The External Factor Evaluation is what can be described as the external audit. The external audit consists of five categories. These categories are: economic factors; social, cultural, demographic, and environmental factors; political, legal, and governmental forces; technological factors; and competitive forces. The external audit is a tool that a firm can use to evaluate the opportunities and threats that can influence the performance of the organization.
Each of the categories has many variables that must be evaluated when conducting the external audit. The following are some of the variables from each of the five categories:
Demand shifts for goods & services
Social, Cultural, Demographic & Environmental
Per capita income
Location of manufacturing businesses
Political, Legal, and Governmental
Number of patents
World oil, currency & labor markets
Environmental protection laws
Increase speed to distribution
Ease of geographic markets
Once an analysis or audit has been completed then we can then quantify the results in what is known as the External Factor matrix. This report is then used to develop strategies to enhance their opportunities and threats.
According to the Datamonitor report, the number of children aged 0-9 is projected to grow by 5.4% during the period of 2005-2010. In addition, the 4-6 year old age group is expected to grow by almost 6% during this same period. As the company serves this demographic, the company could utilize these increases to improve upon its revenues (Datamonitor, Mattel, Inc. Publication Date January 2007).
Growing demand for toys in China
By the year 2010 it is expected that the demand for toys in China will increase by 40% annually and will reach $12.5 billion. Mattel, Inc. has a strong presence in China as well as maintaining manufacturing facilities within the country. By leveraging the growing demand for toys in China will increase the organization’s revenues and profits (Datamonitor, Mattel, Inc. Publication Date January 2007).
During 2006, Mattel acquired a manufacturer and marketer of electronic entertainment products, Radica Games (Radica). This organization includes electronic games carrying the Radica, 20Q and Play TV brand names. It also carries the Girl Tech brand name. Acquiring this firm will provide the organization the opportunity to partner its global brands as a result of Radica’s technological expertise in order to better participate in the electronic toy arena. (Datamonitor, Mattel, Inc. Publication Date January 2007).
New and improved products
After several years of disappointment, the U.S. toy industry is finally coming out of its slump with new products. The toy industry is now focusing on tailoring their products to the lifestyle of today’s kids. Mattel has introduced a few new products such as I Can Play Guitar and the Rainbow Adventure Elina doll. Another set of toys that has Mattel Brands Division President Neil Friedman proud of is that of the toys that helps fight child obesity. These toys include the Smart Cycle, a stationary bike for preschoolers that connects to the TV set and lets lids play games while they pedal (Business Week Online; February 13, 2007).
Environmental Health & Safety Issues
Worldwide environmental health and safety is a major concern for all organizations. Organizations must develop strategies to ensure that they operate with the health and wellbeing of the environment in addition to the employees and consumers are maintained. In order to maintain this environmental health and safety at a premium level, Mattel is committed to integrating environmental, health, and safety standards into their business operations. By incorporating these concerns into their business standards, it will help reduce risks and keep employees incident free. The organization is committed to continually improving the performance of its manufacturing plants in order to eliminate pollution to the environment. By working continually on finding ways to improve the environmental health and safety of the employees and the environment itself, Mattel will continue to be a world leader in the design, manufacturing and marketing of family products (http://www.mattel.com/about_us/Corp_Responsibility/cr_envi.asp).
The toy industry is a highly competitive industry. The competition in the industry comes primarily from the rpice, quality and play value of the products. The Mattel Brands US and Fish-Price Brands US segments are in competition with several large toy companies that include Hasbro, Jakks Pacific, Lego, Leap Frog, Bandai, and MGA Entertainment. There are other smaller companies that compete with Mattel including American Girl Brands. Mattel’s international segment competes with global toy companies including Hasbro, Lego, Tomy, and Bandai. In addition to these large companies, a few retailers have introduced toys under their own private labels. Mattel must develop a strategy in order to maintain market share in this highly competitive industry (Datamonitor, Mattel,Inc. Publication Date January 2007).
Economic slowdown in US and Europe
The toy industry is highly dependent on consumer spending trends. When the consumer views that they have fewer discretionary dollars to spend, the toy industry suffers. According to the Organization for Economic Cooperation and Development (OECD), the GDP growth is expected to slowdown in 2007 in the US and in Europe. The GDP is expected to slow down to 3.1% in 2007, while the GDP growth in the Eurozone is forecasted to decline to 2.1% in 2007. The reduction in consumer spending and the increase in interest rates in both the US and the Eurozone will have a direct effect on the revenues of the company (Datamonitor, Mattel, Inc. Publication Date January 2007).
Growing popularity of computer and video games
Computer and video games are continually increasing in popularity especially among children. Children have replaced the traditional toys such as dolls and board games with computer and video games as a way of spending their leisure time. In 2005, sales of computer and video games reached approximately $7 billion in the US. Sales are expected to reach $11 billion in 2006. On average, every household has two video games in the US. It is forecasted that in 2006, 42% of the Americans will purchase video games. With the increase popularity for computer and/or video games, organizations should develop a strategy to market to these households and earn their trust as a customer. By developing a solid strategy to market to these individuals, the organization will gain competitive advantage and will increase their market share (Datamonitor, Mattel, Inc. Publication Date January 2007).
External Factor Matrix
Key External Factor
Growing Demand for Toys in China
Key External Factor
Economic Slowdown in US and Eurozone
Growing Popularity of Computer and Video Games
Looking at the weighted score of the opportunities and threats that Mattel, Inc. faces it can be said that the organization has developed strategies that handle these external factors comparative to their competitors. However, there is room for improvement. One area that Mattel could change their strategy is that in the area of acquisitions. Although Mattel has acquired Radica, but the corporation should develop strategies that will allow them to acquire other firms which will help them gain competitive advantage in the toy industry. Another external factor that Mattel should place more focus on is that of the popularity of computer and video games. In a world where technology plays an important role in the lives of all individuals, including children, Mattel should develop further strategies that will capitalize on the technology and will help gain more brand loyalty with their products.
David. Fred. B. Strategic Management Concepts Tenth Edition. 2004. Pearson Prentice Hall. New Jersey.
Datamonitor. Company Profile: Mattel, Inc. January 2007. Accessed 15 May 2007. http://ezproxy.strose.edu:2058/ehost/pdf?vid=11&hid=103&sid=a7be1f85-b0ab-4f8d-b4be-d498014199c9%40sessionmgr106.
Mattel, Inc. website. Accessed 15 May 2007. http://www.mattel.com
Palmeri, Christopher. Happier Times in Toyland. Business Week Online. 13 February 2007 p9-9. Accessed 16 May 2007. http://ezproxy.strose.edu:2058/ehost/delivery?vid=7&hid=1037sid=a7be1f85-b0ab-4f8d-b…