Mattel's recall of some 20 million toys last year highlighted that the old supply chain had changed. About 65 per cent of Mattel's toys are made in China, where about 50 per cent of Mattel's production is produced in company-owned plants. But apparently, the controls were not strict enough, particularly when it came to overseeing Mattel's rogue subcontractors. In a globalized economy, companies now need to be be in charge of the supply chain, regardless of whether they own it or not.

Dr Victor K Fung and William K. Fung from the Li & Fung group explain the new rules in their piece Competing In a Flat World.

Multinational companies, they say, need to learn how to get their supply chain to compete against others and encourage entrepreneurship. That's whether they own it or not. They need to have them working to three year plans built around stretch goals. They need to build the entire chain around the customer. In terms of equity, they should try and gain about 30 per cent of the business, but no more than 70 per cent.

Whether that's enough to bring sub-contractors into line remains to be seen. But it does at least give the company more control over the process.