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Latest Tech Breakup: Disney Leaves Chinese Toymaker at the Altar

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Dongguan dropped over labor scandal

Walt Disney (DIS) has eliminated Dongguan Qing Xi Juantiway Plastic Factory from its list of manufacturing partners. Dongguan, a Chinese company that makes toy products featuring Disney characters, has been embroiled in labor violation issues for years, and all efforts to make it fix its problems have failed. Now Disney feels that it can no longer keep Dongguan in its select network of character producers.

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Initially, a New York-based non-profit group, China Labor Watch, raised an alarm over Dongguan’s labor practices. Disney talked to Dongguan about the issues, which concerned hiring and other human resources problems. But since last year, Dongguan has done nothing to rectify the situation, despite its commitment to improving labor standards.

Apparently, Disney now sees that its own reputation will be at stake if it continues to do business with a partner whose employment profile has fallen short of expectations.

Another partner put on notice

But Dongguan isn’t Disney’s only partner with unpleasant labor issues—Disney has also put Lam Sun Toy on notice. Problems at Lam Sun have included inadequate record-keeping, human resource practices, and health and fire safety concerns. Disney has given Lam Sun time to fix these problems, but failure to follow through will mean the loss of the latter’s rights license.

Notably, Disney has a team that monitors the labor practices of its overseas partners to ensure that they comply with sound labor requirements.

Pressure to grow revenue

Interestingly, Disney is getting tough on its partners at a time when the company’s leadership is under serious pressure to grow revenues. The company’s fiscal 4Q16 results disappointed as its cable networks business, including operations like ABC and ESPN, has been rattled by cord-cutting trends. The rise of online video streaming services offered by brands such as Amazon.com (AMZN), Netflix (NFLX), Sony (SNE), and Alphabet (GOOGL) has been stealing subscribers from traditional pay-TV providers like Disney.

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