Finance Manager

MATTEL, INC.

ENVIRONMENTAL ANALYSIS

October 26th, 2005

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Mattel, Inc. designs, manufactures, and markets a broad variety of toy products worldwide through sales to retailers and wholesalers and directly to consumers. Mattel's vision is to provide "the world's premier toy brands - today and tomorrow."(11)

Mattel's reportable segments are separately managed business units and are divided on a geographic basis between domestic and international. The Domestic segment develops toys that it markets and sells through the Mattel brands US, Fisher-Price Brands US and American Girl Brands segments. Products marketed by the International segment, with the exception of American Girl Brands, are generally the same as those developed and marketed by the Domestic segment, although some are developed or adapted for particular international markets. Mattel's products are sold directly to retailers and wholesalers in Canada and most European, Asian and Latin American countries, and through agents and distributors in those countries where Mattel has no direct presence. (11)

Mattel manufactures toy products for all segments in both company-owned facilities and through third-party manufacturers. Products are also purchased from unrelated entities that design, develop and manufacture those products. To provide greater flexibility in the manufacture and delivery of its products, and as part of a continuing effort to reduce manufacturing costs, Mattel has concentrated production of most of its core products in company-owned facilities and generally uses third-party manufacturers for the production of non-core products. (11)

Mattel's business is very competitive and highly seasonal, with consumers making a large percentage of all toy purchases during the traditional holiday season, which occurs in the third and fourth quarters of their fiscal year. Through its product design and development group, Mattel regularly refreshes, redesigns and extends existing toy product lines and develops innovative new toy product lines for all segments. Additionally, independent toy designers and developers bring concepts and products to Mattel and are generally paid a royalty on the net selling price of products licensed to Mattel. (11)

ENVIRONMENTAL ANALSIS

Managers that want to take advantage of the opportunities created by changing global political, legal, social, and economic forces face a major challenge. If an organization manages the forces in its general and specific environments effectively, so that it obtains the resources it needs, its domain will grow as it attracts new customers and produces more goods and services. If an organization manages the forces in its general and specific environments poorly, stakeholders will withhold their support, the organization will not obtain scarce resources, and the organization's domain may shrink. (37). Following is an analysis of the general and specific factors affecting the toy industry, specifically Mattel, Inc, in today's environment.

GENERAL ENVIRONMENTAL FACTORS:

Economic Condition

Mattel reported disappointing third quarter results. Worldwide double digit sales increases from Girls Brands including; Polly Pocket, Little Mommy, Disney Cinderella and Teen Trends were dampened by the overall decline in sales of the company's signature Barbie® brand.

The company has also been plagued by slow sales growth in the retail sector. Compounding the problem is the high cost of manufacturing, which is primarily due to the rise in global oil prices. Additionally, since most toys are petroleum based, Mattel is expending capital to research alternative safe materials.

Mattel has not been affected by inflation in the U.S. and other foreign countries as much as other companies have. The company "gets some protection from the impact of inflation from high turnover of inventories and its ability under certain circumstances to pass on higher prices to its customers."(13)

International

Mattel Inc. is the worldwide leader in the design, manufacture and marketing of a broad variety of toys and family products.

The company has manufacturing facilities in China, Indonesia, Thailand, Malaysia and Mexico. Mattel also manufactures products through third-party manufacturers in the U.S., Mexico, Asia Australia and Europe. The company produces many of its key products in more than one facility to avoid disruption due to policy instability, civil unrest, economic instability changes in government policies and other risk. The company employs more than 25,000 people in 42 countries and sells products in more than 150 nations throughout the world. (11)

Mattel's overseas manufacturing companies are based principally in countries that have "normal trade relations -NTR" with the US, China, Indonesia, Thailand, Malaysia and Mexico.

As Mattel extends it global reach, it has had to adopt strategies to gain acceptance and a foothold in these various markets around the world. For example, Mattel sells the toy "souk' in addition to its globally appealing Pokemon, Harry Porter, and Mickey Mouse brands in India. Harry Potter has been a great hit, a testament to its global appeal and ability for children to relate to the characters since many have either read the novel or seen the movies.

Mattel has also had to establish partnerships and business relations to ease themselves into different markets. In India, Mattel consults with Harish Bijoor Consultant, Inc. on marketing issues and industry matters, and partners with Funskool. As a result of this partnership with Funskool, Mattel has observed a surge in the number of children coming to its outlets and sales have increased considerably. Mattel has also signed an agreement with an Indian shirt company in India to manufacture and market Hot Wheels products. (14)

Legal

Like all businesses in today's environment, Mattel is involved in the legal system on both sides. They often are in defense of their product and intellectual property. Management believes that any