits.

The result is an industry that hasn't seen its products' prices soar much. The prices of many toys today, when adjusted for inflation, may be less expensive than those decades ago, even though such things as raw material costs -- like paper and plastic -- have skyrocketed, according to independent toy industry consultant Chris Byrne.

"We can't have ever-decreasing prices without something eventually being squeezed," Byrne said.

That squeeze is what has been grabbing headlines lately.

As millions of China-made toys have been recalled, suddenly Americans have become very aware -- and scared -- of the risks of manufacturing there.

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