An interesting editorial from Shih-Fen S. Chen of the Richard Ivey School of Business at the University of Western Ontario (Don't bash China for the failure of U.S. toy makers). Barring some sort of fraud or other corrupt practices it seems that Mattel chose profits over quality -- which really shouldn't surprise anyone. That is after all a publicly traded corporation's primary role -- to maximize shareholder value.
Manufacturers like Mattel outsource for one reason only -- to increase profits by reducing operating costs (labour arbitrage, lower infrastructure costs, etc.). Their failure to manage quality through the supply chain lies solely with them. Mattel chose to ignore its responsibility and should now quite rightly pay the consequence.
This is where an adequate regulatory framework is needed to ensure that corporations do not abdicate their civic responsibilities through outsourcing. Many U.S. states (and hopefully soon Canadian provinces) have begun imposing stricter environmental regulations. It will be interesting to see if outsourcing enables corporations to avoid these responsibilities as well. Let's hope not.